One of my pet peeves is that newspapers will publish stories about some court opinion or other public document, but not provide any link to the documents themselves.  As a consequence, readers will walk away with only the reporter’s view of why the document was of significance, which view is likely further circumscribed by an editor who is hard put to limit the amount of information in the story due to space considerations.

Sen. Ron Wyden sent a letter to the NRA.  His letter was prompted by his interest in determining “the possibility that Russian-backed shell companies or intermediaries may have circumvented laws designed to prohibit foreign meddling in our elections by abusing the rules governing 501(c)(4) tax exempt organizations.”  Sen. Wyden asked for material relating to four specific areas of inquiry.  He received from the NRA only  a partial response to the four specific requests.  I have posted, as a single file, Sen. Wyden’s letter and the NRA’s response with my markups.

The response is, at best, an attempt to deflect the inquiry.   For instance, the NRA was asked:

  • To “identify any remuneration, transaction, or contribution that involved any of the 501(c)(4) entities associated with your organization and any entity or individual associated with any Russian official, Russian national, or Russian business interest.”  The NRA simply ignored that request; and
  • To provide “all documents related to any remuneration, transaction, or contribution” and to identify all such documents that “have already been turned over to United States authorities.”  Both requests were ignored.

Without being specific, the NRA assured Wyden that it always complied with federal election laws. Ultimately, it offered this: “As a longstanding policy to comply with federal election law, the NRA and its related entities do not accept funds from foreign persons or entities in connection with United States elections.” (Emphasis supplied.)

In other words, the NRA did not deny that it was, in terms of its lobbying and “educational” efforts, a mouthpiece of the Russians, but merely that Russian cash had not found its way into any direct political contribution fund.

Nothing to see here.

The Death of Irony

The following are two sequential paragraphs from the obituary in the Baltimore Sun of Kingdon Gould Jr., a great-grandson of robber baron Jay Gould:

When asked in 2014 by a Howard County Times reporter what he had learned from his great-grandfather’s life, Mr. Gould said: “So-called financial success is relatively short-lived, and depending on the quality of the people that inherited it, it can all evaporate.”

As a child he lived in a triplex apartment of 20 rooms and eight baths in Manhattan. He attended the Millbrook School and went off to Yale University to major in English literature.

Sales Tax

Last week, the Supreme Court issued cert in the case of South Dakota v. Wayfair, Inc.  The question before the Court is whether it should abrogate its holding in Quill Corp. v. North Dakota which re-affirmed the Court’s holding in Nat’l Bellas Hess, Inc. v. Dep’t of Rev. of Ill. that the dormant commerce clause prohibits a state from requiring retailers to collect sales taxes on sales into a state unless the retailer is “physically present” there. In Quill, the Court held that “Congress is now free to decide whether, when, and to what extent the States may burden interstate mail-order concerns with a duty to collect use taxes.”

Given the massive shift to online purchasing since Quill, it would seem to be sensible to all interstate sales even if the sellers lack a physical presence in the taxing state. Whether this is sufficient to change the Constitutional doctrine set forth in Nat’l Bellas Hess and Quill is a question that I won’t opine on here. However, there would seem to be no question that, without a national framework, there will be practical problems in imposing and collecting sales taxes on interstate sales.

There are about 10,000 different jurisdictions that impose sales taxes.  Thus, sellers are likely to face problems in effecting compliance. As noted by Avalare:

ZIP codes are commonly believed to be the basis of a sales tax jurisdictional boundaries and rates. . . .Sales tax is imposed by local and regional governments and have no direct correlation between ZIP code boundaries and tax jurisdictions.

However, without a national framework, taxing authorities will have to deal with significant enforcement problems:

We can assume that large retailers will do their best to honestly comply with sales taxes imposed by any of those 10,000 jurisdictions. But what about smaller retailers?  Take a look at this story as to how easily one one can become a “drop-ship” entrepreneur.  Absent some uniform system of compliance enforcement, smaller retailers will simply ignore the collection of sales taxes on their sales. (While there are provisions in most sales tax statutes that impose liability for sales taxes on so-called “responsible persons,” the practical ability to collect from responsible persons who are outside of the taxing authorities’ actual location is zero.)

There is no uniformity among sales tax statutes as to what items are taxable and what items are exempt. To cite a fairly trivial example, some states exempt their own state flags, but not the flags from other states.  More significantly, grocery items are sometimes taxed and sometimes exempt.  (At one time, bibles and other religious articles were often exempt, but these exemptions have been successfully challenged on First Amendment grounds.)

The point is that, even if the Supreme Court overturns existing precedent, there will have to be Congressional legislation to relieve sellers from compliance burdens and to give state and local jurisdictions the tools to enforce their tax impositions.



In three sentences in the same paragraph of the interview that Donald Trump gave to the NYT, he managed to first deprecate the technical abilities of some of my best friends and then a good number of the contributors to this blog.

First, he said “I know the details of taxes better than anybody. Better than the greatest C.P.A.”  While I’m not a CPA (note to the NYT editors:  the three letters of that professional designation are not supposed to be separated by periods), I do have an LL.M. in Taxation from Georgetown University Law Center.  I work every day with CPAs and I take it personally when the President of the United States attacks their professional abilities.  I have to assume that the only reason that he did not boast that he knew taxes better than any lawyer with a LL.M. in taxation was that he simply did not know that such an academic degree even exists.

But here’s the worse news for this blog.  In the very next sentence he said “I know the details of health care better than most, better than most.”  Take that Keith Humphreys, Miriam Laugesen, Harold Pollack, and Don Taylor.

I haven’t read the entire transcript.  I assume that if Trump goes after drug policy experts, the blog will have to cease publication and Mark will be forced into retirement.

Ripple Effects

Tonight, Fox News will undoubtedly be highlighting the report by the CBO and the JCT that the passage of the Dream Act “would increase budget deficits by $25.9 billion over the 2018-2027 period, boosting on-budget deficits by $30.6 billion and decreasing off-budget deficits by $4.7 billion over that period.” At least in part, the calculations are clearly incorrect because the report does not take into account the provisions of the new tax bill.

Here’s the pertinent portion of the report that deals directly with the tax effects (pages 15-16 of the pdf):

Higher revenues, according to JCT’s estimates, would largely stem from increased reporting of employment income by people who would legally be allowed to work under the legislation. That increase in reported wages would cause increases in receipts, mostly in the form of Social Security taxes, which are categorized as off-budget. In addition, CBO and JCT estimate that an increase in the number of people paying penalties associated with not having health insurance would increase revenues by $0.7 billion over the 2018-2027 period.

Those increases in revenues would be mostly offset for two reasons. First, increased reporting of employment income would result in increases in tax deductions by businesses for labor compensation, including those businesses’ contributions to payroll taxes. As a result, corporations would report lower taxable profits and pay less in income taxes. Noncorporate businesses, such as partnerships and sole proprietorships, also would report lower taxable income, which would decrease individual income taxes paid by the partners and owners. The decrease in income tax receipts would total $3.8 billion over 10 years. Second, CBO and JCT estimate that there would be a $1.2 billion decrease in revenues over the 2018-2027 period associated with increases in the nonrefundable portion of the premium assistance tax credit provided through the health insurance marketplaces established under the Affordable Care Act.

The new tax bill would increase the bottom line cost because it does away with the heath insurance penalties (an increase of $0.7 billion), but decrease the bottom line cost because, by lowering the tax rates on businesses, the tax decreases the $3.8 billion that the CBO/JCT estimates will be lost if the Dream Act is past due to increased business tax deductions.

Going one step further, the CBO/JCT estimates that the Dream Act will cost the federal government $11.8 billion in subsidies for health insurance purchased through the marketplaces. (Pages 10-11 of the pdf.) Of course, this assumption is incorrect, since it does not factor in the reduction of the subsidies anticipated as a result of the tax bill.

Finally, the report anticipates that passage of the Dream Act “would increase outlays for the . . . child tax credits, which are refundable, by $5.5 billion over the 2018-2027 period.”  (Page 12 of the pdf.) Of course, this is now incorrect since the tax act first increases the amount of the child tax credit, but then lowers the threshold when it phases out.

I will update this posting when I can get better numbers from the CBO on the tax bill. Suffice it to say, however, the headline numbers on the CBO/JCT report on the Dream Act are simply wrong.

Junior’s Claim of Attorney-Client Privilege

Donald Trump, Jr., has claimed that the attorney-client privilege allows him to dummy up before a Congressional committee concerning a meeting with Daddy because there was an attorney in the room at the time.  Quite apart from being laughable on its face, there appears to be a more fundamental problem that Junior faces with respect to his assertion of attorney-client privilege.  It seems that the attorney-client privilege may not be a bar to a Congressional inquiry in the same way that it is in the context of a judicial proceeding.  See The Attorney-Client Privilege in Congressional Investigations.  That is, even if the communication was a legitimate attorney-client communication, Junior could still be compelled to testify.

A Few of My Favorite Things

I suppose that everyone has a favorite provision of the GOP tax bill. From the Joint Committee’s staff macroeconomic analysis of the bill, there’s this gem on the possible effects of the changes to the estate tax (PDF page 6):

[I]t is also possible that individuals subject to the estate tax desire to leave a specific dollar amount to their heirs; in this case, an increased exemption would allow them to reach that target amount more quickly, thus reducing their incentive to work and invest. In addition, to the extent that the increased exemption from this tax increases the amount of income received by heirs, this could reduce the labor supply and savings of the heirs, thus reducing the amount of growth in the economy.

That’s right boys and girls: Donald Junior and Eric will likely spend even more time than their dad on leisure pursuits.

Same As It Ever Was

Beginning Sunday, the biggest tobacco companies in the U.S. will start running an advertising campaign highlighting the health risks and addictive nature of smoking tobacco.  The campaign is the result of a judicial order entered in 2006 in the case of U.S. v. Philip Morris USA, Inc., 449 F.Supp.2d 1 (D.D.C. 2006).

The opinion, with the table of contents, runs 1,682 pages. I will not pretend that I have read even one-tenth of the opinion. However, I did read the introduction. I have posted the table of contents and the introduction in which I have highlighted two long passages, the first in green beginning on pdf page 33 and the second, highlighted in blue, beginning on pdf page 37. Here, I will only address the passage highlighted in blue. The passage illustrates how, even in the course of litigation, the tobacco companies played fast and loose with the truth, attempting to deny the reality of negative health effects from tobacco use.

Of course, this strategy has been adopted wholesale by industries that would face negative economic consequences if we began to address the reality of global climate change. If you don’t believe me, then read the following direct quote from the opinion, modified by adapting it to the context of climate change (and with footnotes omitted):

[S]everal observations need be made about witness bias and credibility. For the most part, each individual Chapter in the Findings of Fact explains why certain facts were found, why certain witnesses were credited, and why the testimony of certain witnesses was either discredited as just plain not believable or, in most instances, outweighed by other more convincing and credible evidence.

Most of the witnesses whose testimony was most vehemently attacked by the Defendants . . .were only relied upon for undisputed or relatively insignificant background facts . . ., or testified about remedies which this Court could not consider on the merits . . . .

Much of the Defendants’ criticisms of Government witnesses focused on the fact that these witnesses had been long-time, devoted members of “the public health [and climate science] community.” To suggest that they were presenting inaccurate, untruthful, or unreliable testimony because they had spent their professional lives trying to improve the public health of this country [and doing scientific research] is patently absurd. It is equivalent to arguing that all the Defendants’ witnesses were biased, inaccurate, untruthful, and unreliable because the great majority of them had earned enormous amounts of money working and/or consulting for Defendants and other large corporations, and therefore were so devoted to the cause of corporate America that nothing they testified to, even though presented under oath in a court of law, should be believed. Such simplistic attacks on the credibility of the sophisticated and knowledgeable witnesses who testified in this case are foolish.

All of this is not to deny that there were significant differences in the overall qualification of the Government’s witnesses and the Defendants’ witnesses. There were. The Government’s witnesses, viewed as a whole, were far more experienced, credentialed, and active in the area of [science and climate research], whatever their particular area of specialty, than were the Defendants’. Many of the Government experts had participated extensively, over many years, in the long and drawn-out process of ascertaining the consensus of scientific opinions . . . . Virtually every one had taught at a well-regarded academic institution and written numerous peer-reviewed articles in their particular area of specialty. Many of the Government witnesses continued “hands on,” [scientific research] in their fields despite heavy commitments for research, writing, teaching, and lecturing to their peers.

The Defendants’ witnesses were obviously well educated in their areas of specialty. Indeed, as was mentioned on many occasions, Defendants even presented the testimony of an impressive Nobel Prize winner. However, rarely did these witnesses have the depth and breadth of experience of the Government witnesses. Many had worked only in large corporations, and many for only one or two such employers. Many—although not all—had written relatively few peer-reviewed articles. Many of the highest paid experts of Defendants, while well credentialed in their particular fields, such as economics, presented relatively narrow testimony tailored to the particular problem or issue they were retained to opine on for purposes of this litigation. A few of Defendants’ experts had done virtually no individual research and written virtually no peer-reviewed articles, and a few were unfamiliar with the relevant facts and/or the major scientific literature on the issue about which they testified.

While the testimony of each person— expert or fact witness—was evaluated on its own merits, there can be no denying that, as a group, the Government’s witnesses were far more knowledgeable, experienced, and active in their respective fields.

This line of defense by the tobacco industry was first outlined in a 1972 memorandum from Fred Panzer, Vice President of the Tobacco Institute:

Our 1970 public opinion survey showed that a majority (52%) believed that cigarettes are only one of the many causes of smokers having more illnesses. It also showed that half of the people who believed that smokers have more illness than non-smokers accepted the constitutional hypothesis as the explanation.

Thus, there are millions of people who would be receptive to a new message, stating: Cigarette smoking may not be the health hazard that the anti-smoking people say it is because other alternatives are at least as probable. The Roper Proposal would be a persuasive (if not strictly scientific) medium for this message.

Put the Panzer quote into the context of 2017 and the war against climate science: There are millions of people who would be receptive to the message that: Green house gases and global climate change may not be the hazards that the scientists people say they are because there are other alternatives that are at least as probable. This would be a persuasive (if not strictly scientific) message.

P.T. Barnum may or may not have said “There’s a sucker born every minute.”  But it’s true enough.

Planning in the Age of Uncertainty

Quite aside from the Robin-Hood-In-Reverse economic effects of the proposed GOP tax bill, the bill already poses practical difficulties in planning. Take for instance, the proposed change in the tax treatment of alimony that I previously discussed .

Imagine that there is, right now, an ongoing negotiation of a divorce separation agreement. The stronger economic party (generally the husband) puts an offer on the table that is less than optimum for the weaker party (generally the wife). Since the effective date of the change in alimony rules applies for separation agreements entered into after December 31, 2017, the stronger party can credibly say: “Look, take this deal now. It will only get worse for you if you wait since the tax benefit will disappear after December 31. At that point, I can’t offer you as much alimony since the effective rate on the entire economic package, including any amount that I pay you in alimony, will go up.” Thus, assuming two well-informed parties, the proposed bill has already affected the bargaining process since the pressure tactic can have real teeth.

Another example is one that I am facing in my practice. Client intends to lease commercial real property and operate his business out of that property. The lease is supposed to give my client an option to purchase the real estate. The preliminary documents provide that the option was to be fully assignable, but the other side has now raised an objection to the free assignability of the option. However, the ability to freely assign the purchase option takes on greater importance in light of proposed changes under the GOP tax bill.

Under current law, “material participation” in a real estate venture is generally a good thing since it allows otherwise passive losses to offset active income from a business. Under the GOP proposal, the value of material participation is turned on its head because the income from pass-thru entities in which owners don’t materially participate is substantially lower than income from businesses in which they do materially participate. (From a tax policy standpoint the rule change may be a disaster. Daniel Shaviro has shown that the Service’s enforcement of this “new” material participation rule will face some significant practical impediments.  Thus, the tax loss from the provision could, over time, be far greater than now anticipated, since the concept of “material participation” cannot be accurately gauged by an examining revenue agent.)

As a consequence, my client cannot be flexible on this point since he really doesn’t know (i) whether the bill will pass, (ii) if it does pass, the precise details of the new material participation rules, and (iii) what sorts of tax planning issues he will face ten years out as the law under the new rule develops.

So much for simplicity.