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Abstract:
Federal, state, and local governments subject charities to many complicated, technical, and often obscure rules. Many of those rules carry stiff penalties, out of proportion to the rules' apparent importance. As a practical matter, charities often ignore rules such as those involving solicitation of contributions, sales tax, and the need for various operation and food permits. They do so with little risk: After all, who will pick on a Girl Scout bake sale simply because it lacks a solicitation permit and a state and local food inspection?

But, says Prof. Willis, controversial charities follow this trend of violations at their peril. In an age of gotcha journalism, groups such as the Boy Scouts must fear nongovernment scrutiny of their public behavior as much as - or more than - government scrutiny. Prof. Willis provides several small but nightmarish examples involving a Boy Scout car wash, a private school raffle, and a local environmental group doing battle with a cement plant. He then analyzes a large, controversial foundation based on publicly available documents. According to his analysis, the Bank of America Charitable Foundation Inc. lacks a valid charitable purpose and violates numerous civil rules regarding private inurement and self-dealing. He concludes the government should withdraw its exempt status and should subject both the organization and management to substantial taxes and civil penalties. He does not address the possibility of criminal liability.

Abstract:
Professor Willis responds to a Letter to the Editor published in Tax Notes on Oct. 8, 2001, and expands on his special report of Oct. 1, 2001.

He again argues that the historic Schlude doctrine should be overruled. To prove the thesis, he uses examples from two prior Tax Notes articles, concluding that the pro-Schlude analysis is flawed.

Primarily, the article counters the claim that overruling Schlude for recipients would necessitate treating payors similarly. Intuitively, that proposition seems valid; however, it does not stand scrutiny.

After demonstrating that the issues involve quantifiable factors, Willis challenges the pro-Schlude lobby to produce similar calculations supporting their theory.

Further, to defeat the earlier claim that the ideal (imputed interest) method of accounting for prepaid services is too complex, Professor Willis publishes an anti-Schlude calculator in JavaScript, which will compute the necessary deferrals and imputed interest.

Finally, he suggests that some tax law (code and regulations) be written in computer code rather than traditional English.

Abstract:
In this report, Willis argues that tax law should pay more, not less, deference to accounting principles. This contrasts with opinion offered in an earlier Tax Notes article. He demonstrates that accrual method taxpayers subject to the Schlude requirement of income recognition on receipt suffer: They effectively pay higher taxes than are economically justified. He suggests that the same analysis holds for accrual taxpayers affected by section 461(h), dealing with the economic performance requirement for deductions. While careful planning can reduce these adverse impacts, the author suggests a change in law.

One approach, deferral accounting, would solve much of the problem, although not all of it. Ideally, according to Willis, accrual taxpayers should be taxed on the economic substance of the transaction, which involves both deferral accounting plus application of time value of money principles, particularly those dealing with discount loans. But both approaches, he concludes, are far preferable to current law which distinguishes between taxpayers who borrow from their customers as opposed to those who seek capital elsewhere. This artificial distinction, argues Willis, is poor tax policy and results in unnecessary economic distortions.