On the Threshold: Smallness and the Value-Added Tax

Published Apr 13, 2018

Three-quarters of the world’s population live in a country in which a value-added tax (VAT) is collected on sales of goods and services. The registration threshold determines which businesses-typically as measured by their annual revenues-remain exempt from the obligation to register for and collect VAT on their sales. Among VAT economists, there is broad consensus that setting thresholds higher rather than lower (such that more rather than fewer businesses are exempt) increases the economic efficiency of a VAT. Despite these high stakes and the longstanding expert consensus in favor of high thresholds, real-world thresholds vary widely and skew low, even within OECD and European countries. This article leverages the insights of the economic model to address an issue that lies outside of it but is central to lawyers and policymakers: fairness. Numerous studies show that smaller businesses’ costs of complying with the VAT are disproportionately higher than those of larger businesses. To the extent that lower-income entrepreneurs internalize those costs or pass them on to lower-income consumers, there is a vertical equity rationale for raising thresholds. Moreover, in the (typical) context in which small firms are more common than large firms, setting thresholds higher rather than lower-while also offering small suppliers an election to voluntarily register-can reduce the competitive unfairness of drawing an arbitrary line among similarly-situated firms. Under such conditions, higher registration thresholds can improve both the fairness and the efficiency of a VAT.

Gallery-Supported Art Exhibitions: Critiquing “Crayola”

Published Nov 20, 2017

For-profit art galleries are making news for the donations they are providing to nonprofit art organizations to support exhibitions by artists these galleries represent (part of a broader practice I term “crayola,” in reference to payola, the word invented to describe a similar practice of paying for airtime on radio and television). Yet nonprofit art organizations are committed to advancing art for the public interest, not for private profit. This Article examines whether there are any meaningful limits on crayola gallery donations that support art exhibitions at nonprofit arts organizations, focusing on the legal framework governing federal tax-exempt status, as well as the self-regulatory rules and informal norms of the art industry. Does the existing regime allow gallery-supported art exhibitions or do these activities contravene nonprofit art organizations’ missions? What short-term and long-term solutions are available and appropriate in light of the causes and context of gallery-supported art exhibitions? These questions are animated by the broader dialogue about equitable access to publicly funded resources, with the answers having important implications for what it means to promote art that is representative of American society.

Social Impact Bonds: A Tax-Favored Investment?

Published Nov 20, 2017

Social impact bonds (SIBs) have recently generated a lot of excitement nationwide as an innovative way to finance social projects. A SIB is a financing mechanism that uses private capital to fund social services, with the government only repaying investors their capital plus a potential return on investment if improved social outcomes are achieved. As such, it brings together the private, public, and non-profit sectors in a manner that unlocks an additional source of capital to fund social service providers, promotes innovation, encourages interagency cooperation, and creates more accountability. Despite these benefits, tax law likely hinders the development of SIB-funded programs in the United States by discouraging private investment in SIBs. This Article is the first to consider the role of U.S. tax law in promoting SIB investments by examining the tax implications of a SIB investment from both a doctrinal and policy perspective. It concludes that the current tax system creates unnecessary compliance risks for private SIB investors and unjustifiably treats SIB investments less favorably than comparable investments, thereby increasing administrative complexity, distorting investment decisions, and creating inequities among similarly situated investors. Given the unintended discriminatory tax treatment towards SIBs, this Article argues that Congress should consider enacting legislation to make a SIB investment a tax-favored investment. This change could best be achieved by extending preferential tax rates to SIB earnings, exempting SIB earnings from taxation, or by allowing an upfront deduction for contributions to SIB investments. By modifying the tax law to treat SIB investments more in parity with comparable investments, SIB-funded programs will likely attract additional private capital and allow SIBs to potentially make a meaningful impact on some of our nation’s most challenging social problems.

The Myth of Corporate Tax Residence

Published Nov 20, 2017

The issue of corporate residence has recently attracted a great deal of attention in both the popular press and in academic discourse, primarily because of the phenomenon of corporate inversions. The consensus among commentators is that the root of the problem is a flawed definition of corporate residence, and they have therefore proposed replacing the current definition, which relies upon place of incorporation, with another that relies upon control and management, home office, customer base, source of income, or the residence of shareholders. The thesis of this article is that the concept of tax residence is inapplicable to corporations. Residence in tax law delineates the boundaries of distributive justice, and whereas corporations cannot be parties to a scheme of distributive justice, corporate residence is a misnomer. The incongruity of corporate residence along with the fact that residence is a fundamental concept in international taxation is one reason that the current international tax regime has proven unviable. The article then goes on to describe in broad outline an international corporate tax regime that avoids the problem of corporate residence by focusing on shareholders instead of on corporations.

Who Pays the Price of Civilization?

Published Nov 20, 2017

At the current juncture of fiscal uncertainty and pending tax reform, this Article addresses tax compliance, combining principles of tax law with methodologies of social science. A narrative on the evolution of the rule of law introduces social science methodologies for studying the operation of law in historical and cultural context. Then the Article sets forth an overview of Federal individual income taxation. As the core data, the Article presents a survey on U.S. taxpayer compliance attitudes gathered by a research team of which the author was a member. To complement the U.S. data, the Article discusses field studies from other countries reported in the social science literature. In turn, the Article discusses the implications of the social science research to the effect that compliance with the rule of law, represented here by a modern fiscal apparatus, may wax and wane through history as national bureaucracy siphons resources off their local origins. Contrary to the theoretical story of legal evolution, actual cases haven’t culminated in an ideal civilized state. Finally, the Article makes suggestions for future research on tax law compliance. The Article concludes that rational-legal authority may have less effect on taxpayer compliance than primordial personal motivations.

Fostering Ethical Professional Identity in Tax: Using the Traditional Tax Classroom

Published Jul 5, 2017

Will a tax lawyer in private practice help taxpayers comply or help taxpayers cheat?  Will a government tax lawyer respect or abuse taxpayer rights?  Answers to these questions turn, at least in large part, on the lawyer’s ethical professional identity—the lawyer’s philosophy of lawyering, which reflects her values, her sense of responsibility to others, and her self-concept of who she is (and wants to be) as a member of the legal profession.  According to recent reports on legal education reform, commentators, and the ABA, law schools must do more to help students develop their ethical professional identities.  This is particularly important in tax law, where lawyers’ ethical professional identities can affect compliance and revenue collection, tax morale and taxpayer rights, and the reputation of the tax profession. 

However, there is a dearth of resources for faculty members who want to leverage their traditional tax classrooms to help future tax lawyers develop their professional identities and learn to exercise professional judgment within the boundaries of the applicable ethical rules. So how can doctrinal faculty members help aspiring tax lawyers develop and implement their professional identities?  This article describes exercises for the traditional tax classroom that are intended to (a) enable each student to identify and justify her developing lawyering philosophy, and (b) empower each student to implement her lawyering philosophy in her career.  By empowering professors to help their students become more thoughtful, principled tax advisers, this article advances the goal of building a community of ethical tax professionals, both taxpayer-side and government-side, that serves taxpayers well.

A Framework for Testing Regulatory Authority

Published Jul 4, 2017

I. INTRODUCTION II. THE LIMITS OF REGULATORY AUTHORITY – UNDERLYING PRINCIPLES A. A grant of regulatory authority needs to be read precisely in order to determine whether an interpretation of that authority is unreasonable B. A regulation is not authorized if it violates another, separate, principle of law C. A statute, as drafted, is the… Read more

The Tax Lives of Uber Drivers: Evidence from Internet Discussion Forums

Published Jan 20, 2017

In this Article, we investigate the tax issues and challenges facing Uber and Lyft drivers by studying their online interactions in three internet discussion forums:,, and Intuit TurboTax AnswerXchange.  Using descriptive statistics and content analysis, we examine (1) the substantive tax concerns facing forum participants, (2) how taxes affect their driving and profitability decisions, and (3) the degree of user sophistication, accuracy of legal advising, and other cultural features of the forums. 

We find that while forum participants displayed generally accurate understandings of tax filing and income inclusion obligations, their approaches to expenses and deductions were less accurate and more varied in sophistication and willingness to comply with tax law.  Forum participants also frequently discussed whether driving was profitable and exhibited a range of awareness concerning how taxes affected profitability.  Finally, while the forums contained a surprising degree of sophisticated and accurate tax and legal advice, they also contained many examples of inaccurate or confusing information.  It is thus uncertain whether forum readers were able to successfully distinguish between accurate and inaccurate advice dispensed in the forums. 

Based on our findings, we make tentative recommendations for effective tax administration in the ridesharing and related sectors, including use of industry-specific guidance, clarification of how existing tax rules apply to ridesharing, and guidance on Form 1099-K interpretation.  We analyze the implications of our findings regarding taxes and profitability for Uber’s business model and its potential regulation.  Finally, we discuss the possible impacts of targeted tax compliance initiatives on internet communities.

Minimum Global Effective Corporate Tax Rate as General Anti-Avoidance Rule

Published Jan 20, 2017

I. Introduction II. The Challenge: International Corporate Tax Avoidance A. The Current International Corporate Tax Regime on American Multinationals B. Avoiding the Regime C. The Data III. The United States Response to the Challenge A. Ending Deferral: Current Worldwide Taxation B. Ending Worldwide Taxation: Sole Territorial Taxation C. In Between Worldwide & Territorial Taxation D…. Read more

Pursuing a Single Mission (or Something Closer to It) for the IRS

Published Jun 14, 2016

Abstract It is often said that taxes are the lifeblood of government. As the nation’s tax collector, the IRS serves a critical function without which the federal government would cease to function. Yet the IRS is an agency in crisis—mired in scandal, chronically underfunded, overreliant on automation, and failing to provide taxpayers with the support… Read more

“From Contested Concept to Cornerstone of Administrative Practice”: Social Learning and the Early History of U.S. Tax Withholding

Published Jun 14, 2016

I. Introduction II. The Existing Literature and the Significance of the Early History of Withholding III. The Civil War Income Tax and the Origins of American Withholding A. Learning from the British B. The War Context C. The Supreme Court’s Support for Withholding IV. The 1913 Income tax and the Beginnings of U.S. “Stoppage at… Read more

A Partial Defense of the IRS as Health Care Agency

Published Jun 14, 2016

Abstract Despite the fact that the Internal Revenue Service (“IRS”) is overburdened and struggling to meet the needs of taxpayers, Congress continues to add to IRS responsibilities in areas that appear far removed from the agency’s core revenue raising function. The Affordable Care Act (“ACA”) is a commonly cited example of the non-revenue raising regulatory… Read more

“The Better Part of Valour Is Discretion”: Should the IRS Change or Surrender Its Oversight of Tax-Exempt Organizations?

Published Jun 14, 2016

Abstract Recent events have highlighted the difficulties the Internal Revenue Service faces when attempting to ensure that purportedly tax-exempt organizations in fact qualify for that status. The problems in this area go much deeper than a group of IRS employees subjecting certain organizations to greater scrutiny based on their political leanings, however. For decades members… Read more

IRS Reform: Politics As Usual?

Published Jun 14, 2016

Abstract The IRS is still reeling from accusations that it “targeted” Tea Party and other non-profit organizations. Although multiple government investigations found no politically motivated behavior—only mismanagement—Congressional hearings were quite inflammatory. Congress recently followed up those hearings with a set of IRS reforms. Congress’s approach is reminiscent of the late 1990s, when highly publicized Congressional… Read more

The Future of American Tax Administration: Conceptual Alternatives and Political Realities

Published Jun 14, 2016

I. Intersecting Forces and Current Crisis A. The Perfect Storm 1. Declining Budget 2. Increasing Revenue Responsibilities 3. Increasing Non-Revenue Responsibilities 4. Cumulative Impact B. Consequences 1. Formal Guidance 2. Informal Guidance 3. Enforcement 4. Workforce 5. Training 6. Technology 7. Revenue II. Doubting Obvious Solutions A. “Just Become More Efficient” B. “Just Give the… Read more

The Intricacies of Tax and Globalization

Published May 27, 2015

Abstract The Intricacies of Tax & Globalization review explores the effect of globalization on taxation. It looks into the available data (particularly from the OECD and EU) to explore global trends in taxation over the past three decades to evaluate whether and to what extent globalization leads to convergence or divergence of national tax policies,… Read more

The Use of Cross-Border Corporate Profits and Losses and “Global Corporate Tax Information”: A Game Theory Approach

Published May 27, 2015

Abstract The paper, proposes a game theory approach based on a concept of Global Corporate Tax Information and analyzes the unilateral strategies a country can select from to regulate cross-border profits and losses in its capacity as a residence-country or as a source-country. A description of the strategies available to residence-countries when there is no… Read more

Who Wins Residential Property Tax Appeals?

Published May 4, 2015

Abstract This article explains who wins residential property tax appeals in Cook County, Illinois. It does so by collecting and combining public sector data, which has been recently released by the Cook County Assessor. The article then uses this data to compute three statistics. Lastly, it contextualizes each statistic in order to determine if some… Read more

A Simpler Verifiable Gift Tax

Published May 4, 2015

Abstract The author proposes reforms to simplify the current federal gift tax system, foster uncomplicated outright transfers, eliminate valuation distortions, and increase taxpayer return compliance. In order to obtain those results, the author’s simpler verifiable gift tax would incorporate hard-to-complete rules of transfer taxation, harmonize the gift and estate tax regimes, and grant gift tax… Read more

Taxing Publicly Traded Entities

Published May 4, 2015

Abstract Publicly traded entities are generally treated as corporations for U.S. tax purposes. Under various exceptions, however, publicly traded entities may obtain special treatment if they earn predominately certain specified types of qualifying income. This Article examines potential rationales for granting special tax treatment to certain publicly traded entities. As the analysis in this Article… Read more

Who Should Decide Whether the Apple is Rotten? Tax Disclosure and Corporate Political Agency

Published Feb 26, 2015

Abstract Enron-type corporate financial accounting scandals in the beginning of the millennium have given rise to a renewed interest in corporate tax disclosure. Anecdotal evidence suggesting a connection between corporate fraud and aggressive tax planning has motivated academics and policymakers to reconsider tax disclosure as a way to monitor corporate governance and limit tax avoidance…. Read more

Tax-Exempt Hospitals and Their Communities

Published Feb 26, 2015

Abstract Hospitals in the U.S. have long been able to obtain exemption from federal income tax because they meet the requirement known as the standard of “community benefit.” Yet lawmakers and scholars know virtually nothing about the actual workings of tax-exempt hospitals, or about whether, how, and to what extent they deliver benefits to their… Read more

Breaking The Spell of Tax Budget Magic

Published Feb 26, 2015

Abstract To date, tax scholars have responded to the proliferation of so-called temporary or sunset tax expenditure legislation by staking claims either for or against it, focusing on its relative merits and shortcomings. In this Article, I argue that these positions are analytically incomplete. Rather than address the underlying deficiencies in the budget process that… Read more

The Earned Income Tax Credit, Low-Income Workers, and the Legal Aid Community

Published Feb 24, 2015

Abstract The Earned Income Tax Credit (“EITC”) is the largest U.S. welfare program, with twenty-four million low-income Americans receiving $60 billion of disbursals in 2009. Through the EITC, working Americans with little or no tax liability can receive up to nearly $6,000 in refundable tax credits each year. Over the past two decades, policymakers have… Read more

Quantifying the Personal Income Tax Benefits of Backdating: A Canada – US Comparison

Published Feb 20, 2015

Abstract This paper contrasts the post-tax returns of backdated at-the-money options to currently-dated in-the-money options (with the same strike price as the backdated options) and demonstrates that a Canadian executive can earn a significantly larger after-tax return from backdated options compared to a US executive. We tie this to the favorable Canadian tax treatment of… Read more

Tax Liability for Wage Theft

Published Feb 20, 2015

Abstract This paper shows how, under existing tax law, illegal wage underpayment by an employer (sometimes called “wage theft”) may generate employer tax liability for unreported income or disallowed business expense deductions. Given that the tax authority needs information from the underpaid worker to prove such liability, the paper identifies two ways that a worker… Read more

Taxing Cash

Published Feb 20, 2015

Abstract The cash economy enables, or at least significantly simplifies, many tax evasion schemes. This is not surprising; after all, cash transactions can go unreported and therefore remain concealed from both regulators and creditors. The tax collector operates as both a creditor and a regulator, which means that cash transactions impose negative externalities on tax… Read more

Decoupling Taxes and Marriage: Beyond Innocence and Income Splitting

Published Feb 20, 2015

Abstract Fourteen years ago, members of Congress sympathetically listened as divorcees testified to their struggles to raise children while being pursued by the Internal Revenue Service for tax debts, often unknown to them, that were attributable to their ex-husbands’ income. Rather than adopting one of many proposals to end joint and several liability, Congress instead… Read more

Cartelizing Taxes: Understanding the OECD’s Campaign against “Harmful Tax Competition”

Published Feb 20, 2015

Abstract Formed in 1961 to promote global economic and social well-being, the Organisation for Economic Co-operation and Development (OECD) has become the collective voice of rich countries on international tax issues. After an initial focus on improving commerce through addressing double taxation issues, the organization shifted to a focus on restricting tax competition and increasing… Read more

Deducting the Cost of Sex Reassignment Surgery: How O’Donnabhain v. Commissioner Can Help Us Make Sense of the Medical Expense Deduction

Published Feb 20, 2015

Abstract In February 2010, the Tax Court held that a taxpayer’s expenses incurred for hormone therapy and sex reassignment surgery were deductible as medical expenses under § 213 because they treated the disease of gender identity disorder. The court, however, was deeply divided in its determination of whether sex reassignment surgery qualifies as nondeductible cosmetic… Read more

Realization and Progressivity

Published Feb 20, 2015

Abstract The realization requirement is the income tax’s original sin. Although long-standing, it is widely considered the main source of tax complexity, inequity, and economic distortion. Despite these problems, realization is also considered a fundamental element of modern income tax regimes. It is explained early in most federal income tax courses as necessitated by problems… Read more

Tax Expenditures, Reform, and Distributive Justice

Published Feb 20, 2015

Abstract Tax reform is coming, and it will be an important part of any plan to avert national fiscal disaster. The President’s Fiscal Commission recently presented a proposal for comprehensive tax reform that will form the basis for serious legislative discussion. At the center of that proposal is elimination of “tax expenditures,” which are provisions… Read more

The Charitable Deduction Games: Are the Laws in Your Favor?

Published Feb 20, 2015

Abstract The article considers why the United States only grants a deduction for charitable contributions made to US charities from a historic standpoint and why doing so is problematic in the fight against global ills.  The Charitable Deduction Games examines an alternative approach to cross-border giving that is currently spreading throughout the European Union (“EU”) as a… Read more

Making Partnerships Work for Mom and Pop and Everyone Else

Published Feb 20, 2015

Abstract Entities treated as partnerships for tax purposes cover the spectrum from small Mom and Pop operations to mammoth enterprises owned by sophisticated partners. Designing tax law to govern this diverse array of entities is a challenging exercise since rules that are well suited to provide simplicity for entities at the small, unsophisticated end of… Read more

The Influence of Historical Tax Law Developments on Anglo-American Laws and Politics

Published Feb 20, 2015

Abstract This article highlights the influence of historical Anglo-American tax law developments on the formation of new political institutions and laws. In critical periods of English and U.S. history, individuals rebelled against arbitrary royal taxes. In turn, they demanded new tax laws that became embedded in documents from the Magna Carta to the English Bill… Read more

Doing Too Much: The Standard Deduction and the Conflict Between Progressivity and Simplification

Published Feb 20, 2015

Abstract In U.S. federal income tax, the standard deduction, along with the personal exemptions, provides taxpayers with a minimum amount of untaxed income, effectively creating a “zero bracket amount.” For historical and political reasons, however, the standard deduction also operates as a simplified substitute for the itemized deductions, such as the deductions for extraordinary medical… Read more

Circular Argument: What is Wrong, and Right, with the Circular 230 “Covered Opinion” Regulations

Published Feb 20, 2015

Abstract The covered opinion regulations set forth in Treasury Department Circular 230 impose a number of stringent requirements on the provision of written tax advice by attorneys, accountants and others admitted to practice before the Internal Revenue Service. Since they became effective in 2005, the covered opinion regulations have been disparaged by both practitioners and… Read more

Narrowing the Tax Gap Through Presumptive Taxation

Published Feb 20, 2015

Abstract This Article highlights the primary tax enforcement problem in the United States, that of noncompliant small and medium-sized businesses (“SMBs”), and it explores the possibility of a radical solution: shifting away from the current system, which attempts to tax the actual income of each business, and toward a system that taxes only a rough… Read more