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Abstract:
This Article analyzes the meaning of probability statements in tax law and in scholarship addressing civil tax penalties. Specifically, the Article draws on economics and the philosophy of mathematics to argue that because tax law is substantively uncertain, some probability statements in tax law are best understood as a reflection of the speaker's belief, rather than as a description of the number of times a given event will occur over the long run out of the number of times that it could occur. That is, these tax probability statements are best understood using a subjectivist interpretation of probability, rather than frequentist interpretation. Prior work in tax law scholarship in particular, and law and economics in general, has glossed over or misunderstood this crucial distinction.

Understanding that probability statements in tax law should be given a subjectivist interpretation changes both the theory and the practice of tax compliance. First, because tax probabilities represent beliefs, different parties - for example, Congress (the penalty-setter) on the one hand, and taxpayers on the other - may have different perceptions of the chances that a given transaction is permissible, and economic models should reflect these possibly disparate beliefs. Second, a subjectivist interpretation of tax probabilities provides additional support for stringent and much-criticized laws that regulate the substance of tax advisors' written opinions, as these strict rules may actually help tax advisors arrive at more accurate, less biased estimates of the chance that a tax position would be upheld by a court. And finally, a subjectivist interpretation suggests that lawmakers should be cautious of reducing tax law's uncertainty. If, as empirical work suggests, some taxpayers have an aversion to uncertainty, the uncertainty associated with whether certain questionable transactions are permitted (aside from any penalties imposed if transactions do turn out to be forbidden) may itself reduce the number of taxpayers who engage in these transactions.

tax, probability, penalties, welfarism, law and economics

Abstract:
The last five years have seen a huge increase in the general public's interest in microfinance, which provides financial services such as loans, insurance, and savings instruments to people living in poverty. At the same time, the popularity of social networking through the internet has exploded. These two worlds intersect in the form of websites that permit a U.S. individual to use PayPal or a credit card to loan small amounts of money to poor people around the world. By far the most successful of these microcredit websites was also the first such website: Kiva Microfunds, or Kiva.

Although loans through Kiva are truly loans (that is, the lenders expect repayment), Kiva loans pay the individual lender no interest. The right to use money for a period of time has, of course, a real financial value, as the tax code recognizes in many places. But under current law, even though Kiva is a tax-exempt organization, lenders through Kiva receive no tax benefit for the interest they forego when they loan money interest-free through Kiva. This Article argues that the law should be changed to allow taxpayers who lend money through a microfinance organization that qualifies as tax-exempt and who receive no interest or below-market interest on those loans the option of taking a charitable deduction for that foregone interest. The Article also proposes a novel and simple method for implementing this tax benefit.

The practical benefits of the deduction could be significant. Permitting a deduction for interest foregone on loans to Kiva and similar microcredit organizations will help these organizations thrive and thus, as the Nobel Committee stated about another microcredit institution, play a role as an "important liberating force" and a "major part" of eliminating poverty as we know it.

tax, tax-exempt, charity, charitable deduction, microfinance, microcredit, Kiva

Abstract:
The regulations accompanying section 72 of the Internal Revenue Code, relating to penalties for early withdrawals from qualified retirement plans, contain an outdated definition of mental disability under which almost no one with a mental illness today could be found to be disabled. This definition is incorporated by reference in many sections throughout the code and regulations. This article looks at the definition of disability in section 72(m)(7) and its corresponding regulations and shows how the current law was applied in the recent case of Keeley v. Commissioner. The article then shows that current understandings of mental disability, as well as the history of the statute and its regulations, mandate revision of the regulations. The article concludes that the current language of the regulations allows courts some leeway in determining whether an individual is disabled, however, and that courts therefore need not feel constrained by the outmoded sections of the regulations.

Tax law, disability, section 72

Abstract:
Some academics and politicians have proposed that taxpayers should be reimbursed for costs of randomly imposed tax audits, because, they argue, randomly imposing audit costs is unfair. But none of those proposing audit compensation has explained why randomly imposed audit costs are unfair, or why, if these randomly imposed costs are unfair, this unfairness necessarily means that taxpayers should be compensated. These are important questions, because explicit randomness is an essential tool for tax enforcement, and for other areas of law, but its use may be limited if randomness is equated with unfairness.

The Article argues that it is fair not to compensate randomly audited taxpayers for their audit costs, because the available of insurance against random audit costs cures fairness concerns under luck egalitarianism. Fairness may nonetheless matter for a less obvious reason: notwithstanding philosophical arguments to the contrary, individuals may perceive random audits as unfair. Empirical work has shown that individuals have a taste for fairness in tax law, and that the perception that tax law is unfair may reduce tax compliance. Therefore, perceived unfairness should be of concern to welfarists, among others.

Based on a comparison of random audits with other burdens randomly imposed by the government, the Article concludes that perceived unfairness may warrant nominal compensation for random audit costs. The costs of the perceived unfairness of random audits, as opposed to other types of randomly imposed burdens, may be particularly high because of general ignorance about, and negative perceptions of, our tax system. Compensation for random audit costs is therefore warranted not because it is actually unfair to impose audit costs randomly, but rather because such compensation may help to overcome perceptions of unfairness and thus to increase overall tax compliance.

Tax, audits, audit costs, fairness, welfarism, insurance

Abstract:
The “Option of Adoption Act,” a Georgia law that was introduced by a staunchly anti-abortion Georgia state representative, establishes procedures for genetic donors to relinquish their rights to embryos before birth and permits, but does not require, embryo recipients to petition a court for recognition that they are the legal parents of a child born to them as a result of an embryo transfer.

This article clears up what seems to be widespread confusion about a fairly straightforward question of tax law related to such embryo “adoptions.” Notwithstanding various sources' claims to the contrary, neither a Georgia adoption tax credit nor a federal adoption tax credit is available for “adopting” an embryo.

adoption, tax credit, Georgia, abortion