TaxProf Blog

Saturday, May 1, 2004

Stephen Shay (Ropes & Gray) has posted Exploring Alternatives to Subpart F on SSRN. Here is the abstract:

This paper considers possible changes to the subpart F rules that would be intended to achieve a balance between deferral for a controlled foreign corporation’s active business operations and current taxation in circumstances where a controlled foreign corporation earns passive income or uses tax havens or base company techniques to erode the tax base of countries where economic activity actually occurs. While the discussion is in terms of the U.S. rules, the basic principles could be applied by the increasing number of countries that have adopted foreign controlled company rules that trigger current taxation of the company’s income in the hands of a resident.

The paper begins with a description of the existing U.S. rules for taxation of foreign income relevant to the following discussion, with particular reference to the subpart F anti-deferral rules. In order to highlight the current subpart F rules’ technical deficiencies, the paper then reviews some of the “plain-vanilla” planning techniques used to avoid subpart F. Without endorsing any proposal, the paper next considers alternatives that would in differing respects address these deficiencies. While the author would prefer to see a more systemic approach that would broadly eliminate the deferral privilege, the conclusion of the paper is that there are potential reform proposals that likely would be an improvement over current law. These proposals at least should be considered as part of the ongoing debate over the future of subpart F.

Friday, April 30, 2004

Oliver Houck (Tulane) has posted On the Limits of Charity: Lobbying, Litigation, and Electoral Politics by Charitable Organizations under the Internal Revenue Code and Related Laws on SSRN. Here is the abstract:

This is a history and an examination of the policies underlying the three major restrictions on political activity by public charities: lobbying, litigation and electoral politics. These restraints have been in evolution, and dispute, for nearly a century. They represent no grand plan, but, rather, a design arrived at in pieces by impulses of the moment and supported by rationales that seem increasingly thin. As the dust has settled, we have something of a hierarchy of ineffectiveness in political life, with educational activity unrestricted, litigation lightly restricted, lobbying limited in amount and manner, and campaign work permitted only, and within limits, to companion social welfare organizations. This hierarchy does not jibe easily with the high premium placed on political speech, nor the unique perspectives that chariticable organizations can bring to the marketplace. The article suggests a re-examination of the reasons for the restrictions and their redesign based on the issues, and fears, that seem to be in play.

Thursday, April 29, 2004

To mark its 50-year anniversary, the Journal of Taxation is publishing a series of special articles:

Philip Jones, Tax Court Discovery and the Stipulation Process: Branerton 30 Years Later (Jan. 2004)

Richard Lipton & Steven Dixon, When Is a Partner Not a Partner? When Does a Partnership Exist? (Feb. 2004)

David Forst, Often Overlooked and Mostly Unresolved Issues in International Partnerships (March 2004)

John Huffaker & Edward Kessel, How the Disconnect Between the Income and Estate Tax Rules Created Planning for Grantor Trusts (April 2004)

Alvin Lurie, How Tax Shelters Evolved: The Road From Crane Has Been Paved With Bad Contentions (May 2004)

Steven Frost & Sheldon Banoff, Square Peg, Meet Black Hole: Uncertain Tax Consequences of Third Generation Limited Liability Entities (June 2004)

Thursday, April 29, 2004

Allan Samansky (Ohio State) has posted Deductibility of Contributions to Religious Institutions on SSRN. Here is the abstract:

In Hernandez v. Commissioner, 490 U.S. 680 (1989), the Supreme Court held that payments by Scientologists to their local churches for auditing and training, which are required religious practices, were not deductible as charitable contributions because they were made in exchange for specific services. Four years later the Internal Revenue Service “walked away” from its victory. Since 1993 the IRS has allowed a deduction for payments that are identical to those the Supreme Court held to be nondeductible in Hernandez, but has never explained its rationale. As Sklar v. Commissioner, 282 F.3d 610 (9th Cir. 2002), has shown, adherents of mainstream religions are now claiming that they are being treated unfairly compared to the Scientologists.

The law concerning deductibility of charitable contributions to religious institutions is unclear. This article explores the issues raised by Hernandez and provides a framework for determining deductibility of “quid pro quo contributions.” It recommends that payments for auditing should be deductible, but payments for training should not be. The failure by all those involved in the Hernandez litigation to distinguish between auditing and training may be one of the reasons that the Supreme Court decision has been so unsatisfactory.