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TaxProf Blog

Paul L. Caron
Dean
Pepperdine Caruso
School of Law

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  • Paul Caron

    SOI Releases 2000 Foreign Sales Corporation Data

    Wednesday, April 28, 2004

    The just-released Statistics of Income Bulletin (Winter 2003-04) includes Foreign Sales Corporations, 2000. Here is the abstract:

    Foreign Sales Corporations (FSC’s) filed 4,200 income tax returns for Tax Year 2000. FSC’s are foreign corporations, created by “parent” shareholders (mostly corporations). Generally, the FSC mechanism exempts a portion of income derived from the export of U.S. manufactured merchandise and certain services from U.S. income taxation.

    Overall measures of FSC economic activity and earnings can be highlighted using Tax Year 2000 statistics. For 2000, the gross receipts of FSC’s and related suppliers, a broad measure of economic activity, was $349.0 billion, up from $285.9 billion for 1996, the last year for which comparable statistics were compiled. After subtracting costs of goods sold, and allocations of receipts using pricing rules to FSC’s and their related suppliers, FSC’s generated $43.9 billion of “total income.” Of this amount, $16.0 billion were subject to U.S. tax as nonexempt income, while $27.9 billion were exempt from regular U.S. income taxation. Following other adjustments, income subject to U.S. tax, the tax base, was $6.7 billion, which generated a total U.S. income tax of $2.3 billion. In 2000, FSC’s distributed $14.7 billion to their parent shareholders, mostly U.S. corporations. These distributions reflected current and accumulated (i.e., prior-year) earnings and profits.

    For three related Excel tables of data, see here. For more statistics on FSC’s, see here.

    Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.

  • Paul Caron

    IRS Disclosure of Individual Tax Return Information

    Tuesday, April 27, 2004

    The IRS recently published its annual report on the number of times it discloses individual income tax return information. For 2003, the IRS disclosed this information 3.7 billion times. Since only 125 million tax returns are filed each year, that works out to 30 disclosures per return. (The 2003 figures represent a reduction from the 4.1 billion disclosures of individual tax return information in 2002.) Jim Maule (Villanova) has a nice discussion on his blog of the issues raised by these disclosures.

  • Paul Caron

    Brennen on Examining Race and Tax Exempt Law in Teaching and Scholarship

    Tuesday, April 27, 2004

    David Brennen (Mercer), the co-author of a new casebook on The Tax Law of Charities and Other Exempt Organizations, has posted Race and Equality Across the Law School Curriculum: Tax Exempt Law on SSRN. Here is the abstract:

    Race and Equality Across the Law School Curriculum: Tax Exempt Law chronicles the possibilities for racial examinations of tax exempt law in the law school environment, either through teaching or scholarship. The Article, prepared in conjunction with Association of American law School’s Summer 2004 “Racial Justice” professional development conference, relates the racial study of tax exempt law to the broader critical race theory movement in law generally. Thus, the Article highlights critical race theory’s initial focus on constitutional law issues and traces its development to a focus on more neutral-looking areas of law such as tax law. The Article then outlines the basic scholarship concerning tax law generally as it relates to race, demonstrating how this general tax and race scholarship has effectively exposed racial bias in the federal tax imposed on wages and income of individuals. Finally, the Article outlines a laundry list of race issues in tax exempt law that might also contribute to improved notions of justice and fairness in the law. For example, the Article discusses the public policy limitation imposed on tax exempt charities, the role that racial diversity might play on tax exempt organization boards of directors and the current statutory prohibition on racial discrimination by tax exempt social clubs.

  • Paul Caron

    SOI 1997 Gift Data

    Tuesday, April 27, 2004

    In the just-released Statistics of Income Bulletin (Winter 2003-04), Martha Britton Eller reports on Inter Vivos Wealth Transfers, 1997 Gifts. Here is the abstract:

    Federal gift tax data provide a glimpse into the economic behavior of predominantly wealthy Americans. Such behavior includes donors’ transfer of money and other assets to gift recipients and the creation and continued funding of trusts, both of which are reported on gift tax returns. The population of donors who gave gifts in 1997 and reported those gifts to IRS in 1998 included 218,008 individuals, and those individuals transferred more than $31.1 billion in total gifts. The reported gift tax liability totaled $3.2 billion. Female donors outnumbered male donors, with 53.3 percent of the donor population comprised of females and 46.7 percent of the population comprised of males.

    Donors gave a wide variety of gifts. The largest category of gifts was cash and cash management accounts, which made up more than a third of all gifts. The second and third largest categories of gifts were stock and real estate, respectively. While only a small percentage of donors, 10.1 percent, utilized discounts in the valuation of gifts, the size of total vaulation discounts, $3.4 billion, was rather significant and represented 33.0 percent of the full value of discounted assets.

    For a previous study by Ms. Eller, Analysis of the 1998 Gift Tax Penal Study, presented at the 2002 Joint Statistical Meetings of the American Statistical Association, see here.

    Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.

  • Paul Caron

    Where Tax Court Judges Went To Law School

    Tuesday, April 27, 2004

    Inspired by Brian Leiter’s post about where federal district court and court of appeals judges went to law school, TaxProf Blog checked out the educational background of the 17 Tax Court Judges from the Tax Court web site.

    Interestingly, the 17 judges earned their JD degrees from 17 different law schools:
    * UC-Berkeley
    * Chicago
    * Colorado
    * DePaul
    * Duke
    * Emory
    * George Washington
    * Georgetown
    * Houston
    * Illinois
    * Kentucky
    * Maryland
    * Montana
    * Pennsylvania
    * South Dakota
    * USC
    * Virginia

    9 of the 17 judges earned tax LL.M. degrees:
    * NYU (6)
    * Georgetown (2)
    * Boston University (1)

    11 of the judges were appointed by Republican Presidents, 6 by Democratic Presidents.

  • Paul Caron

    US Joins with 3 Allies To Fight Tax Avoidance

    Tuesday, April 27, 2004

    According to an article in the New Zealand Herald, “the United States, Britain, Canada and Australia are setting up a new international taskforce to fight tax avoidance, which may be up and running by the summer. A United Kingdom source said senior tax officials from the four countries had been meeting in Williamsburg, Virginia, before the spring meetings of the International Monetary Fund and World Bank in Washington.”

  • Paul Caron

    SOI Releases Data on 2002 Individual Tax Returns

    Tuesday, April 27, 2004

    The just-released Statistics of Income Bulletin (Winter 2003-04) includes Individual Income Tax Returns, Preliminary Data, 2002. Here is the abstract:

    Taxpayers filed 130.2 million U.S. individual income tax returns for Tax Year 2002, a decrease of 0.2 percent from the 130.5 million returns filed in 2001. Adjusted gross income less deficit decreased 2.3 percent to $6.0 trillion for 2002. Taxable income declined 4.3 percent to $4.1 trillion. Total income tax fell 10.6 percent to $797.8 billion, and the total tax liability also decreased 10.1 percent to $834.3 billion. At the same time, statutory adjustments to total income increased 28.4 percent, from $58.6 billion to $75.3 billion; total deductions increased 1.9 percent to $1,373.6 billion; and total tax credits used to offset income tax liabilities decreased 13.8 percent to $39.0 billion. The total earned income credit for all income size classes increased 14.4 percent to $38.7 billion for Tax Year 2002.

    For a related Excel table of data, see here. For more statistics on individual income tax returns, see here.

    Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.

  • Paul Caron

    Larson on Evidence Rules in the Tax Court

    Tuesday, April 27, 2004

    Joni Larson (Thomas Cooley) has posted Tax Evidence II: A Primer on the Federal Rules of Evidence as Applied by the Tax Court on SSRN. Here is the abstract:

    The United States Tax Court applies the Federal Rules of Evidence (the “Rules”) during its proceedings. These rules establish the guidelines the judge will use to determine what testimony and documents will be admissible in evidence.

    We follow the Federal Rules of Evidence in our proceedings. This provides all parties with ground rules for presenting their cases. To depart from these rules not only would contradict our mandated authority but also would prejudice the parties by removing the certainty of what the Court may consider in finding facts. A party could not adequately prepare or defend a case if it were uncertain what standards would be applied to judge the admissibility of evidence. While it is generally accepted that a relaxed application of the rules of evidence during a bench trial results in less prejudice to the fact finder because of a judge’s legal training and experience, the uncertainty of what will be used to find facts is highly prejudicial to a party whether the fact finder is a judge or a jury. Incompetent evidence should not be admitted to proof. We, therefore, believe that adhering to the Federal Rules of Evidence is a sound way to protect the integrity of our proceedings.

    In order to present the best case possible, it is imperative for a party litigating in the Tax Court to understand the Rules and how they have been interpreted and applied by the Tax Court.

    This Article surveys the Tax Court’s interpretation and application of the Rules. It updates and expands an earlier version of this Article. The Article does not discuss the application of the Rules by federal district courts, the Court of Federal Claims, or the federal circuit courts of appeal, except to the extent there is a split of authority in the circuit courts. Appendix A identifies those Rules that have not been addressed or interpreted by the Tax Court in its opinions. Appendix B provides a tabular summary of the Rules most commonly used in the Tax Court and their various foundational requirements.

  • Paul Caron

    U.S. Supreme Court Grants Cert. on Access to Special Trial Judge Reports

    Monday, April 26, 2004

    Leandra Lederman (George Mason) reports that the US Supreme Court granted certiorari today in two cases involving Tax Court Rule 183 (the procedure relating to Special Trial Judge reports in cases involving over $50,000):

    The cases are Ballard v. Commissioner and Estate of Kanter v. Commissioner. Both of these cases are appeals from Investment Research Associates v. Commissioner, in which the Tax Court issued an order refusing to release to the parties the report of the Special Trial Judge who heard the case and refusing to include the report in the record on appeal. The refusal is consistent with the Tax Court’s practice since 1984, when amendments to Rule 183 took effect.

    Investment Research Associates was appealed to three circuits. None of them found in favor of the taxpayer on the issue of the Special Trial Judge report (which was argued primarily as a due process issue) but Judge Cudahy filed a long and powerful dissent in Kanter. There are a number of interesting aspects to these cases, including the fact that an attorney for the taxpayers filed an affidavit stating that two Tax Court judges told him that the Tax Court opinion, which found against the taxpayers on multi-million dollar fraud issues, did not reflect the findings of the Special Trial Judge who heard the case. Also, Kanter involves the estate of Burton Kanter, who was a well-known tax attorney and an adjunct professor at Chicago Law School for about 10 years.

    The Courts of Appeals’ decisions in Ballard and Kanter arguably are in conflict with a 1989 decision of the DC Circuit, Stone v. Commissioner. That case involved the prior version of Rule 183 (then Rule 182), but the language it interpreted was not changed when the rule was amended. The government opposed certiorari in Ballard and Kanter. It will be very interesting to see what the Court does.

    For Professor Lederman’s March 22 article on this topic in Tax Notes, see here. For a front-page National Law Journal story on the topic, see here.

  • Paul Caron

    SOI on Split-Interest Trusts

    Monday, April 26, 2004

    In the just-released Statistics of Income Bulletin (Winter 2003-04), Melissa Belvedere reports on Split-Interest Trusts, 2001. Here is the abstract:

    Split-interest trusts remained an increasingly popular option for planned giving in 2001. Overall, the number of split-interest trusts increased by 6.0 percent. Charitable remainder unitrusts remained especially popular (75.0 percent of all split-interest trusts). Yet the greatest numerical increase was for charitable lead trusts (15.8 percent). The vast majority of both charitable remainder annuity trusts and pooled income funds were small trusts with under $500,000 in book value of total assets (82.1 percent and 79.3 percent, respectively). Charitable remainder unitrusts were also skewed in favor of the small trusts, but not as strongly (68.7 percent). In contrast, the majority of charitable lead trusts were midsized trusts with between $500,000 and $3.0 million in book value of total assets (46.8 percent).

    Of the total net income reported by charitable remainder annuity and unitrusts, net long-term capital gains was the largest component (83.4 percent and 84.1 percent, respectively). More interesting to note are the large changes in the amount of net short-term capital losses reported. Charitable remainder annuity trusts reported approximately $135.8 million in short-term capital losses for 2001, compared with only $15.1 million in losses for 2000. For charitable remainder unitrusts, the losses were even more pronounced—overall, unitrusts reported $389.6 million in short-term capital losses in 2001, compared with net long-term capital gains for $78.5 million in 2000.

    For nine related Excel tables of data, see here. For more statistics on split-interest trusts, see here.

    Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.

TaxProf Blog delivers timely, insightful coverage of tax law and legal education to inform, connect, and inspire scholars, practitioners, and students.

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