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TaxProf Blog

Paul L. Caron
Dean
Pepperdine Caruso
School of Law

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  • Paul Caron

    A Tax PLoS?

    Wednesday, June 2, 2004

    Malcom Campbell has an interesting piece on the benefits of teaching with open-access materials, Open Access: A PLoS for Education. Here is part of the conclusion:

    Teaching is a lot like raising children. Like parents, teachers provide learning opportunities in part by modeling the behavior we want our students to learn. By choosing the most current literature as testing material, my students realize that I read the literature to stay current in my field and that there are always new opportunities to learn, analyze, and design experiments, etc. By my choosing open-access papers …, my students benefit from free access to published research results. Free access to research literature enhances student learning and helps produce the next generation of graduate students, who are then better trained. Open-access publishing provides the right mix of benefits for educators and students alike.

    Stuart Levine, an adjunct professor at the University of Baltimore, has some interesting thoughts on the application of this approach in teaching future business and tax lawyers:

    [T]he article deals with undergraduate education of prospective scientists, but somehow I believe that the ideas floated in the article have relevance to legal education as well, particularly the training of business lawyers (that term being broadly construed to include tax lawyers).

    I have long been concerned that I am not doing a particularly good job of preparing my students to learn how to grasp the contours of a business problem. Now a large part of the difficulty is my own lack of ability which, I fear, cannot be remedied. However the issue is also derived from an inability to show students the “legal” issue in the larger economic context that we work in every day.

    Part of the problem is that business lawyers generally work behind closed doors. We don’t publish “case notes” detailing the transactions that we have completed. In fact, the accelerating movement to resolving disputes via arbitration and mediation while beneficial in certain respects is actually detrimental in others. By way of example, over time there will be a decline in the written case law discussing business disputes and the law pertinent to them.

    For more on the Public Library of Science (PLoS), see here.

  • Paul Caron

    European Tax Debate

    Wednesday, June 2, 2004

    A tax debate is raging in Europe, with Germany, France and other long-standing EU members pushing for minimum corporate tax levels while new Eastern European countries like Latvia, Poland and others cling to their low rates to spur investment in their countries. With corporate tax rates in the 35%-40% range, Germany and France fear that the 0%-20% rates will draw business toward Eastern Europe to the detriment of Old Europe. For some of the many press reports, see here, here, here, and here.

  • Paul Caron

    The Tax Matrix

    Tuesday, June 1, 2004

    Forbes has published its annual Tax Misery Index, an assessment of the tax burden placed on entrepreneurs and executives in 50 of the world’s major business locations. Here are the five “winners” in the Forbes’ Tax Matrix:

    • United Arab Emirates (Misery Index of 18.0)
    • Hong Kong (43.0)
    • Cyprus (74.3)
    • Singapore (80.0)
    • India (80.0)

    The five “losers” in the Tax Matrix:

    • France (174.8)
    • Belgium (156.1)
    • Sweden (149.7)
    • China (145.0)
    • Italy (144.0)

    U.S. states ranked were Texas (94.6), Illinois (97.3), and New York (116.7). (Thanks to reader Bruce Bartlett for the tip.)

  • Paul Caron

    IRS Attorney Directory by Code Section & Subject Matter

    Tuesday, June 1, 2004

    The monthly update of the 121-page directory of attorneys in the IRS Chief Counsel’s Office, arranged by Internal Revenue Code Section and Subject Matter, is available on the Tax Analysts’ web site.

  • Paul Caron

    More on Tax Definition of “Religion” in Texas

    Tuesday, June 1, 2004

    Following up on a prior TaxProf Blog post on the Texas state Comtroller’s denial of tax-exempt status to a local Unitarian church: the Comproller has backed off the challenge to the Unitarians but is challenging the religios status of Ethical Culture. Mark Kleiman questions the distinction between the two groups:

    Maybe there’s a real distinction there, but it looks to me as if they’ve decided that the belief system of a bunch of people who used to be Christians but now aren’t, quite, is a religion, while the belief system of a bunch of people who used to be Jews but now aren’t, quite, isn’t a religion. Maybe the Ethical Culture Society should start calling themselves what my Orthodox rabbi back in Baltimore used to call them: “Jew-nitarians.”

    (Thanks to reader Stuart Levine for the tip.)

  • Paul Caron

    Oklahoma Seeking To Fill Four Endowed Faculty Positions

    Tuesday, June 1, 2004

    The University of Oklahoma College of Law has announced that applications and nominations are being accepted for four endowed positions:

    • The William J. Alley Professorship of Law

    • The Frank Elkouri and Edna Asper Elkouri Professorship in Law

    • The Alfred P. Murrah Professorship of Law

    • The Floyd H. and Martha Norris Chair in Law

    Each position is intended for a legal scholar with a national reputation for research excellence and superior teaching skills in any recognized field of law.

  • Paul Caron

    Holiday Weekend Roundup

    Tuesday, June 1, 2004

    TaxProf Blog posts over the long holiday weekend:

    Saturday

    • Tax Prof Spotlight: Darryll Jones
    • FBI Enlists IRS in War v. Terrorism
    • Germany To End Tax-Free Treatment of Life Insurance

    Sunday

    • Top 5 Tax Paper Downloads
    • Gershon on Teaching Tax Using Socioeconomics
    • “The Day After Tomorrow” Takes a Shot at Tax Profs

    Monday

    • Tax Problems of U.S. Soldiers in Iraq
    • Bank Leads Two Tax Colloquia at Tel Aviv University
    • Do State Tax Incentives Work?

  • Paul Caron

    Tax Shelter Battleship

    Tuesday, June 1, 2004

    The TaxGuru has a great tax shelter cartoon here.

  • Paul Caron

    Bratton on The Dividend Puzzle

    Tuesday, June 1, 2004

    William Bratton (Georgetown) has posted The New Dividend Puzzle on SSRN. Here is part of the abstract:

    The dividend puzzle of economic theory asks why firms pay substantial dividends, given the classical tax rate preference for capital gains and deferral of capital gains taxation until realization. A new dividend puzzle arises at the level of practice in the wake of The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the JGTRRA), which aligns tax rates on shareholder capital gains and dividend income at a maximum 15 percent even as it leaves in place the capital gains deferral. The new tax regime puts a difficult question to corporate boards: Whether, assuming payout, dividends hold out relative advantages over stock repurchases as the mode of payment….

    The Article concludes that the shift to repurchases should not be read as a governance success story. Since repurchases held out tax benefits for most shareholders prior to the JGTRRA, there was no reason for outside monitors to ask hard questions about flexibility and adverse selection or to inquire further about the motivational effects of stock option valuation. With rate parity, the governance system needs to start the questioning process. The bargain repurchase possibility must be weighed against the adverse selection possibility, with the balance depending on the state of the market. Taxation remains a consideration: Repurchases and capital gains still hold out deferral value for long term, taxpaying shareholders. Finally, special dividends hold out advantages of transparency with the possible spillover of improved executive compensation policy. More generally, the JGTRRA poses a cost-benefit puzzle to be solved firm-by-firm, case-by-case. Unfortunately, the corporate governance system still rubber stamps management payout decisions, and so probably will fail to confront the questions. Governance reform is needed to assure that the payout decision is uncoupled from perverse incentives stemming from stock option compensation and reformulated in light of rate parity. It follows that payout should join management compensation in the emerging regime of governance by independent director committee.

  • Paul Caron

    Tax Problems of U.S. Soldiers in Iraq

    Monday, May 31, 2004

    Memorial Day reprise (from TaxProf Blog 5/24/04):

    Congress has enacted various tax breaks for members of the U.S. Armed Forces, including section 112 which excludes from income military pay for soldiers serving in combat zones like Iraq. The IRS has a very helpful web site and publication (Publication 3: Armed Forces’ Tax Guide) explaining these tax benefits. Yet a recent GAO Report, Active Duty Military Compensation and Its Tax Treatment (GAO-04-721R), reports that the section 112 income exclusion has adverse tax consequences because of its interaction with other tax benefits, and that the adverse consequences get worse the longer a solder is stationed in a combat zone:

    The complex interactions between the combat zone exclusion and certain tax credits (principally the Earned Income Tax Credit and the Additional Child Tax Credit) appear to be creating unintended consequences. Specifically, some low-income-earning service members who serve in a combat zone are worse off for tax purposes, while some higher-income-earning members are better off because they become eligible for a tax credit that is normally targeted to low-income workers.

    Our analysis suggests that some of the roughly 430,000 members serving in a combat zone in 2003—between 5,000 and 10,000 members in one-earner households—suffered a net loss of tax benefits…. [T]he number of members losing tax benefits could be larger in 2004 depending on the how many service members are in a combat zone and how long they are there.

    For recent press reports, see here and here.

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