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Abstract:
This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during 2007 - and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline. The outline focuses primarily on topics of broad general interest (to the three of us, at least) - income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services.

Federal Income Taxation, Corporate Taxation, Tax Procedure

Abstract:
The United States is awash in a sea of debt. In the midst of the most severe recession since the Great Depression, loan delinquencies and charge-offs are at levels heretofore unknown in the modern financial era. Every loan charge-off and mortgage foreclosure has tax consequences. While the creditor most often claims a bad debt deduction or business related loss, the debtor generally must recognize gross income and pay income taxes on an amount roughly equal to the creditor’s loss, unless a special exception applies to exclude the debt relief from income. This article deals with the tax consequences to the debtor of the discharge of a debt for less than full payment. It first explain the origins and rationale for the rule, now codified in § 61(a)(12), that requires the inclusion of '[i]ncome from discharge of indebtedness.' The article then examines the various events that trigger recognition of income under § 61(a)(12). Following that discussion, the article deals with the manner in which the amount of income from discharge of indebtedness is computed. This part of the article also discusses the tax consequences to a business entity that issues an equity interests to a creditor to satisfy a debt. Finally, the article explores the myriad of statutory rules in §108 that permit nonrecognition income from discharge of indebtedness under particular circumstances, and the various ancillary consequences that follow from nonrecognition. Throughout, the article explores the relationship of income from discharge of indebtedness to realization of gain from the transfer of property to satisfy a debt by contrasting the tax consequences of transfers of property to discharge a debt with the consequences of discharge of a debt for less than full payment.

Abstract:
This article discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during 2008 - and sometimes a little farther back in time if the authors find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted. Amendments to the Internal Revenue Code generally are discussed to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, or (3) they have affected previously issued rulings and regulations otherwise covered by the outline. The outline focuses primarily on topics of broad general interest - income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services.

Federal Income Taxation, Individual Taxation, Corporate Taxation, Partnership Taxation, Tax Procedure, Tax Penalties

Abstract:
This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during 2006 - and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Marty the opportunity to mock our elected representatives. The outline focuses primarily on topics of broad general interest (to the two of us, at least) - income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services. Please read this outline at your own risk; we take no responsibility for any misinformation in it, whether occasioned by our advancing ages or our increasing indifference as to whether we get any particular item right. Any mistakes in this outline are Marty's responsibility; any political bias or offensive language is Ira's.

Taxation, Income Taxation, Corporate Taxation, Partnership Taxation, Federal Tax Procedure

Abstract:
This article first examines in detail the increasing concentration of income and wealth in the top one percent, and particularly within much narrower cohorts near the top of the top one percent, that has occurred over the past twenty-five years. It demonstrates the strong Matthew effect in incomes in the United States over that period. The super-rich are pulling away from everyone by so much and at a rate so fast that the fact that incomes of many households at the bottom and in the middle have stagnated, or even fallen in constant dollars, has been obscured by ever increasing per capita income.

The article then examines changing effective federal tax rates over the last two decades of the twentieth century. By the close of the twentieth century the tax system was not raising revenue as fairly and was doing less to mitigate inequality than it had in the middle of that century. Tax legislation in the twenty-first century continued this trend by providing tax cuts very disproportionately in favor of those at the top of the income pyramid with very small tax cuts going to everyone else.

The article then demonstrates that economic theory does not support the argument that the tax cuts were necessary to spur incentives to save and invest and to work, and that the empirical evidence of the effect of tax cuts on savings and investment clearly contradicts the claims made by supporters of the tax cuts. It examines the rapidly growing body of economic literature supporting the thesis that economic inequality impedes economic growth rather than fostering it, and concludes that because the tax cuts increase inequality, they probably impede economic growth.

After analyzing the economic issues, the article discusses the philosophical basis for a highly redistributive tax system, arguing that in a modern industrialized democracy, most of what everyone earns is attributable to infrastructure created by society acting as a whole, principally through government. The article then examines the paradox of public concern with increasing economic inequality, thinking it undesirable, and while simultaneously supporting tax cut legislation that in fact delivers vastly disproportionate benefits to the super-rich.

Finally, the article suggests that its time for the tax system to address these problems by substantially increasing progressivity at the top of the income pyramid. Future tax legislation ought to mitigate the Matthew effect, rather than enhance it.

Tax Policy, Progressive Taxation, Tax Rates

Abstract:
This recent developments outline discusses, and provides context to understand, the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during 2005 - and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Marty the opportunity to mock our elected representatives. The outline focuses primarily on topics of broad general interest [to the two of us, at least] - income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services. Please read this outline at your own risk; we take no responsibility for any misinformation in it, whether occasioned by our advancing ages or our increasing indifference as to whether we get any particular item right. See VIII.C. for restrictions on your use of this Outline, i.e., readers are not permitted to use anything contained in this outline for purposes of giving advice to clients on any tax avoidance technique.

Taxation, Income Taxation, Corporate Taxation, Partnership Taxation

Abstract:
Over the past few years, the applicability of the attorney-client privilege, the related section 7525 tax practitioner-client privilege, and the work product doctrine have emerged as significant issues in tax litigation. For the most part, the recent cases have arisen in the context of marketed tax shelters and other aggressive tax planning transactions, but a few of the cases have surfaced in more prosaic contexts. As a result of the recent firestorm of controversy in this area, tax practitioners are becoming increasingly conscious of the importance of raising privilege and work product doctrine challenges when the Service seeks information about taxpayers' transactions pursuant to a summons or in the course of discovery. This article is intended to acquaint practitioners with the core principles governing resolution of controversies of this nature.

Abstract:
This special report discusses one aspect of the proposed regulations dealing with the exchange of a partnership interest for services. The proposed regulations would provide complete nonrecognition of gain or loss to the partnership issuing a partnership interest for services, while allowing a deduction for the full fair market value of the partnership interest granted to the service partner. This special report explains that the proposed regulations are wrong in that regard. In light of the legislative history and statutory structure, section 721 simply cannot be read to provide nonrecognition to a partnership that admits a service-provider partner with a capital account that is transferred in exchange for services. McMahon concludes that either the transaction must be a recognition event or the partnership's deduction (or capitalized amount) must be limited to a pro rata portion of the partnership's aggregate basis for its assets.

Abstract:
This report examines recent proposals to codify the economic substance doctrine, focusing on the version proposed in the unenacted American Competitiveness Act of 2002. For a transaction to satisfy the economic substance doctrine under that proposal, it would have to meet a conjunctive test requiring, first, that the transaction change the taxpayer's economic position in a meaningful way apart from federal income tax consequences, and, second, both that the taxpayer have a substantial nontax purpose for entering into such transaction and the particular transaction is a reasonable means of accomplishing that nontax business purpose. The report traces the origins of these requirements to various judicial applications of the economic substance doctrine, or one of the various other judicial antiabuse doctrines, beginning with Gregory and going all the way up to the recent decision of the Court of Appeals for the District of Columbia in Boca Investerings, and generally supports the proposal and defends it against criticisms that have been levied. Some codification of the economic substance doctrine looks to be necessary to assure better consistency of philosophy in applying this standards-based overlay to the mechanical rules of the code and regulations, and to preserve the antiabuse doctrine against increasingly frequent overly literalistic judicial interpretations of the code and regulations, as in the Supreme Court's recent Gitlitz decision. Any uncertainty for tax planning that might arise from a strengthened economic substance doctrine is not too high a price to pay for benefits of a stronger tool against tax shelters, because tax planning solely for the sake of tax planning, even if beneficial to the particular taxpayer, is not beneficial to society as a whole. Finally, if codifying the economic substance doctrine to aid in the battle against tax shelters is considered to be too drastic a solution, alternative amendments to particular code sections and an analogue to the passive activity loss rules of section 469 tailored to fit modern tax shelters might be in order. Section 165(a) could be amended to limit loss deductions to profit-seeking transactions; sections 183 and 465 could be extended to all taxpayers, including widely held C corporations; section 269 could be extended to acquisitions of interests in pass-through entities as well as corporations; the availability of section 453 installment reporting could be restricted and, finally, a schedular system to isolate losses from certain financial transactions (section 469A?) could be adopted. While these solutions are more rule-oriented, their potential complexity might make a somewhat vaguer economic substance standard look good.

Abstract:
Boris I. Bittker, Yale Law School, Martin J. McMahon, University of Florida College of Law, and Lawrence Zelenak, Columbia University School of Law, examine the capitalization rules under section 263A and highlight the "separate and distinct" test of Lincoln Savings and Loan Association and the "future benefits" test in INDOPCO.

Abstract:
This report argues that rigorous application of the judicial anti-abuse doctrines, such as business purpose, economic substance, and purposive activity, is necessary to police an overly literal application of the code and regulations that produces results that are absurd or "too good to be true." It argues that the "economic substance" test applied by the Courts of Appeals in cases like Compaq v. Commissioner and IES v. United States has become a useless mechanistic test. The classic Supreme Court jurisprudence supports the application of a "purposive activity" test that is closer to the analysis employed by the Tax Court in corporate tax shelter cases. Any planning uncertainty created by the application of these judicial anti-abuse doctrines should not be viewed as a problem worse than the problem their application is intended to remedy. In the face of aggressive marketing of and investment in loss generating tax shelters, the government has an obligation to the taxpayers who are not investing in these shelters to avoid settling tax shelter cases for less than full payment of the deficiency (and interest). Otherwise, at least as far as large corporations are concerned, there is a risk that our tax system will devolve into a negotiated tax system. In the face of the conflicting results in recent corporate tax shelter cases, the report suggests that the government should either pursue a litigation strategy designed to produce another Supreme Court opinion regarding the economic substance and purposive doctrines or seek legislation codifying the purposive activity doctrine.

Abstract:
Since the enactment of the Tax Reform Act of 1986, the treatment of interest expense deductions has become increasingly complex. Numerous commentators have bemoaned the inordinate complexity of the rules governing the tax treatment of interest expenses. Nothing has been done, however, to ameliorate that complexity. This report examines various suggestions - mostly old, some possibly new - for simplifying the interest deduction as it applies directory to individual taxpayers. In doing so it approaches the issues from a practical perspective, rather than from the perspective of an ideal model. Nevertheless, tax policy concerns remain important in determining the extent to which simplification would come at too high a price. The report concludes that the tracing rules for allocating interest generally are superior to any alternatives, and that only minor simplification of the substantive rules can be achieved without significant tax policy repercussions. Some simplification might be achieved by the partial restoration of the consumer interest deduction, through a capped "universal interest deduction" somewhat akin to pre-1986 section 163(d), and some changes in the home equity mortgage interest deduction might be worth considering. But no major simplification is easily achievable.

Abstract:
In this article Professors McMahon and Abreu examine data on changes in the distribution of income and show that those changes increasingly reflect a winner-take-all pattern in which economic rewards are increasingly skewed toward those at the top 1% of the income distribution. These changes in the distribution of income invite a re-examination of the arguments for progressive taxation, not because they strengthen the case for redistribution, but because they reflect a market in which progressive taxation is more efficient than proportional taxation. By analyzing the data on the distribution of income and constructing a model that reflects that distribution and makes conservative assumptions about the diminishing marginal utility of money, the article shows that the classic equity/efficiency trade-off is the product of an incrementalist distribution of income. The more the distribution of income reflects a winner take-all society, the more efficient progressive taxation becomes. Thus, we no longer have to choose between equity and efficiency because in a society with a winner take-all distribution of income, progressive taxation can give us both.

This project addresses the design of the rate structure only, taking as its starting point a base like the one employed by the current income tax system. Work currently in progress will consider the implications of the shifts in the distribution of income for the definition of the tax base and, specifically, for the taxation of income from capital.