Paul L. Caron
Dean
Pepperdine Caruso
School of Law
Thursday, May 20, 2004
Today’s NY Times has a blistering op-ed (Budget Madness) on the tax components of the budget bill. A sample: “This compromise is a bad election-year joke. Turning large, expensive chunks of the tax code into year-by-year renewals is no way to do tax policy.”
Thursday, May 20, 2004
David Schizer (Columbia) has posted Scrubbing the Wash Sale Rules on SSRN. Here is part of the abstract:
….The wash sale regime of Section 1091 is one of our system’s most important brakes on the timing option. In broad outline, this regime defers a taxpayer’s deduction when she sells a position at a loss and, within a specified period of time, acquires an economically similar position. Yet the wash sale regime is quite old, and the recent bear market has further exposed its frailty. Indeed, it is only a slight exaggeration to say that compliance with the regime is voluntary for very wealthy taxpayers – or, at least, for those who are willing to take aggressive positions.
In response, this article flags seven glitches in the regime that, at least arguably, permit “perfect end runs.” This article also takes a more controversial position: Losses should still be deferred – even when taxpayers make meaningful changes in their economic position – as long as they keep material elements of their old return. This article offers two justifications for this broad loss deferral. First, under the “parity” goal, it should be difficult to accelerate losses because it is so easy, under current law, to defer gains. Put another way, since modest economic changes do not trigger gains, they should not trigger losses either. Second, under the “effectiveness” goal, the regime should be sufficiently tough that taxpayers actually give up on tax-motivated loss harvesting, instead of merely pursuing this planning in a more sophisticated way.
Thursday, May 20, 2004
The Tax Policy Center (a joint venture of the Urban Institute and Brookings Institution) has released four distributional analyses of the House-passed tax cuts:
• AMT
The National Tax Association holds its 34th Spring Symposium on Tax Policy in Transition on Thursday, May 20 – Friday, May 21 at the Holiday Inn Capitol in Washington, D.C. Here are today’s panel programs and speakers:
8:45am
Welcome
John McClelland (Office of Tax Analysis, Department of the Treasury), Program Chair
9:00-10:30am
Revenue and Rules: Effects on the Federal Budget
Moderator: Eric Engen (American Enterprise Institute)
Presenters:
• Where Did Revenues Go? (David Weiner, Congressional Budget Office)
• The Persistence of Individual and Corporate Capital Gains and Losses (Nicholas Bull, James Cilke & Christopher Giosa, Joint Committee on Taxation)
• Budget Rules for 2005 and Beyond (Rudolph Penner & C. Eugene Steuerle, The Urban Institute)
10:45am-12:15pm
Exploring Selected State and Local Issues
Moderator: Dennis Zimmerman (Congressional Budget Office)
Presenters:
• State Structural Deficits (Bruce Baker, Bureau of Economic Analysis, U.S. Commerce Department; Daniel Besendorfer, University of Freiburg; & Laurence J. Kotlikoff, Boston University)
• History and Evaluation of the Unfunded Mandates Law (Theresa Gullo, Congressional Budget Office)
• Is “No Child Left Behind” an Un (or under) funded Federal Mandate? Evidence from Texas
(Jennifer Imazeki, San Diego State; & Andrew Reschovsky, Wisconsin)
12:30-2:00pm Luncheon
Presiding: Thomas S. Neubig (President, National Tax Association)
Speaker: Harvey S. Rosen (Member, Council of Economic Advisers)
2:00-3:30pm
The Role of a Public Policy Economist: Lessons from Bruce Davie’s Career
Moderator: Allen H. Lerman (Office of Tax Analysis, U.S. Treasury Department)
Presenters:
• Jousting with Rent Seekers: Bruce Davie and Tax-Exempt Bonds (Dennis Zimmerman, Congressional Budget Office)
• The Costs of State-Sponsored Terrorism: The Case of the Barbary Pirates (J. Thomas Woodward, Congressional Budget Office)
• A Tax Expenditure Budget for Excise Taxes (Lindsay Oldenski, Office of Tax Analysis, U.S. Treasury Department)
3:45-5:15pm
Effects of a Changing Pension Landscape on Saving
Moderator: Karen M. Pence (Federal Reserve Board of Governors)
Presenters:
• How Will the Changing Pension Landscape Affect Retiree Benefits? (Amy Rehder Harris, Kevin Perese & John Sabelhaus, Congressional Budget Office)
• Distributional Effects of Tax-Preferred Saving Options (Leonard E. Burman, The Urban Institute; & William Gale & Peter Orszag, The Brookings Institution)
• Pension Reform and Saving (Barry Bosworth & Gary Burtless, The Brookings Institution)
Wednesday, May 19, 2004
Of particular interest following yesterday’s discussion of whether the Catholic Church’s criticism of Sen. Kerry will result in the loss of its tax exemption: Douglas Cook (Regent) has published The Politically Active Church, 35 Loy. U. Chi. L. Rev. 457 (2004). Here is part of the Introduction:
The title of this Article appears to be an oxymoron. Conventional wisdom holds that under current law, a church cannot be politically active….[T]he notion that churches may not be involved actively in politics is at the same time inaccurate, misleading, and incomplete.
Churches, as religious entities, enjoy a special status under … [t]he First Amendment…. Churches, as exercisers of religion, thus have a constitutional right to pursue their religious activities, even if that pursuit takes them into the political arena. Likewise, churches enjoy a First Amendment free speech right to engage in political speech. Courts have never interpreted the Establishment Clause of the Constitution to mean that churches or religious organizations are prohibited from being active in political matters. A politically active church is thus engaging in constitutionally protected activity.
Nonetheless, many churches have elected to organize and operate under section 501(c)(3) of the Internal Revenue Code (the “Code”). As a condition of enjoying exemption from federal entity income taxation, such churches and many other exempt organizations must refrain from substantial attempts to influence legislation and from any participation in political candidate campaigns. Courts have held that conditioning tax exemption on these political activity limitations does not violate the First Amendment.
In the face of these clear limitations on 501(c)(3) churches, this Article proposes that churches might elect instead to organize and operate as tax-exempt “social welfare” organizations under section 501(c)(4) of the Code. These organizations are permitted a much wider range of political activities than 501(c)(3) entities. Part II of this Article will summarize existing tax law pertaining to the political activities of 501(c)(3) and 501(c)(4) organizations. Part III will examine how the 501(c)(3) limitations have been applied to churches. Finally, Part IV will present a proposal for organizing churches as 501(c)(4) exempt organizations, allowing them to conduct virtually unlimited lobbying and substantial political candidate activity.
Wednesday, May 19, 2004
Treasury Secretary John Snow testified today on the benefits of Health Savings Accounts (HSAs) before the U.S Senate Special Committee on Aging.
Wednesday, May 19, 2004
Tax Analysts reports today that the House, as part its consideration of the Extraterritorial Income Exclusion Act (ETI Act), is debating whether to allow taxpayers who live in the 9 states without an income tax (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington & Wyoming) to deduct sales and use taxes. The proposal apparently is based on the Sales Tax Equity Act of 2003 (H.R. 720) introduced last year, but may go further and allow taxpayers in the 41 states with an income tax to deduct the greater of their sales tax or their income tax. Tax simplification anyone? (Thanks to Deborah Geier (Cleveland State) for passing this along.)
Wednesday, May 19, 2004
House and Senate Conferees filed the Conference Report to accompany the concurrent budget resolution (S. Con. Res. 95). (Thanks to Donald Tobin (Ohio State) for passing this along.)
Wednesday, May 19, 2004
Forgive the shameless plug, but my latest article, What Law Schools Can Learn from Billy Beane and the Oakland Athletics, 82 Texas L. Rev. 1483 (2004), is out now in hard copy. The article argues that law schools should heed the lessons from Michael Lewis’s best-selling book Moneyball and embrace rankings rather than hide from them. Here is the concluding paragraph:
Like Michael Lewis, we have told a story about a profession and people we love. We are proud of the work law schools and law professors do in teaching future lawyers and producing legal scholarship to the betterment of American law and society. As institutions and as individuals, we have nothing to fear from the accountability and transparency spotlight. Indeed, we do our best work in the light. We should welcome the opportunity to tell the world what we do and help them measure our performance as teachers and scholars. If we do not, the story will be told by others and it will no longer be our own.
Here is the abstract:
Michael Lewis takes an inside look at how in recent years the Oakland A’s have achieved one of the best records in baseball despite having one of the lowest player payrolls. Cass Sunstein and Richard Thaler have argued that the book has large and profound implications for other professions. This review essay by a tax law professor and a labor law professor explores the book’s large and profound implications for law schools.
Beane succeeded by ruthlessly exploiting inefficiencies in major league baseball caused by the inability to properly evaluate players. He replaced traditional subjective measurements of players by scouts with new objective statistical methods pioneered by baseball outsiders.
In many ways, legal education is teeming with more inefficiencies than Beane uncovered in baseball. We argue that changes in the economic conditions of higher education and the legal profession, combined with increasing demands for accountability and transparency, created the market demand for measuring organizational success which U.S. News & World Report met with its annual law school rankings. We explore the implications of Moneyball for legal education in three areas.
First, we argue that law school rankings are here to stay and that the academy should work to devise ways to more accurately measure law school success. We advocate the comprehensive collection of data that users and organizations can weigh differently in arriving at competing rankings systems.
Second, we applaud efforts begun in the past decade to quantify individual faculty contributions to law school success. We support measures that take into account both quantitative and qualitative measurements of faculty performance. We provide data that confirm the relationship of productivity and impact measures of scholarship and provide support for isolating background and performance characteristics in predicting future faculty scholarly work.
Third, we use Billy Beane as a prototype and identify the qualities that enabled him to revolutionize baseball. We shift the focus here to deans and present data measuring decanal scholarly productivity and impact. We contrast these figures with the corresponding faculty data and distinguish deans’ scholarly performance both in the period prior to becoming dean and while serving as dean. We also offer some surprising predictions, based on the data, of the qualities that a future dean will need to assume the mantle of the Billy Beane of legal education.
Wednesday, May 19, 2004
Monday’s post on whether the Bishop of Colorado placed his diocese’s tax exemption in jeopardy by telling Catholics in a pastoral letter that that “any Catholics who vote for candidates who stand for abortion, illicit stem cell research or euthanasia suffer the same fateful consequences [as the candidates who support these issues]” spawned a great deal of discussion in the blogosphere and among Tax Profs.
Here are some of the blogosphere comments:
Here are the first six Tax Prof posts in a two-dozen (and growing) thread:
• Jeff Sherman (Chicago-Kent):
I’ve been reluctant to respond to Don’s posting because my personal reaction to the Bishop’s letter is such that I fear I won’t be able to limit my comments to tax issues. But I’ll try. I agree that the Bishop’s letter is “very close to the line.” Indeed, I’d say it crosses it. Let’s assume for the sake of argument that the IRS would be willing to revoke the relevant tax exemption. My question is, whose exemption is it? Is each diocese a separate taxpayer with its own taxpayer I.D. number? Does each diocese apply to the IRS for an exemption letter? If the “taxpayer” comprises more than one diocese, could the activities in one diocese jeopardize the entire “taxpayer’s” exemption?
• Ellen Aprill (Loyola-L.A.), who is about to become one of the Council Directors of the ABA Tax Section and sees part of her role as representing tax academics to the Council:
The Catholic Church has a group exemption. The memo to those covered by this group exemption reminds them about the prohibition on political activity. In addition, the U.S. Conference of Catholic Bishops has posted on its website lengthy and detailed guidance on the churches and the prohibition in the tax code regarding political activity by tax-exempt charities. I refer to it frequently and have recommended it to representatives of other religious groups. Further, Deidre Dessingue, the Associate General Counsel of the USCCB, has written a wonderful booklet on Politics and Pulpit for the Pew Forum.
Technically, there is no de minimis rule in the Code as to this prohibition – any political activities (which for this purpose referes to activities in connection with a candidates’s campaign for public office) results in loss of qualification for exempt status. As a practical matter, the IRS often ignores de minimis violations. In other contexts, the IRS has acted. In Branch Ministries, a church had its exemption revoked after it placed full-page advertisements in USA Today and the Washington Times urging Christian not to vote for then-presidential candidate Bill Clinton. Then ad urged readers to make tax-deductible donations for the advertisement. The D.C. Circuit Court upheld the revocation. It rejected the church’s First Amendment argument, concluding that loss of exemption and thus loss of tax-deductible contributions would not unconstitutionally burden the church’s existence.
• Donald Tobin (Ohio State):
The attached link, to the United States Conference of Catholic Bishops (USCCB), has information regarding the Catholic Church’s exemption. There is also a memo explaining the exemption from the USCCB’s Office of the General Counsel. It appears that groups listed by the USCCB as being affiliated with the Church receive an exemption. It also appears that each group is thereby granted its own exemption. So it may be that a subgroup can have its exemption contested without impacting the entire Church.
• Richard Schmalbeck (Duke):
I don’t know how a “group exemption” would work in the context of a possible revocation of status. But on the basis of the litigation involving sexual abuse, it appears that each diocese has a separate corporate existence. So if only one disocese violates the prohibition on campaign activities, it would seem that surgical revocation of only that diocese’s exempt status should be possible. The black sheep could simply be culled from the group, without disturbing the others. And even if that were not the case, churches are entitled to an automatic presumption of exemption, without being required to file a form 1023. So couldn’t any diocese (presuming it hadn’t published a bishop’s letter threatening dire consequences if its parishioners vote for Kerry) take the position that it was still entitled to its presumption of exempt status? The surgical solution seems relevant in part because any threat to the exempt status of the Catholic church generally over this would just be laughed off; but if a more targeted inquiry could be started, it might have a chance of being taken seriously.
Of course, not even the Colorado Springs diocese is in any real danger, I’m sure. But I think that the Bishop’s letter was quite outrageous, and I would like to see a little something about the exemption angle hit the popular press. It couldn’t hurt to have reporters calling the IRS to get a statement explaining why the diocese shouldn’t at least get something of a cease-and-desist warning.
• Allan Samansky (Ohio State):
For what it’s worth, I am troubled by the conclusion that Bishop Sheridan’s letter should raise questions about tax status of the Catholic Church (or that of any diocese).
We would expect religious persons to vote for candidates who take positions that are consistent with their religious beliefs and ideals. And church leaders should be free to tell adherents what those beliefs and ideals are “supposed to be.” That is what the letter does. It mentions the November elections, but so what. Should we require church leaders to communicate by winks and nods, rather than direct statements?
Final point. The letter we are discussing is much different from the newspaper ad in Branch Ministries that
solicited “tax-deductible donations” for the ad. The Bishop’s letter seems to have been directed only to
Catholics.
• Richard Schmalbeck (Duke):
Section 501(c)(3) defines exempt charitable organizations as ones that, among other things, do not participate in any political campaign on behalf of or in opposition to any candidate for public office. The bishop’s letter, written in his official capacity to his parishioners, makes an unambiguous reference to the national elections this November, and, as Don Tobin said initially, cannot be read in any other way than as a letter urging parishoners not to vote for Kerry. I think it is actually quite a bit worse than the Branch
Ministries advertisement, since the bishop’s letter doesn’t merely urge the recipients not to vote for Kerry–it tells them that doing so may “jeopardize their salvation.” What bigger guns can be brought to bear on those who believe, as at least some Catholics do, that the hierarchy of the church is authorized to make theological determinations of this sort? Obviously many who hear this will disregard it, but do we doubt that there are some readers who will think that eternal damnation isn’t something about which they want to
take any chances?
There are First Amendment issues lurking here, surely; but the Supreme Court in TWR and the DC Circuit in Branch Ministries made it clear that Congress is permitted to define the exemption boundaries in ways that effectively require charitable organizations to choose between exempt status and the fullest exercise of free speech. If the church wants to participate in campaigns, it can do so, but only if it gives up its exempt status. I think that’s a good rule for a lot of reasons, prominently including its effect in discouraging the sort of heavy-handed political activity encountered in this instance, which seems to me extremely dangerous.
For more Tax Prof commentary on this issue, tax academics are invited to join the TaxProf Discussion Group.
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