Paul L. Caron
Dean
Pepperdine Caruso
School of Law
Monday, June 7, 2004
This weekend’s TaxProf Blog posts:
Saturday
• Tax Prof Spotlight: Ellen Aprill
• Guest Blogger Schwidetzky on European Ass’n of Tax Profs Conference
• Big Four Accounting Firm’s PowerPoint Presentation Offers View of Seamy Side of State Tax Incentives
Sunday
• PBS and Tax Profs Take Aim at Tax Shelter “SILOs”
• Tax Prof Finalist for “Law Prof Hunk” Award
• Top 5 Tax Paper Downloads
Sunday, June 6, 2004
The PBS News Hour on Friday had a segment called Taxes at the Top (available in both audiotape and transcript formats) on a new breed of tax shelters called “SILOs” (“Sale-In, Lease-Out”). The segment re-aired part of a Frontline program on tax shelters, Tax Me If You Can, originally broadcast February 19 (also available in both audio tape and transcript formats). Both programs feature Tax Prof Joe Bankman (Stanford).
What is a SILO? Here’s a good example from Forbes:
A typical deal works something like this. A subway authority owns a rail car. A corporation buys the car from the authority for $100,000 and then leases it back to the subway authority for 15 years, with a buyout option at the end of the lease. The authority invests enough of the $100,000 to cover lease payments and the buyout, typically pocketing 6%. The transit authority now has cash it wouldn’t otherwise have and the corporation can claim valuable tax benefits, including depreciation deductions and interest deductions, as “owner” of the train car. (Those tax benefits would have been useless to the not-for-profit.) Of course, the $6,000 cash that the tax-exempt gets pales in comparison to the tax benefits accrued to the corporate buyer.
Victor Fleischer (UCLA) offers some thoughts on how Tax Profs can use SILOs in class:
I taught a class hour on this topic earlier this year based on a term sheet I found on the web from the LA transit authority. What struck me were the huge transaction costs – about $8 million on a $100 million deal. Most of these fees went to the promoter, although the lawyers did okay too. (LA got some needed transit financing; Philip Morris got rid of some tax liability.)
At the end of the hour, I asked the students how they would have voted if they were on the City Council asked to approve the deal as proposed by the LA transit authority. Most of the students voted in favor of entering the deal. I guess all tax shelters, like politics, are local.
Calvin Johnson (Texas) disagrees with the UCLA students:
Your students should have voted the other way, and not because of any politics. The implicit tax on municipal bonds is under 10% these days and since muni bonds compete with SILOs, to the investor that indicates that SILOs are running with an implicit tax of under 10%. Philip Morris is saving tax at 35% and giving up say 8.5% to LA. So 3/4 of the cost is wasted.
Ask your students if it were their money so wasted, what would they do? Would they pay $100 so LA transit can get $25? And indeed it is their money that is being so wasted. They are paying it.
I am of course am too old to worry about paying it, so I object to such waste in government money only on ideological grounds.
For a great story on SILOs (also featuring Joe Bankman!), see Helter Shelter in the December 2003 American Lawyer. See also Gimme Shelter on the PBS web site.
Friday also marked the close of balloting in the “Law Prof Hunk” contest run by Tax Prof Jack Bogdanski (Lewis & Clark) as “a statement, however small, about the silliness of the many ‘best of’ lists that now surround the practice of law and the legal academy” (such as LawTV’s current search for the “The Law Prof 100“). After I joked in a Tax Prof Undressed post that I hoped LawTV would not make its decision based on a swimsuit competition, and later noted that Professor Bogdanski would fare well in such a contest in light of the picture on his blog of him walking on the beach with his 3-year old daughter, traffic flooded to his site as the joke spread in the blogosphere (e.g., Topless Tax Prof Teases Students, Topless Tax Prof: For Law Students and Mature Law Professors).
Professor Bogdanski received 16 nominees for the “Law Prof Hunk” award. (The contest originally included included “Hunk” and “Babe” categories, but he dropped the latter after receiving several complaints.) To ensure that votes were cast purely on the basis of physical attributes, and were not influenced by scholarly or teaching reputations, nominees were listed by number with an accompanying photograph without revealing their name or school affiliation. As America awaits the results of the election, I can now reveal that at least one of the 16 nominees is a Tax Prof. Can you guess which one? Hint: it is not, as you might think, #10. Lest you wonder if this is an attempt at shameless self-promotion, in the interest of full disclosure I offer this picture of me taken during my summer stint in San Diego so you can see that I look nothing like any of the 16 nominees.
Sunday, June 6, 2004
This week’s list of the Top 5 Tax Paper Downloads on SSRN is identical to last week’s:
1. Corporate Tax Avoidance and High Powered Incentives by Dhammika Dharmapala (Connecticut – Economics Department) & Mihir Desai (Harvard Business School)
2. The New Dividend Puzzle by William Bratton (Georgetown)
3. Masking Redistribution (or its Absence) by Jonathan Baron (Penn – Wharton) & Edward McCaffery (USC)
4. Evidence of Differing Market Responses to Meeting or Beating Targets Through Tax Expense Management by Cristi Gleason (Iowa – Dep’t of Accounting) & Lillian Mills (Arizona – College of Business & Public Administration)
5. Keeping Two Sets of Books: The Relationship Between Tax & Incentive Transfer Prices by Charles Hyde (Unviersity of Melbourne) & Chongwoo Choe (Australian Graduate School of Management)
The Hyde & Choe paper will drop from the list next week because it will fall outside the 60-day measurement period, so there will be at least one new paper in the Top 5 next week
Saturday, June 6, 2004
Ellen Aprill, John E. Anderson Professor of Tax Law at Loyola-L.A., already has had the type of career trajectory that us mere Tax Prof mortals can only dream about.
She came into the academy with as strong a tax background as possible:
• Phi Beta Kappa undergrad (Michigan), advanced degrees (M.A. & C. Phil, UCLA), and honors graduate and articles editor (Georgetown)
• Court of Appeals (4th Circuit Judge Butzner) and Supreme Court (Justice White) clerkships
• Associate at prestigious law firm (Munger, Tolles & Olson (Los Angeles))
• High-level government service (Office of Tax Policy, Treasury Department)
In her 14 years as a tax academic, Professor Aprill has continued this record of achievement with an amazing display of scholarly creativity and productivity, dedicated teaching, and leadership within the academic, professional, and civic communities.
On the scholarship front, her recent pathbreaking report for the ABA Tax Section, Report of the Task Force on Judicial Deference (with Linda Galler & Irving Salem), offers thoughtful recommendations on a crucial issue that has bedeviled the IRS, courts, academics, and practitioners for decades. Professor Aprill wrote one of the earliest and most influential articles in this area, “Muffled Chevron: Judicial Review of Tax Regulations,” 3 Fla. Tax Rev. 51 (1996).
She brings this same creativity and energy to her students: “Tax appeals to me because it asks both the biggest questions and the smallest. On one hand, the tax law codifies our social values and priorities. On the other, the tax code is a kind of puzzle, a set of interlocking rules. I try to convey to my students the joys and challenges offered by each of these aspects.”
Professor Aprill was the founding director of Loyola-L.A.’s graduate tax program, which now ranks among the nation’s Top 10 tax LL.M. programs. She has parlayed that experience into being a driving force behind the creation of LexisNexis’s Graduate Tax Series of course materials to be available beginning in Fall 2005.
Professor Aprill is a former chair of the AALS Tax Section and currently serves in a variety of leadership positions, including:
• Member, Council of Directors, ABA Tax Section
• Member, American Law Institute
• Fellow, American College of Tax Counsel
• Member, Academic Advisory Board, Tannenwald Foundation for Excellence in Tax Scholarship
• Member, Board of Advisors, National Center on Philanthropy and the Law, NYU
• Chair, Planning Committee, Western Conference on Tax-Eexempt Organizations
Professor Aprill also is actively involved in the Los Angeles Jewish community. She is
the immediate past president of Temple Israel of Hollywood and a current vice-president of the Pacific Southwest Region of the Union for Reform Judaism.
Professor Aprill notes that she “went to law school after doing graduate work in Renaissance English literature and found, somewhat to my surprise, that working to understand the Internal Revenue Code calls for many of the same skills as working to understand great works of poetry: careful attention to the meaning, context, placement, and implication of the words on the page and questions about what factors to consider in interpreting the language. Tax law, however, offers not only intellectual challenge, but also the opportunity to solve practical problems and influence policy. To my joy, I have found that tax lawyers both inside and outside the academy relish thinking and talking about tax on all these levels.”
She shares her love of tax and the academy with her family: she is married to a tax lawyer, one stepson is also a tax lawyer, and her other stepson is a professor of medieval history. She is a doting “Nona” to Sam, Johanna, Nelson, and Ghita.
Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America’s law schools. We hope to help bring the many individual stories of scholarly achievements, teaching innovations, public service, and career moves within the tax professorate to the attention of the broader tax community. Please email me suggestions for future Tax Prof Profiles. For prior Tax Prof Profiles, see here.
Saturday, June 5, 2004
Guest blogger Walter Schwidetzky (Baltimore) reports on the Paris meeting of the European Association of Tax Professors (see prior post here):
Let me start by saying that I am typing this on a French keyboard, which is quite different from a US one, so bear with me.
I started the conference by going to the wrong place, the French Senate (where tonight’s dinner is being held).T hey were very nice and got me to the right place. Today’s meeting is at the Sorbonne in an amazing room. Cardinal Richeliou looks down from the front, Descartes from the side and Mollier from the back. The seats are also amazingly uncomfortable.
In mant ways Europe is where the US was before the Civil War. Most of the power is in the member states and the EC IS trying to figure out how much power to give to the central authority. The European Court of Justice is fairly powerful within its domain, and can force a state to change its tax laws if they are discriminatory (French taxed higher in Germany than Germans) and also if they contain “restrictions” (forcing the French in Germany to use a German accounting system…not discriminatory as such, but it gets in the way of a unified market). Those were two of the main topics today, ie when those two sets of rules can apply. It was fairly apparent that civil law professors were more uncomfortable with the power of the ECJ than the Brits, since the ECJ is really developing common law and has a lot fo power, not things the civil law profs are that accustomed to.
Saturday, June 5, 2004
Following up on Monday’s post, Do State Tax Incentives Work?, Ernst & Young’s brazen PowerPoint presentation, Turning Your State Government Relations Department from a Money Pit into a Cash Cow, has made it onto the web via the Carolina Journal (a North Carolina-based business publication).
Ernst & Young delivered the PowerPoint presentation at a recent meeting of the State Government Affairs Council, which bills itself as “the premier national association for multi-state government affairs professionals of over 120 major US corporations, trade associations and service providers.” Ernst & Young made the pitch to a who’s who of leading companies — Alcoa, Anheuser-Busch, Bank of America, Bayer, BellSouth, Best Buy, Capital One, Coors, Goodyear, Home Depot, MBNA, Microsoft, Nextel, Nissan, Pfizer, Toyota, Verizon, and Wal-Mart.
Ernst & Young acknowledges that taxpayers don’t like corporate welfare but suggests ways to “provide government with justification” for giving tax incentives to businesses. A key strategy is to identify “public benefits” while making a threat of dire consequences if the deal is not made. At the same time, the PowerPoint presentation suggests techniques to prevent states from rescinding the tax incentives if the promised public benefits do not materialize.
Ernst & Young holds out the recent Boeing-Washington state deal as the model. Faced with Boeing’s threat to move manufacturing jobs out of state (following the relocation of its corporate headquarters to Chicago), Washington ponied up almost $4 billion in tax incentives. Yet, as the Evergreen Freedom Foundation notes, Boeing since has shed more than 4,200 jobs in Washington. But the deal stipulates that “the state shall not suspend, revoke, or require repayment” of the tax incentives, no matter what Boeing does on the jobs front. The deal even requires Washington to “assume the entire defense” for any legal challenge to the $4 billion package, including “all fees, costs and expenses”!
(Thanks to reader Ben Cunningham for the tip.)
Friday, June 4, 2004
Eugene Steuerle has posted The Incredible Shrinking Budget for Working Families and Children on the Tax Policy Center web site. Here is the opening:
Programs for working families and children are scheduled to shrink rapidly over the next few years, squeezed between rising expenditures on programs for the elderly and declines in tax revenues. This scenario will play out even if only modest defense and international needs are factored into the division of federal funds. Temporary deficit financing can delay the day of reckoning very little, since borrowing against the future only compounds today’s problems.
Of course, policymakers aren’t likely to zero out all spending on working families and children. They could instead revamp elderly programs, reform taxes, or do both. But here’s the rub: programs for the politically disadvantaged wear stone slippers in the dance of budget legislation. Put another way, programs for families and children do not receive the large, automatic, built-in growth of many elderly programs or the automatically growing costs of many tax breaks.
Friday, June 4, 2004
To follow up on recent posts about tax and religion:
• Effect of Colorado Catholic Diocese’s anti-Kerry Letter on its tax exemption (here and here)
• Whether Unitarians constitute a religion for Texas tax purposes (here and here)
Here are some recent developments:
• U.S. Churches Cautious on Politics to Keep Tax Exemptions on NPR’s All Things Considered, featuring reader Steven Sholt (Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.)
• Bush Campaign Seeks Help from Congregations, NY Times, June 3. Ellen Aprill (Loyola-L.A.) raises an interesting question:I know from personal experience as president of my synagogue that congregants feel free to distribute material to other members, even after they have been told not to (in our case, the material consisted of fliers for a business put on cars in the parking lot). Assume for a moment that a congregant distributes Bush campaign political material without the endorsement or permission of the church. What do you all think that the church must do or should do in response?
Friday, June 4, 2004
The UCLA Law Review has issued a Call for Papers soliciting submissions for a symposium on “Taxation, Inequality & Redistribution.” The symposium editors seek to bring together leading scholars and policymakers interested in the role of tax policy in addressing inequality and redistribution. Relevant empirical, institutional and theoretical research will be considered. The symposium will be held on January 28, 2005 at UCLA. Selected papers will have two or more discussants and will be published in a special issue of the UCLA Law Review in 2005.
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