TaxProf Blog

Saturday, May 15, 2004

Today is National Transparency Day, dedicated to encouraging financial transparency among charitable organizations. U.S. Rep. Sue Myrick (R-NC) introduced House Resolution 624 to support the goals of Wall Watchers, a Christian ministry formed to empower donors to make better-informed charitable giving decisions.

Political pressure is inexorably building toward Sarbanes-Oxley type reforms of the charitable sector in light of the many abuses reported in the past few years. Indeed, the New York Times recently reported that “State and federal officials charged with overseeing charitable activities around the country are promoting legislation to enhance accountability, encourage greater limits on executive compensation and place greater responsibility on nonprofit boards.” Stephanie Strom, Questions About Some Charities’ Activities Lead to a Push for Tighter Regulation, N.Y. Times, Mar. 21, 2004, at 23. I echoed this theme in a recent law review article:

A tsunami of accountability and transparency is sweeping across American law and society. One manifestation is the insatiable public demand for ever more and increasingly sophisticated rankings in all aspects of American life. Unfortunately, American institutions and the insiders that lead them initially respond almost unfailingly by taking rear-guard actions to try to preserve the comfortable status quo. But by resisting the inevitable, these caretakers cause their institutions enormous harm as private parties and the government step in to fill the void with broad-brush solutions that do not properly accommodate legitimate institutional interests. Yet the insiders’ post hoc wailing rings hollow in light of their failure to respond before a loaded gun was pointed at their heads. The landscape regrettably is littered with many recent examples.

What Law Schools Can Learn from Billy Beane and the Oakland Athletics, 82 Texas L. Rev. 1483, 1553 (2004). National Transparency Day is a helpful effort to forestall such legislative over-regulation of the charitable sector. If charities are smart, they will prefer Wall Watcher-type accountability (such as Morningstar imposes on the mutual fund industry) to staring down the barrel of Elliott Spitzer- or Paul Sarbanes-led “reform.”

Friday, May 14, 2004

Interesting Washington Post article today on the split in the GOP ranks on requiring that tax cuts be paid for by spending reductions or tax hikes.

Friday, May 14, 2004

Following up on this week’s TaxProf Blog posts (see here and here) on Newsweek’s discussion of the tax consequences of ABC’s plan to help the recipients of home makeovers avoid tax on the value of the improvements by characterizing the items as short term rental payments within the meaning of Code section 280A(g), two Tax Profs report that they use very similar fact patterns in their tax books:

From Gail Levin Richmond (Nova), Federal Tax Research (Foundation Press, 6th ed. 2002):

Your client was approached by a movie producer, who wants to film her home. He is interested only in the home’s façade; he will film interior shots at the production company’s studio. The producer offered your client rent for “camping out” on her lawn. Although he believes he will need only two days, he has offered $7,000 for ten days or $12,000 for twenty days. Find any tax provisions concerning the short-term rental of a home. Discuss how these apply to the time periods involved and to renting the façade only. What advice do you give your client?

From Sam Donaldson (Washington), Federal Income Taxation of Individuals (West, forthcoming 2004):

On the television show “Trading Spaces,” neighbors agree to switch homes for 48 hours and completely redecorate one room in the other’s house. They are assisted by a professional designer and a carpenter. The designer and the neighbors are limited to a budget of $1,000, furnished by the producers of the show.

Suppose that Ricky and Lucy Ricardo, a married couple, agree to appear on the show with their neighbors, Fred and Ethel Mertz, also married. Ricky and Lucy remodeled the kitchen in the Mertz home with the assistance of designer Laurie Hickson-Smith. Meanwhile, Fred and Ethel remodeled the living room in the Ricardo home with the idle assistance of designer Doug Wilson. Amy Wynn Pastor served as the carpenter for both projects.

Because of Laurie’s expert eye and good taste, and because of the Herculean efforts of Ricky and Lucy, the Mertz home increased in value by $5,000. On the other hand, Doug’s awkward sense of style and penchant for clashing colors caused the value of the Ricardo home to increase by only $1,000, the cost of the materials used to make the “improvements.” Without the skills of Amy Wynn, the Ricardo home might have even lost value!

Assuming that Laurie and Doug both charge their normal customers $10,000 for two full days of advice and assistance, what are the federal income tax consequences to Ricky, Lucy, Fred, and Ethel?