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Abstract:
A small business seeking to start operations generally finds itself deciding among the following forms of operation: a sole proprietorship, a general partnership, a limited partnership, a limited liability company, a single member limited liability company, a Subchapter C corporation and a Subchapter S corporation. A wide variety of tax and non-tax considerations bears on this choice, including those related to long-term plans of the enterprise. This article gives an overview of these considerations, including key California concerns, and explains why limited liability companies have become the entity of choice for many small businesses.

Abstract:
Recently, patents for tax strategies have drawn attention from Congress, tax policymakers, the press and tax practitioners. The phenomenon of tax strategy patents worries many tax practitioners as a matter of both policy and practice. This article reviews four categories of concerns - patent policy, the nature of our tax system, tax policy, and the impact on the tax profession. It then considers four possible kinds of responses - prohibiting patents on tax strategies, granting immunity for infringements of tax strategy patents, reforming the patent process, and relying on changes to the tax law - such concerns suggest. In the course of this review, it compares proposals regarding tax strategy patents to the current prohibition on patents for atomic energy and nuclear energy and to the special immunity afforded physicians for infringement of medical procedure patents. It also considers whether granting tax strategy patents special treatment would raises questions under TRIPs. Finally, it discusses the trade-off that tax practitioners will face in seeking legislative or administrative action regarding tax strategy patents. To gain any kind of special treatment for tax strategy patents under the patent system, it concludes, tax professionals will have to show Congress how tax practice differs from other endeavors and why special treatment would not violate obligations under TRIPs.

Abstract:
With limited exceptions, Congress applied the American Competitiveness and Corporate Accountability Act of 2002, commonly known as the Sarbanes-Oxley Act, only to American publicly traded companies. Nonetheless invocation of SOX quickly reverberated across the nonprofit landscape, and nonprofits have been voluntarily adopting provisions like those in SOX. At the same time, however, SOX itself has been the subject of withering criticism. Some of these criticisms accept the purpose of SOX, but question the efficacy of particular provisions. Much of the criticism, however, is far more fundamental, that SOX's governance provisions represent a misplaced and unwarranted federalization, upsetting the proper balance between state and federal regulation by intruding into matters of corporate governance that have been and should remain the province of the states.

The basic question raised by SOX, the proper allocation and coordination of power between a federal agency, the SEC, and state law regarding corporate governance by public companies applies equally to the allocation and coordination of power between the IRS and state law for nonprofit governance. This parallel makes recent extensive critiques of SOX useful for examining similar issues, both specific and more general, that arise in regulation of nonprofits.

This piece discusses some, albeit not all, of the areas for which SOX has received so much criticism. The first set of criticisms goes to ways that SOX could be improved: loosening the required independence of the audit committee, establishing special small firm rules for both certification of financial statements and disclosure of internal controls, and eliminating the prohibition of executive loans. The second set of criticisms attack the premise of SOX, its so-called federalization of corporate governance: the inadequacy of federal judicial enforcement, the fear of federal regulatory overreaching, and alternatives to federal regulation. The article considers the implications of each of these criticisms for regulation of nonprofit governance.

The article concludes that the critique of SOX, when applied to the nonprofit world, in fact supports some expanded federal presence regarding corporate governance. If the arguments of even the most ardent opponents of federalization of corporate governance founder when considered in the context of the nonprofit sector, then the position of those who favor federal regulation is vindicated and strengthened. The piece makes several suggestions to that end, in particular federal incentives for education of nonprofit boards and a form of "cooperative federalism," in which federal law sets a floor for state regulatory programs.

Abstract:
The topic of patenting tax strategies raises a broad range of issues, from the most theoretical to the most practical. Questions of theory and policy include whether it is desirable for the patent law to authorize tax strategy patents and whether the government monopoly granted to a patent holder is fundamentally inconsistent with the policies underlying our tax system. Important practical issues include the impact on how tax practitioners advise their clients and their potential liability for inducing patent infringement. Issues in the middle of this spectrum include questions of institutional capacity, namely how best to ensure the quality of such patents.

Like other tax lawyers who have looked at this issue, I have concerns both about tax strategy patents that may not meet the patent criteria of novelty and non-obviousness and about others that may be novel and innovative, but are inconsistent with our tax laws. My testimony will address both categories, although I am, in fact, more concerned about the former - tax strategy patents that are not in fact novel - than the latter, tax strategy patents that are inconsistent with the tax law. I will begin with the practical issues raised by tax strategy patents, go on to the consideration of how we might improve the quality of tax strategy patents, and end by comparing the purposes of the tax law with the purposes of the patent law. In brief, I conclude that because a tax strategy patent constitutes a government-granted monopoly that turns on the interpretation of federal law, tax strategy patents differ from other business method patents in ways that require attention and action from the PTO, the IRS, associations of tax professionals, and this Subcommittee.

Abstract:
In our modern administrative state, Congress writes federal statutes and the other two branches of government share responsibility for interpreting them. Under Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984), sometimes courts are assigned primary interpretive authority; at other times, that task falls to the executive branch in the form of an administrative agency. The different institutional capacities and different roles of these interpreters in our constitutional system produce very different points of view and thus very different interpretive voices. This article, using the metaphor of the interpretive voice and examples from tax law, argues that United States v. Mead Corp., 533 U.S. 218 (2001), while it purports to clarify Chevron, in fact moves away from the principles underpinning Chevron.

Mead expands the judicial interpretive voice. It does nothing to limit the reach of Chevron Step One, where the judicial voice dominates. It cuts back on Chevron Step Two, the domain of the administrative voice. Mead accords Skidmore v. Swift, 323 U.S. 134 (1944), a newly important role, and the key factors of Skidmore - expertise, consistency, and valid reasoning - put particular pressure on administrative agencies to imitate the judicial interpretive voice. The factor of expertise, which triggers Skidmore deference, may seem to favor administrative agencies, but such is not necessarily the case when a specialized court, such as the Tax Court, is involved in statutory interpretation and can itself supply the necessary expertise. The factor of consistency imposes a kind of administrative stare decisis. The factor regarding the validity of an agency's reasoning gives insufficient weight to the ways in which an administrative agency is like a legislature rather than a court.

The article concludes that courts, like most of us, are most comfortable when they hear their own accents. Indeed, the administrative interpretive voice may be so different from the judicial one that each has difficulty in understanding the subtleties of the other. Administrative agencies need to amplify or translate such peculiarly administrative concerns, such as administrability of a particular statutory interpretation or an interpretation's impact on the statutory scheme as a whole, in order to make such concerns more salient to courts.

Abstract:
No provision of the Internal Revenue Code explicitly exempts states and their political subdivisions from federal income taxation. The IRS has concluded that states and their political subdivisions - which the IRS defines as entities with the sovereign powers of taxation, eminent domain, and police power - are free from federal income tax under an implied statutory immunity. That is, states and their political subsidiaries are exempt because no provision of the Internal Revenue Code taxes them as such.

States and their political subdivisions, however, are not the only governmental organizations that qualify for exemption. According to the IRS, if an organization or enterprise can qualify as an integral part of a state or political subdivision, it is also exempt on the basis of the implied statutory immunity. In addition, section 115, a relatively obscure provision of the Internal Revenue Code, excludes from federal tax "income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia." As interpreted by the IRS, however, section 115 does not afford the basis for exempting states and their political subdivisions from federal income tax. The IRS instead has concluded that section 115 applies to the income of an entity separate from a state or its political subdivision.

For particular purposes, the IRS and the Internal Revenue Code also recognize "instrumentality" as a category of entities separate from, but affiliated with, state and local governments. Unlike section 115 entities, instrumentalities are not exempt from tax by virtue of their status, although they may qualify for exclusion of their income under section 115. Indeed, the tests for status as a section 115 entity and those for status as an instrumentality exhibit striking similarities. Thus, rarely would an instrumentality fail to qualify as a section 115 entity.

This Article examines the tests for integral parts and for instrumentalities as well as those for section 115. It argues that the IRS could, and should, rationalize federal income tax treatment of governmental affiliates by promulgating regulations applicable to integral parts, section 115 entities, and instrumentalities. The long-standing tests for status as an instrumentality along with the statutory criteria for exemption of Workers' Compensation Act companies provide the model for the suggested regulations.

Abstract:
This article undertakes a critical evaluation of the Supreme Court's use of dictionaries. It does so by describing and applying principles of lexicography to show that dictionaries are not as authoritative, precise, or scholarly as we and the Justices often assume. Modern lexicographers see their task as describing how speakers of English use words. They do not seek or claim to prescribe how language should be used. Although modern dictionaries rely in part on other dictionaries' definition, they also develop an ongoing citation file, a collection of potential entries based on a variety of sources. Because of the constant change and growth of language, however, dictionaries are inevitably out of date by the time they are published. Moreover, definitions, which are abstracted from the survey of usages, are subject to stringent constraints on length. Technical vocabulary poses a particular challenge. Legal dictionaries, while they try to fill the gap in general dictionaries regarding specialized use of common terms, have their own limits. Black's Law Dictionary, for example has used judicial opinions as its primary citation source. The article applies such insights from lexicography to the Supreme Court's use of dictionaries in a number of cases, including Chisom v. Romer, National Organization for Women. v. Scheidler, MCI Telecommunications v. American Telephone and Telegraph, and Babbitt v. Sweet Home Chapter of Communities.

Abstract:
This essay, to be published in a collection entitled Faith and Law: How Religious Traditions from Calvinism to Islam View American Law (Robert Cochran, ed., NYU Press, forthcoming), gives a brief survey of Reform Judaism before focusing on the position of Reform Judaism in favor of gay and lesbian rights. It does so by examining the Reform movement's interpretation of Jewish texts, its treatments of gays and lesbians within the movement, and its positions on issues of public policy involving discrimination on the basis of sexual orientation. The essay gives particular attention to the Reform movement's position on and reaction to Boy Scouts of America v. Dale, 530 U.S. 649 (2000), the case holding that the group's First Amendment right of expressive association protected its policy of discrimination against gays as members or leader. After Dale was decided, the Reform movement urged its congregations and individual members to end any associations they had with Boy Scout troops. The essay concludes with the author's account of her own congregation's decision to end its sponsorship of a Cub Scout pack during her tenure as its president.

Abstract:
The premise of this article is that theoretical examinations of the working and interpretation of rules, such as Professor Frederick Schauer's Playing by the Rules, can illuminate and perhaps advance the debate about corporate tax shelters. In his book Schauer posits a close relationship between rules and their justifications. He further argues that rules not only foster predictability, reliance, and certainty, but also serve as devices for the allocation of power. This paper uses Schauer's work to suggest that the recent corporate tax debate has conflated concerns about the appropriate level of generality for tax shelter anti-avoidance rules with concerns about separation of power, failing to sort out the relationship between these different aspects of rules. Taking these concerns as separate parts of any analysis clarifies the issues at stake and their possible resolution. In particular, such an analysis underscores the extent to which parties to the debate disagree about the impact of such codified rules on judges, administrative agents, and tax professionals.

This paper uses the occasion of the current tax shelter debate to consider the perennial, recurring issues about rules versus standards and their codifications. This approach is necessarily incomplete. Part I of the paper summarizes Schauer's approach to rules and their justifications. Part II applies his concepts to the tax shelter debate. Part III explains that codification of broad standards raises important concerns about excessive exercise of administrative discretion, but that the administrative process in general and the tax administrative process in particular tend to operate to limit administrative discretion. The last section observes that private parties are concerned about the errors of administrative officials, while administrative officials are concerned about the errors of private parties. In the absence of empirical data about the size of the problem, resolution of this disagreement must be a matter of informed judgment, a best guess. Professor Schauer's analytical framework will enable us to ask more precise questions in making this judgment.

Abstract:
Churches often bear the burden of the Internal Revenue Code's electioneering prohibition without their contributors enjoying the benefit of a tax deduction. Although contributions to religious congregations may be deducted, many, perhaps most of them, are not because many of those who give to churches do not itemize their income tax deductions. In the past two years, Congress has had before it several bills that would permit nonitemizing taxpayers to deduct their charitable contributions. This Article argues that extending the deduction to nonitemizers raises important issues of tax policy that should concern religious organizations. The author contends that religious congregations will benefit from considering some of the difficult questions about the relationship of the charitable contribution deduction to the standard principles of tax policy. If they do, they might support either a deduction only above a floor or a charitable contribution credit rather than a 100% deduction for nonitemizers.

Abstract:
Each year Americans lose track of personal property worth, in the aggregate, hundreds of millions of dollars. We fail, for example, to cash checks for stock dividends or salary payments and neglect to claim security deposits or insurance benefits. Laws in all 50 states require businesses that hold certain kinds of unclaimed property to transfer such property to the state after periods of inactivity that vary from less than one to seven years. State governments do not themselves take title to this unclaimed property, but hold the property in perpetuity as custodian for the owner or the owner's heirs and devisees. As a result of the unclaimed property laws, states have acquired many billions of dollars of unclaimed property. This article discusses how the practical effects of these laws force us to reconsider some of the theoretical underpinnings of a variety of tax doctrines, including constructive receipt, the definition of debt, and the tax benefit rule. In particular, it exposes how our substantive tax laws assume that taxpayers act intentionally, as rational actors knowledgeable about and aware of their actions. The case of unclaimed property reminds us that our tax laws apply to human behavior and that our tax base needs to allow for human frailty. It helps us to highlight those tax doctrines, such as surrogate taxation or the rules applicable to fiduciaries, that allow for human carelessness. The study further suggests that the contours of many tax doctrines be limited to voluntary, or at least conscious, actions. Of special significance would be rethinking our notion of debt to require some conscious intention on the part of the taxpayer to make a loan.

Abstract:
When a disaster strikes the United States, Congress typically feels heavy pressure to enact legislation, including tax legislation, to provide relief. This Article discusses features of two tax legislative initiatives, which responded to two quite different disasters: first, the response to the devastation of the fall 2005 hurricane season and, then, the response to the earlier terrorist attacks on the World Trade Center and Pentagon of September 11, 2001. The Article first raises the possibility that some of the provisions of these acts may be vulnerable to indirect constitutional challenge under the Uniformity Clause. In examining some of the problems inherent in post-disaster tax legislation, it discusses the role, usually unfortunate, of sympathy in tax legislation. It goes on to consider how, despite the fact that the targets of relief legislation are generally thought to be people in need, it nevertheless seems to be the case that a good deal of the benefits of disaster legislation in the tax area goes to relatively high-income and high-wealth taxpayers. It asks whether a better approach can be institutionalized. It suggests that Congress identify those provisions enacted in response to the recent disasters that make sense generally, such as five-year carryback of net operating losses, and amend the tax code to adopt these rules generally. It further recommends that Congress identify those provisions needed in particular when a whole area is devastated - a five-year period for replacing destroyed property, credit for wages to pre-disaster employees, and routine entensions of filing deadlines - and make them available to any declared disaster area. It urges as well two kinds of longer-term approaches. One is to consider and evaluate disaster tax relief provisions as a kind of national insurance against disasters that the private market does not supply. The other is to develop off-the-shelf provisions to be activated when a disaster strikes.

Abstract:
As a result of the Supreme Court's decision in United States v. Mead Corporation, 533 U.S. 218 (2001), which emphasized "the great variety of ways in which the laws invest the Government's administrative arms with discretion, and with procedures for exercising it, in giving meaning to Acts of Congress," id. at 235-36, there is a need for an agency-by-agency consideration of the extent to which courts should give deference to administrative pronouncements under the mandate of Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984). Moreover, there is a particular need to develop a clear set of deference concepts for interpretations of the tax law because of, inter alia: (1) the power and pervasiveness of the IRS, (2) the large number and variety of administrative pronouncements issued by the IRS, and, (3) the Supreme Court's continuing reliance in its tax cases on the traditional test of National Muffler Association v. United States, 440 U.S. 472 (1978), rather than on Chevron.

The authors of the Report undertake this task as well as a review of recent case law and make the following recommendations: (1) Federal courts should give Chevron deference to regulations promulgated by the Treasury and the IRS, with (i) legislative tax regulations receiving controlling deference under Chevron so long as they are not arbitrary, capricious, or manifestly contrary to the statute, and (ii) interpretive tax regulations receiving the same controlling deference if they are reasonable under the test of National Muffler, which examines such factors as the extent to which the regulation harmonizes with the plain language, origin, and purpose of the statute; the manner in which the regulation evolved; the length of time the regulation has been in effect; the reliance placed on it; the consistency of interpretation; and the degree of scrutiny Congress has devoted to the regulation; (2) Federal courts should give temporary regulations the same deference as described above, provided that the promulgation of such regulations meets the good cause standards as specified in the Administrative Procedure Act for promulgating regulations without notice and comment; (3) Federal courts should give revenue rulings, certain revenue procedures and certain notices deference under the doctrine of Skidmore v. Swift & Co., 323 U.S. 134 (1944), which directs courts to take into account the agency's experience and its power to persuade, but to retain the ability to choose a better rule even if the agency interpretation is reasonable; and (4) Federal courts should take into account unofficial agency interpretations, such as private letter rulings, technical advice memoranda, and certain litigating positions, only to the extent to which their logic and reasoning appeal to the reviewing court.

Abstract:
Shakespeare has been quoted and invoked in numerous contexts, but, inexplicably, the insights his immortal words bring to tax law have been ignored. This short and lighthearted piece begins to fill that gap. Expanding on my remarks in accepting the 2009 Dana Latham Memorial Award from the Los Angeles County Bar Association Taxation Section, I discuss quotations from Shakespeare’s plays that illuminate important tax doctrines.

Abstract:
In tax law, as elsewhere, the federal government has treated native Americans and their tribal governments ineffectively and inconsistently. Examining the treatment of Indian tribal government under the Internal Revenue Code through the early 1990's demonstrates again their unique position in our federal system. The saga of how these tax laws affected tribal governments, however, also illustrates in dramatic microcosm the relationship between ambiguous statutory language, administrative discretion, and legislative oversight.

This article begins by reviewing IRS rulings that preceded any legislative action. Part II explores the forces that produced the Tribal Tax Act of 1982 and analyzes the legislative benefits of a vague statutory standard in connection with a key provision of the legislation, that giving the tribes authority to issue tax-exempt bonds for "essential governmental functions." Part II describes the response of the IRS to this statutory provision. It explains the impact of the tribal governments on the regulatory process and the significance of such participation on administrative discretion. Part IV considers the bond offerings undertaken by the tribes, all but one of which were leveraged buy-outs involving off-reservation businesses, as well as congressional action to halt such offerings and the consequences of the legislative changes. The articles concludes by observing that however one evaluates the result in the tribal bond case, this series of events demonstrates the need for active oversight by members of Congress who wish both to prevent lenient regulations under broad statutory delegations and to avoid costly ex post action, such as passing new legislation.

Abstract:
This report urges changes to the parsonage exclusion of section 107 beyond the recent amendment intended to resolve the dispute between the parties in the pending Warren litigation and thus prevent the Ninth Circuit from considering he constitutionality of section 107. For both furnished housing and the paid housing allowance, the proposed revision of section 107 would broaden the reach of the provision beyond ministers of the gospel to employees of any public charity. Such broadening would avoid possible Establishment Clause problems by including religious organizations in a larger group. It would also reflect our longstanding decision to favor and encourage organizations exempt under section 501(c)(3). For revenue, as well as policy reasons, however, the benefits of revised section 107 would be limited to those employees who must be available for emergency call at all times to meet with members, clients, or patients. As so revised, section 107 would be likely to benefit employees of social service and health care organizations as well as ministers.

The report proposes additional changes to the paid housing allowance. Under the suggested revision, qualified employees who rent or own their own homes would have an exclusion limited to a maximum of $15,000, a change that would transform the paid housing allowance into a special home office deduction. The paid housing allowance would also be subject to a phaseout as the total economic benefits paid to the employee increase above the level used to identify highly compensated employees under the pension laws, which is $90,000 for 2002. Section 107 revised along these lines would enable Congress, in our post-September 11 world, to encourage emergency provision of pastoral care, broadly defined, to a variety of charitable recipients.