How some corporations manipulate losses using Granite Trust transactions to avoid tax
December 2, 2024
Duncan Hardell
The Tax Law Center recently published a report highlighting a longstanding and common tax planning strategy that corporations use to minimize their taxes. This resource walks through the strategies at a simplified level for readers who are not tax lawyers and demonstrates the urgent need for enforcement by the IRS and new rules from Treasury and Congress.
Comment on Notice 2024-27 (Chaining)
November 27, 2024
Thalia Spinrad, Chye-Ching Huang, Mike Kaercher, and Kyle Sweeney
The Tax Law Center recently submitted a comment letter discussing “chaining,” which could help entities monetize clean energy credits by allowing certain entities to elect to receive payments under the Inflation Reduction Act (“IRA”) elective pay rules for credits they purchased under another IRA provision (transferability). As we have previously written, chaining could encourage investment and ensure broader tax credit access to new technologies and smaller businesses. Our comment explains why allowing chaining would be consistent with the statute. It further addresses how, if Treasury and the IRS were to allow chaining, they could adopt guardrails to address compliance and administrability concerns.
Uncovering the Cracks in Granite Trust Transactions (PDF)
November 18, 2024
Duncan Hardell, Thalia Spinrad, Kyle Sweeney, and Mike Kaercher
The Tax Law Center recently published a report in Tax Notes analyzing Granite Trust transactions. These transactions permit corporations to recognize certain built-in losses without meaningfully changing the economics of their business and may incorporate basis-shifting strategies using section 304 to arguably increase corporate losses. This potential for basis-shifting transforms what is commonly considered a timing issue into a problem of genuine tax avoidance. After exploring various arguments and options to address these transactions, the report concludes that lawmakers, Treasury, and the IRS should all consider taking steps to resolve the aspects of this problem that fall under their jurisdiction.
Comment on Guidance for Section 45Z Clean Fuel Production Credit
November 14, 2024
Grace Henley, Mike Kaercher, and Kyle Sweeney
The Tax Law Center recently submitted a comment letter discussing several key issues that should be considered while drafting proposed regulations for the section 45Z clean fuel production tax credit. The topics addressed include the incorporation of a substantial transformation standard, whether electricity should be treated as a “transportation fuel,” the definition of a qualified facility, and the emissions model that should be used for sustainable aviation fuel under section 45Z.
Amicus Brief in Sirius Solutions v. Comm’r
October 18, 2024
The Tax Law Center and Jonathan E. Taylor and Jessica Garland of Gupta Wessler PLLC
The Tax Law Center submitted an amicus brief to the Fifth Circuit in Sirius Solutions v. Comm’r on the meaning of “limited partner, as such” as used in section 1402(a)(13) of the Code, which excludes the distributive share of a “limited partner, as such” from self-employment tax. The brief explains that the structure, context, and purpose of section 1402(a)(13) make clear that “limited partner, as such” means a partner functioning as an essentially passive investor, rather than earning income from work. Therefore, if a state-law limited partner is not functionally a passive investor, they must pay self-employment taxes on their distributive share of partnership income. Grace Henley, Miles Johnson, Kelsey Merrick, and Thalia Spinrad led the Tax Law Center's work on this brief.
Supplemental Comment on Guidance for Sections 48E and 45Y Technology-Neutral Credits
October 15, 2024
Kyle Sweeney and Mike Kaercher
The Tax Law Center reviewed many of the substantive comments submitted to the proposed technology-neutral regulations and identified five requests from stakeholders that would lead to more credits going to combustion and gasification (C&G) facilities than the statute permits. In response, our supplemental comment lays out recommendations to ensure that the final regulations reflect the best reading of the tech-neutral statutes and maintain the integrity of the credits.
Modernizing Partnership Taxation
September 25, 2024
Miles Johnson, Sophia Yan, Chye-Ching Huang, and Grace Henley
Partnership tax reform should be a key part of the current and upcoming tax policy debate, with large parts of the 2017 Tax Cuts and Jobs Act set to expire at the end of 2025. Partnerships are a large and growing slice of the economy, representing almost 30 percent of business income in the United States. But partnership tax rules today have some critical weaknesses that generate wasteful planning, undermine equity, and reduce revenue. A new policy proposal from The Tax Law Center and The Hamilton Project examines the current structure of partnership taxation and presents a selection of reform proposals. Read a summary here and the full proposal here.
Amicus Brief submitted to the Tax Court in Patel v. Commissioner
September 6, 2024
Kelsey Merrick
The Tax Law Center submitted an amicus brief to the Tax Court in Patel v. Commissioner on the meaning of “relevant” under the codified economic substance doctrine at section 7701(o). The economic substance doctrine is a tool developed at common law that allows the IRS and courts to stop tax-avoidance schemes that are structured to comply with the letter of the law but lack any legitimate non-tax business purpose or economic benefits. In 2010, Congress codified this doctrine to require more uniformity in how courts test for economic substance and to deter taxpayers from entering such schemes by strengthening penalties. Our brief argues that section 7701(o) did not create a separate threshold test for relevance that must be satisfied before applying the doctrine and calls for such a test are an attempt to create an extra-statutory list of code provisions that are never subject to the doctrine, contrary to the text and congressional intent. Kelsey Merrick, Chye-Ching Huang, Thalia Spinrad, and Miles McClearn led the Tax Law Center's work on this brief.
The Moores Lost Their Claim and Moore (PDF)
August 19, 2024
Lily Batchelder, Ari Glogower, Chye-Ching Huang, David Kamin, Rebecca Kysar, Kelsey Merrick, Darien Shanske, and Thalia Spinrad
This June, the Supreme Court decided Moore v. United States, a potentially blockbuster tax case in which the petitioners (the Moores) argued for new limits on Congress’s taxing power. Our latest article, published in TaxNotes, explains that the Moores lost. As tax experts across the political spectrum urged, the Court properly rejected the Moores’ request to impose a new constitutional limit on Congress’s taxing power. Instead, the Court ruled on the narrower issue actually before it: the Court found that Congress can tax a shareholder or partner on their share of income realized at the entity level. And while the ruling was narrow, the majority explained the importance of Congress’s broad taxing power, suggesting that courts should reject any theory that, like the Moores’, would leave a “blast radius” of damage throughout the fiscal system.
Comment on Guidance for Sections 48E and 45Y Technology-Neutral Credits
August 1, 2024
Taylor Cranor, Grace Henley, Chye-Ching Huang, Mike Kaercher, Thalia Spinrad, and Kyle Sweeney
The Tax Law Center recently submitted comments on the proposed tech-neutral regulations for clean electricity generation and energy storage credits. The stakes of this guidance are high: the tech neutral credits are a driving force in reducing electric power sector emissions, and electric power sector emissions could be responsible for 65-75% of the estimated greenhouse gas reductions achieved by the entire Inflation Reduction Act. However, the ultimate outcome will depend on the final regulations. Our comment notes that the proposed regulations provide helpful clarity and certainty to the vast majority of renewable energy projects and solicit further input on whether other technologies should be considered eligible for a tax credit. Other issues we address in the comment include the proposed definition of a combustion facility, double dipping between sections 48E and 45Q, using negative emissions from displaced electricity to achieve net zero, and emissions exclusions for hydropower facilities.
How large businesses use partnerships to create tax deductions out of thin air: An explainer on related party basis shifting
July 26, 2024
Tax Law Center Staff and Miles Johnson
In June, Treasury and IRS announced an initiative to shut down tax-motivated related party basis shifting transactions. This explainer breaks down these transactions step-by-step to explain the issues at play and the need for guidance in this area.
Comment on the 2024-2025 Priority Guidance Plan
July 23, 2024
Tax Law Center Staff
Treasury and the IRS use the Priority Guidance Plan (“PGP”) to identify and prioritize tax issues that should be addressed through regulations and other types of guidance. The 2024-2025 PGP presents an important opportunity to build on recent IRS and Treasury progress clearing PGP backlogs and to increase consideration of proactive guidance projects -- including those that target noncompliance by wealthy tax filers and corporations, bolster information reporting, and level access for all taxpayers. Our comment covers approaches to clearing existing PGP projects, broad principles for establishing a more robust guidance agenda, and illustrative potential guidance projects.
Comment on Potential Guidance Project Addressing "Limited Partner" Status under Section 1402(a)(13)
July 22, 2024
Miles Johnson, Grace Henley, Chye-Ching Huang, Mike Kaercher, Kelsey Merrick, and Thalia Spinrad
The Tax Law Center recently submitted a comment on the potential project to issue guidance addressing "limited partner" status under section 1402(a)(13) of the Internal Revenue Code. Our comment provides a brief overview of the reasons why we believe that the best reading of section 1402(a)(13) is that it continues to provide authority for Treasury and the IRS to promulgate regulations or other guidance that lays out a functional test for "limited partner."
Comment on Notice 2024-54 and Forthcoming Guidance Regarding Partnership Related-Party Basis Shifting Transactions
July 17, 2024
Miles Johnson, Chye-Ching Huang, Mike Kaercher, and Kelsey Merrick
The Tax Law Center submitted comments on Notice 2024-54 and forthcoming guidance regarding partnership related-party basis shifting transactions. The proposed rules set forth in the Notice reflect a proactive effort to address a known aggressive and non-economic tax planning technique. Our submission seeks to provide some general comments on the approach taken in the proposed rules as well as some specific comments on their technical aspects.
Comment Regarding Stock Repurchase Excise Tax Proposed Regulations
June 21, 2024
Duncan Hardell, Chye-Ching Huang, Mike Kaercher, Kelsey Merrick, and Thalia Spinrad
The Tax Law Center recently submitted a comment on the recent stock repurchase excise tax proposed regulations. In these proposed regulations, Treasury and the IRS proposed a revised funding rule to prevent the widespread avoidance of section 4501(d)(1), which imposes the stock repurchase excise tax on certain acquisitions of an applicable foreign parent company’s stock by a domestic affiliate. As our comment details, Congress granted Treasury and the IRS clear and explicit authority to promulgate regulations to prevent the avoidance of this tax in section 4501(f) and Treasury and the IRS have ample authority to finalize the funding rule as proposed if that is the result of reasoned decision-making.
Comment on Proposed Rules to Exclude Certain Entities from Subchapter K for Direct Pay on IRA Credits
May 10, 2024
Taylor Cranor, Chye-Ching Huang, Miles Johnson, Mike Kaercher, Kyle Sweeney, and Roger Baneman
The Tax Law Center and Roger Baneman submitted comments recommending Treasury expand the proposed partnership opt-out rules to allow tax-exempt and governmental entities to more easily elect out of partnership tax treatment for all of the clean energy credits, not just electricity generation credits. We also asked Treasury to clarify certain aspects of the rules, including the rules for delegating authority to enter into agreements to sell power, and to provide additional taxpayer services to ensure applicable entities have the tools needed to form the joint ownership structures envisioned by the new guidance. These regulations have the potential to modernize section 761 guidance and allow more flexible ownership structures for clean energy projects.
Amicus Brief supporting the government in NSBU v. Yellen
April 22, 2024
The Tax Law Center and Jonathan E. Taylor of Gupta Wessler PLLC
Our brief argues that in addition to being a constitutional exercise of Congress’s national security and commerce powers, the Corporate Transparency Act (CTA) is a constitutional exercise of Congress’s taxing power. The brief explains why, as the Supreme Court and lower courts have recognized, the IRS needs to know who may owe a tax to be able to assess and collect it and details how the CTA in particular gives the IRS information “in aid of a revenue purpose” -- including by giving the IRS information about who has true ownership of complex structures involving entities that have obligations to report under the CTA. The brief further explains the interconnected nature of financial crimes and how identifying and stopping tax evasion also supports other goals, including identifying and stopping money laundering. Thalia Spinrad, Kelsey Merrick, Chye-Ching Huang, Sophia Yan, Miles Johnson, and Grace Henley led the Tax Law Center's work on this brief.
Who Speaks Up about the Tax Regulatory Agenda?
March 25, 2024
Chye-Ching Huang and Emily Shi
A new paper from the Tax Law Center, published in Tax Notes, explores who weighs in on the annual Priority Guidance Plan (PGP), which Treasury and IRS use as a roadmap for their tax regulatory agenda. Looking at three cycles of public comments between 2018 and 2021, we find that the bulk of the 187 comments came from trade groups, industry interests, professional organizations, and law firms, accounting firms, or tax consulting firms, while only one percent came from public interest entities.
Supplemental Comment on Proposed 45V Regulations
April 2, 2024
Taylor Cranor, Kyle Sweeney, Chye-Ching Huang, and Mike Kaercher
As a follow up to our main comment on the proposed 45V regulations, we submitted a supplemental comment responding to Treasury's request for input on alternative approaches to the incrementality pillar. Our supplemental comment reiterates that the lifecycle emissions of clean hydrogen must account for significant induced grid emissions, meaning any alternative approaches must be supported by "reasoned decisionmaking" and a factual record that shows such emissions are appropriately accounted for as required by the Administrative Procedures Act.
Comment on Guidance for Section 45V Credit for Production of Clean Hydrogen
February 26, 2024
Taylor Cranor, Grace Henley, Mike Kaercher, and Kyle Sweeney
At the end of 2023, Treasury and the IRS released proposed regulations implementing the Inflation Reduction Act’s clean hydrogen tax credit. The statutory language requires Treasury to include both direct and significant indirect emissions associated with hydrogen production in the emissions analysis that determines a taxpayer’s credit amount. Modeling by independent experts and analysis from DOE and EPA concludes that induced emissions from the production of hydrogen are significant indirect emissions that must be accounted for. The proposed rules would give practical effect to the statutory requirements, providing a pathway for electrolytic hydrogen to qualify for credits while accounting for significant indirect emissions and thus ensuring credits do not wastefully subsidize projects that increase systemwide emissions. These rules lay an important foundation for implementation of the tech-neutral tax credits for generation and fuels, which kick in for new projects starting next year and also require consideration of greenhouse gas emissions.
Improving Categorical Non-Enforcement in the Tax System
February 9, 2024
Chye-Ching Huang
Full Version With Executive Summary
Executive Summary
Within the past year or so, Treasury and the IRS have announced several decisions to delay the implementation of new tax rules beyond statutory deadlines or to not strictly enforce certain statutory provisions on a “categorical” basis (for broad-based swaths of filers or defined situations). Lawmakers in both houses of Congress and of both parties have expressed concerns about Treasury’s and the IRS’s authority to make several of these non-enforcement decisions. This paper offers several recommendations intended to help improve Treasury and the IRS use of categorical non-enforcement authority. It addresses in three parts: I. What is the source of Treasury and the IRS’s authority for categorical non-enforcement of tax laws, and what are the limits of that authority? II. When and how is it sound for Treasury and the IRS to exercise their discretion to issue categorical non-enforcement relief? III. How can Treasury and the IRS ensure that exercise of non-enforcement discretion is transparent and consistent? The Appendix lists and describes a number of recent categorical non-enforcement decisions.
Suggestions for Partnership Regulations
December 13, 2023
John Rooney and Grace Henley
The IRS has recently announced several welcome initiates to improve audits of large and complex partnerships, signaling an increased emphasis on partnerships. Partnerships—which vastly outnumber public firms—control over $30 trillion in assets, channel significant profits to the top one percent of filers, and account for a substantial portion of owed but unpaid taxes (more than 25%, according to recent research). Substantive reform that fully addresses non-compliance and holes in the tax base impacting partnerships will be a long and somewhat difficult process requiring changes to laws and regulations. But in the meantime there are still meaningful steps Treasury and the IRS can take towards reform, as we explore here.
Recommendations for Guidance Regarding Broker Reporting of Digital Asset Transactions
November 13, 2023
Taylor Cranor, Mike Kaercher, and Sophia Yan
The Infrastructure Investment and Jobs Act (“IIJA”), Pub. L. No. 117–58, clarified and expanded the broker reporting rules under sections 6045 and 6045A of the Internal Revenue Code (the “Code”) as applied to brokers of digital assets. On August 29, 2023, the Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) issued proposed implementing regulations. This comment analyzes the definition of “digital asset middleman” with a focus on the “position to know” standard described in Prop. Treas. Reg. § 1.6045-1(a)(21).
This comment letter begins by outlining how the IIJA clarified the application of 6045 to digital assets. It then provides a technical description of how the “position to know” standard fits into the definition of “broker,” and the fact that this rule is an exception to—rather than an expansion of—the scope of the general rule. The comment then turns to a discussion of Treasury and the IRS’s statutory authority to interpret the scope of the term “broker” and set appropriate limits on its definition. Next, it discusses why the “position to know” standard is administrable for brokers, customers, and the IRS. Based on this analysis, this comment determines that the “position to know” standard is consistent with the best reading of the statutory text, with congressional intent, and with tax administration principles. Based on this analysis, we recommend finalizing the “position to know” standard.
Response for the Record to Questions Following the Hearing, "Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies"
November 9, 2023
Chye-Ching Huang
Our executive director Chye-Ching Huang gave testimony to the Senate Finance committee during the hearing “Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies.” Afterwards, the Tax Law Center responded to senators’ questions for the record, on issues ranging from the relationship between the racial wealth gap and the overall tax gap to the true cost of congressional proposals to extend TCJA tax cuts.
Written Testimony and Oral Testimony for Hearing, "Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies"
November 9, 2023
Chye-Ching Huang
Guide to Amicus Briefs Filed in Moore v. United States
This page provides a summary and links to relevant briefing by both sides in the litigation including amicus briefs. Read selected additional commentary illustrating the range of tax system participants concerned about the potential outcomes of the case.
This brief—filed on behalf of the Tax Law Center and four tax law scholars—explains that the real question presented in this case is not whether taxation of income requires realization, but instead, whether Congress may attribute income realized by a corporate entity to its shareholders and assess a tax based on their pro rata shares. It also explains that in relying on Macomber to argue that the answer to that question is no, the petitioners’ theory contravenes a century’s worth of judicial decisions and congressional enactments. Counsel for this brief are: Jonathan E. Taylor (Counsel of Record) and Alisa Tiwari of Gupta Wessler LLP, and Thalia Spinrad.
Written Testimony and Oral Testimony for Hearing, “Medicare Forever: Protecting Seniors by Making the Wealthy Pay Their Fair Share”
September 27, 2023
Chye-Ching Huang
This testimony focuses on three important ways to broaden the federal tax base and shrink the federal tax gap: 1) Rejecting proposals currently on the table that would increase tax non-compliance and weaken the tax base; 2) Addressing the "big three" areas of the tax base that need attention: income from extraordinarily large fortunes, large U.S. multinationals’ foreign profits, and income flow through "pass-through" entities; 3) Choosing from the menu of other options, large and small, to broaden the tax base, as outlined further in the testimony.
Comment on Tax Treatment of Payments Received Through Certain Accident and Health Insurance Plans Regardless of the Medical Expenses Incurred
September 11, 2023
Sophia Yan, Grace Henley, Thalia Spinrad, and Jason Levitis
On July 12, 2023, the IRS and Treasury, the Employee Benefits Security Administration and the Department of Labor, and the Centers for Medicare & Medicaid Services and the Department of Health and Human Services released a number of proposed regulations generally concerning health insurance plans that do not provide comprehensive coverage. This comment letter, coauthored with Jason Levitis of the Urban Institute, analyzes the tax provisions of these proposed regulations, which clarify the tax treatment of certain benefit payments received under fixed indemnity insurance (including hospital indemnity) and specified disease or illness plans, without regard to the actual medical expenses incurred.
Specifically, the proposed regulations clarify that payments from such plans that are not tied to a specific section 213(d) medical expense are not excludable from income under section 105, and that excludable payments must be substantiated by plans making the payment under 105(b). The comment concludes that this clarification is limited in scope, compelled by statute, and within the authority of Treasury and the IRS even if these clarifications are thought to be changes in rule or practice.
Access-Oriented Performance Measurement for Refundable Tax Credits: Issues and Options
September 6, 2023
Kathleen Bryant and Chye-Ching Huang
Together, the EITC and CTC lifted 10.6 million people above the poverty line (including 5.5 million children) and made 17.5 million people less poor (including 6.4 million children) in one recent year. But available evidence suggests that millions of eligible people – primarily those with very low incomes falling below the required federal tax filing threshold, or “non-filers” – are not receiving the EITC and CTC. Much remains unknown about the full scope of this problem, including precise estimates of households falling into the EITC and CTC “participation gaps,” the demographic composition of these gaps, and the relative importance of the various reasons why eligible households may not claim tax benefits. This paper explores the potential benefits and challenges of the IRS designing and implementing a performance measurement framework focused on improving EITC and CTC uptake. Such a framework could drive activity to better understand the true size and composition of the EITC and CTC participation gaps, and guide program administrators, policymakers, and other stakeholders towards the most effective strategies for boosting uptake, such as outreach and enrollment initiatives, program delivery improvements, and potential statutory changes to eligibility and delivery. Such a framework could consider dimensions including the cost-effectiveness of interventions, impacts on equity, and, ideally outcomes for the wellbeing of households receiving the credits, including potential financial, health, educational, and other benefits.
Recommendations for Guidance Regarding Elective Payment of Applicable Credits and Transfer of Certain Credits
August 14, 2023
Mike Kaercher, Taylor Cranor, Kyle Sweeney, John Rooney, Sophia Yan, Grace Henley, and Roger Baneman
This comment analyzes selected issues arising in the implementation of sections 6417 and 6418 of the Internal Revenue Code (the “Code”), which were added to the Code by Pub. L. No. 117-169 (known as the Inflation Reduction Act or “IRA”). The IRA extended, expanded, or created over twenty tax credits and deductions meant to encourage the adoption and deployment of clean technologies.
From Bad to Worse: Section 1202 and the House Tax Package
July 6, 2023
John Rooney, Grace Henley
Section 1202 was enacted in 1993 as an incentive for investments in small businesses, but the section has instead become an unnecessary subsidy for well-off taxpayers and VC funds investing in companies that would have launched with or without the benefit of section 1202. The proposed changes in the House tax package would only increase this subsidy without providing any additional incentive to invest in small businesses and would create some potentially serious new loopholes. Instead of expanding section 1202, the better approach would be to repeal the statute or, at a minimum, amend section 1202 to narrow the definition of a small business and repeal the $10 million gain exemption. These amendments would refocus section 1202 on its original purpose of incentivizing new investments in small businesses.
Debt Ceiling Deal’s Cuts to IRS Funding Bring the IRS Funding Cliff Closer: Appropriators Should Not Compound Harm
June 28, 2023
Chye-Ching Huang, Thalia Spinrad, and Kathleen Bryant
This paper explains how the deal to avoid U.S. default by suspending the debt limit will implement $21.39 billion of direct cuts to the Inflation Reduction Act's mandatory money for the IRS, and how setting inadequate levels of IRS base appropriations could translate into even larger cuts to the IRA's mandatory funding. We recommend that lawmakers appropriate IRS funds for FY2024 at the levels requested by the Biden budget, preserve the remaining IRA mandatory funding, and address the forthcoming "cliff" in IRS funding by the end of 2025.
Written Testimony and Oral Testimony for Hearing, “American Ingenuity: Promoting Innovation Through the Tax Code”
June 6, 2023
Michael Kaercher
This testimony focuses on three key points: (1) Reaching small businesses with direct tax subsidies requires careful policy design. Most federal tax subsidies take the form of non-refundable tax credits, deductions, accelerated cost-recovery, or income exclusions. Each of these types of subsidy requires the taxpayer to have income tax liability. Often, startup and small businesses do not have substantial (or any) income tax liability. Furthermore, even profitable small and startup firms may find that complexity can erode the value of tax subsidies. (2) The tax system supports critical investments in innovation outside of direct business subsidies. Investments like the Child Tax Credit can help future U.S. workers, researchers, innovators, and entrepreneurs realize their full potential. And the core function of the tax system is to raise revenue, which can be used to fund the public research and investment that supports a dynamic economy. (3) Tradeoffs matter. Choosing among different methods of supporting innovation often involves tradeoffs, as the options must be weighed against each other and prioritized within fiscal and political constraints.
Examining IRS Commissioner Werfel's remarks on audit rates — and what the IRS should do next
April 26, 2023
Chye-Ching Huang and Kathleen Bryant
This brief discusses Commissioner Werfel’s recent remarks on how the IRS plans to operationalize the Administration’s pledge that audit rates will not rise for tax filers with incomes below $400,000. We explain that the IRS should aim to return to representative historical levels of audit rates as quickly as possible rather than maintaining audit rates for 2018 tax returns; change how audits are distributed under the $400,000 threshold; and follow through on previous statements indicating that the pledge will only apply to households with less than $400,000 in actual income, or income that has been adjusted for under-reporting.
Amicus Brief Supporting the Government's Motion to Dismiss in The Buckeye Institute v. IRS
April 17, 2023
Brandon DeBot, with co-counsel Jonathan E. Taylor of Gupta Wessler PLLC and C. Benjamin Cooper of Cooper Elliot
The Tax Law Center filed this amicus brief supporting the government’s motion to dismiss in The Buckeye Institute v. IRS. The case involves a constitutional challenge to a federal statute that has existed for more than 50 years—the requirement that charitable organizations identify their major donors in their federal tax filings if they wish to receive the benefits of tax-exempt status under section 501(c)(3) of the Internal Revenue Code. The Tax Law Center’s brief explains why this reporting requirement directly advances the government’s interest in revenue collection. As the brief concludes: “A finding that the requirement is unconstitutional would directly undermine the federal tax base and would threaten the integrity of the tax system. The requirement is crucial to the federal government’s revenue collection efforts, and it should be upheld in its entirety.”
Congress Should Extend Wash Sale Rules to Digital Assets
April 17, 2023
Taylor Cranor and Michael Kaercher
In its latest Greenbook, the Treasury Department proposed extending the wash sale rules to digital assets. The wash sale rules currently prevent taxpayers from engaging in wash sales to harvest losses on stocks and securities, but not on digital assets. Lawmakers should apply the wash sales rules to digital assets, which would prohibit an aggressive tax planning practice, treat digital asset investors the same as other investors, and raise revenue.
New Evidence on Racial Disparities in IRS Audit Selection Calls for Immediate Action
March 2, 2023
Kathleen Bryant and Chye-Ching Huang
A recent working paper has found that although the Internal Revenue Service (IRS)’s audit selection processes are ostensibly “race-blind,” Black tax filers are 2.9 to 4.7 times as likely to be audited by the IRS as non-Black tax filers. Our report summarizes the paper’s conclusions, explains what we do and do not know about the causes of these disparities, and outlines next steps for policymakers to address racial disparities in audit selection.
Comment Letter with Additional Recommendations For Guidance On Corporate Alternative Minimum Tax Implementation
December 6, 2022
Rose Jenkins and Peter Richman
The recently-enacted corporate alternative minimum tax requires the computation of a corporation’s adjusted financial statement income (“AFSI”) for two significant purposes. First, AFSI helps determine the tax base of the new regime. Second, AFSI helps determine whether a corporation is potentially subject to tax. The Tax Law Center submitted a comment letter addressing numerous technical issues that could impact the computation of AFSI, primarily in the context of related entities.
Comment on Proposed Regulations Regarding the IRS Independent Office of Appeals
November 10, 2022
Brandon DeBot and Peter Richman
The Treasury Department and the IRS recently released proposed regulations clarifying when taxpayers have access to the Independent Office of Appeals (Appeals). The Tax Law Center submitted a public comment detailing why the proposed regulations are substantively sound and offering recommendations. In particular, the comment articulates why the proposed regulations correctly exclude from Appeals’ consideration (1) decisions regarding certain types of letter rulings; and (2) certain cases concerning challenges to the constitutionality of a statute or the validity of regulations or administrative guidance. The comment also recommends strengthening the second exclusion.
Strengthen the Generation-Skipping Transfer Tax to Address Dynasty Trusts
November 2, 2022
Tabetha Peavey, Rose Jenkins, Taylor Cranor, Brandon DeBot
Assets of perpetual dynasty trusts can grow indefinitely and benefit multiple successive generations with little to no federal gift, estate, or generation-skipping transfer (GST) tax consequences. This proposal recommends that Treasury and the IRS strengthen existing regulations for the GST tax and propose additional regulations to clarify the application of GST tax rules and raise GST tax revenues from perpetual dynasty trusts.
Tax Law Center Memo on FY2024 Greenbook
October 2022
The Tax Law Center
The General Explanation of the Administration's Revenue Proposals, or "Greenbook," is released by the Treasury to accompany and explain the President's Budget. Our submission for proposals to include in the FY2024 Greenbook includes recommendations that would promote sound tax administration, save and raise revenues, and improve the fairness and integrity of the tax system.
Limit the Use of Abusive Valuation Discounts in the Transfer Tax System
October 21, 2022
Tabetha Peavey, Rose Jenkins, Taylor Cranor, and Brandon DeBot
High-net-worth individuals can abuse “valuation discounts” to significantly reduce the value placed on their assets for the purposes of calculating estate, gift, and generation-skipping transfer taxes, and so decrease their transfer tax liability.
This proposal would use Treasury’s regulatory authority to strengthen existing regulations to curtail the most abusive valuation discounts and create a set of valuation assumptions that would more closely align asset valuation for transfer tax purposes with economic reality.
Comment Letter On Corporate Alternative Minimum Tax Implementation
September 28, 2022
Peter Richman, Sophia Yan
The recently-enacted corporate alternative minimum tax includes numerous grants of regulatory authority to the Secretary of the Treasury Department. The guidance issued pursuant to this authority will play a critical role in ensuring the successful implementation of the new tax. The Tax Law Center submitted a comment letter articulating our understanding of the purposes of certain statutory provisions referenced under those grants of authority and their implications for regulatory and sub-regulatory guidance.
Taxing Digital Assets: What's at Stake?
August 4, 2022
Michael Kaercher, Taylor Cranor
The Responsible Financial Innovation Act (RFIA) proposes to give digital assets special tax advantages over most other types of property. This report analyzes three major tax provisions of the RFIA, concluding that they would subsidize the use of digital assets and harm tax administration. Please see our executive summary for a high-level overview of the report.
Comment Letter to Proposed Rules under Section 2010
July 25, 2022
Tabetha Peavey
The Tax Law Center submitted a public comment encouraging the IRS and Treasury to strengthen a proposed anti-abuse rule in the transfer tax space. The rule aims to prevent tax filers from making sham “gifts” before 2026 to exploit the temporarily increased “lifetime exemption” for estate and gift taxes and ultimately lower their estate tax bills at death. This comment includes recommendations that would ensure the anti-abuse rule is applied consistently to abusive transfers.
Six Economic Facts on International Corporate Taxation
June 13, 2022
Chye-Ching Huang, Rose Jenkins, Wendy Edelberg
This set of facts, co-authored with Wendy Edelberg of The Hamilton Project, illustrates key aspects of the current international corporate tax landscape. These facts highlight the motivations for tax proposals that U.S. lawmakers are considering and their interaction with the "Inclusive Framework deal," a historic new multilateral agreement.
Comment on Proposed Regulations Addressing the ACA’s “Family Glitch”
June 6, 2022
Michael Kaercher, Chye-Ching Huang, Jason Levitis
On April 5, 2022, the Treasury Department and the IRS released proposed regulations to address the so-called “family glitch” under the premium tax credit (PTC). The family glitch prevents certain dependents of employees from qualifying for PTC, and by extension for advance payments of PTC and cost-sharing reductions, through the Affordable Care Act’s (ACA’s) Marketplaces. This comment letter, co-authored with Jason Levitis of the Urban Institute, provides an analysis of the legislative and regulatory text that resulted in the family glitch. Based on a close reading of the ACA’s text, this comment concludes that the affordability rule in the 2013 Final Regulation was incorrect, and that the rule in the 2022 NPRM is faithful to the ACA’s plain language, statutory construction, and legislative intent.
Comment on the 2022-2023 Priority Guidance Plan
June 2, 2022
Tax Law Center
Treasury and IRS use the Priority Guidance Plan to identify and prioritize tax issues that should be addressed through regulations and other types of guidance. Our submission on the 2022-2023 PGP recommends certain projects that would promote sound tax administration, encourage stronger tax compliance, and improve confidence in the fairness and integrity of the tax system.
Issue Brief on Rebalancing Reporting on Sources of the Tax Gap
May 3, 2022 (Updated July 11, 2023)
Tax Law Center
The issue brief provides more detail on the treatment of refundable tax credit error compared to the other elements of the tax gap, including the statutory and regulatory regimes that govern reporting on these sources of error.
Letter on Electronic Tax Administration Advisory Committee Application Process
March 23, 2022
Tax Law Center
The IRS is currently selecting the next cohort of Electronic Tax Administration Advisory Committee (ETAAC) members for three-year terms beginning in September 2022. Consistent with that call for applications, this letter recommends, as the IRS reviews applications, strongly prioritizing the selection of ETAAC applicants with expertise on the barriers that low- and moderate-income families face to electronically filing their federal tax returns and claiming refundable credits. In the letter we also recommend prioritizing the selection of applicants that understand the intersections between racial equity and access to technology.
Exclusionary Effects of the IRS Correspondence Audit Process Warrant Further Study
February 18, 2022
Kathleen Bryant, Chye-Ching Huang, Leslie Book, T. Keith Fogg, and Nina E. Olson
This report recommends that the Administration conduct or facilitate research on the share of EITC recipients that do not make it through the correspondence audit process and have the credit disallowed, despite being truly eligible. The correspondence audit process is often challenging for filers with low incomes to navigate, and there is suggestive evidence that a significant share of filers who have their EITC denied or reduced on audit in fact meet the underlying eligibility criteria for the credit. The report discusses potential research approaches, and why this research would be consistent with Executive Orders to advance racial equity and improving federal service delivery.
Comment on Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network, which relates to regulations to be promulgated under the Corporate Transparency Act
February 7, 2022
Sophia Yan
The Corporate Transparency Act (CTA) is part of the Anti-Money Laundering Act of 2020, which modernizes and reforms the Anti Money Laundering (AML)/Combatting Financing of Terrorism (CFT) regime. The CTA requires certain entities to report on their ultimate beneficial ownership to Treasury and became law on January 1, 2021. The Financial Crimes Enforcement Network (FinCEN) will implement and maintain the secure database of beneficial ownership information required by the CTA. This rulemaking is the first of three and addresses FinCEN’s implementation of the CTA’s beneficial ownership reporting requirement.
The Tax Law Center’s comment on FinCEN’s proposed rules makes a series of recommendations aimed at ensuring that the implementation of the CTA is highly useful for tax enforcement and administration. This is necessary to meet the statutory requirements and purposes of the CTA, given the strong links between the AML/CFT regime and both domestic and international tax administration.
Tax Law Center Memo on FY2023 Greenbook
December 2021
The Tax Law Center
The General Explanation of the Administration's Revenue Proposals, or "Greenbook," is released by the Treasury to accompany and explain the President's Budget. Our submission for proposals to include in the FY2023 Greenbook includes recommendations that would promote sound tax administration, save and raise revenues, and improve the fairness and integrity of the tax system.
Slides for Center for Taxpayers Rights Events
October 25, 2021
Kathleen Bryant, Chye-Ching Huang
The slides outline findings from a Tax Law Center research paper co-authored with Professors Jane Millar and Peter Whiteford on how to design a monthly Child Tax Credit to avoid risks of families having to repay substantial amounts. The work relates the research to current policy proposals under consideration in the US. and discusses the measurement and treatment of error in the Child Tax Credit and Earned Income Tax Credit compared to other sources of the “tax gap” of taxes owed but not paid voluntarily on time.
Response for the record to Senator Lee's questions following the hearing, Building Back Better: Raising Revenue to Invest in Shared Prosperity"
October 6, 2021
Chye-Ching Huang
This response explains why policymakers should not prioritize repealing the state and local tax (SALT) deduction cap over more progressive investments under the Build Back Better package, and also addresses concerns about the cap's effect on state budgets.
Response for the record to Senator Reverend Warnock's questions following the hearing, "Building Back Better: Raising Revenue to Invest in Shred Prosperity"
October 6, 2021
Chye-Ching Huang
This response explains why the Child Tax Credit (CTC) is so important for families and communities across the country. Chye-Ching discusses the long-term benefits of investments like the CTC.
Written Testimony for Hearing, “Building Back Better: Raising Revenue to Invest in Shared Prosperity”
October 6, 2021
Chye-Ching Huang
This testimony explores how sound tax policy can lift living standards of low- and moderate-income Americans and support economic growth with broadly shared benefits. Tax policy designed to achieve these goals should: raise revenues to support investments and ensure that investment flows to where it is most productive rather than where tax savings are the most lucrative. The testimony outlines revenue-raising proposals that are well-tailored to these ends. It reviews the evidence on this approach to tax policy versus one that focuses on maintaining tax cuts and subsidies for capital income.
The Importance of Minimizing the Risk of Repayment When Delivering Monthly Child Tax Credit Payments: Lessons from the United Kingdom, Australia, New Zealand, and Canada
July 13, 2021
Kathleen Bryant, Chye-Ching Huang, Professor Jane Millar, Professor Peter Whiteford
Lawmakers in the US are considering how to improve the design of the monthly Child Tax Credit. Some other countries with child benefits adopted a design that required some families to pay back large amounts of their child benefits when their family circumstances changed. In the United Kingdom, Australia, and New Zealand, repayment obligations imposed financial hardship on many families and caused substantial program instability. Canada's approach reduces but does not eliminate repayments. US lawmakers can adopt a design that reduces or avoids the risk of Child Tax Credit repayments.
Letter on IRS Advisory Council Application Process
July 8, 2021
Tax Law Center
This letter includes recommendations for the IRS, which is currently accepting applications to serve on the IRS Advisory Council (IRSAC) for three-year terms beginning in January 2022. Consistent with that call for applications, we recommend, as the IRS reviews applications, strongly prioritizing the selection of IRSAC applicants who have expertise on federal tax administration and compliance issues affecting low- and moderate-income families. We also recommend prioritizing the selection of applicants that have demonstrated expertise in the racial equity implications of federal tax policy and administration.
Comment on the 2021-2022 Priority Guidance Plan
May 28, 2021
Tax Law Center
The Treasury/IRS Priority Guidance Plan identifies and prioritizes tax issues that should be addressed through regulations and other types of guidance. Our submission on the 2021-2022 PGP recommends that Treasury and the IRS place strong weight on projects that have strong tax administration and compliance benefits, and/or are important to low- and moderate-income filers. Heavily weighting such considerations would be consistent with Executive Order EO 13985 On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.
Comment on Advance Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network, which relates to regulations to be promulgated under the Corporate Transparency Act
May 5, 2021
Professor Susan C. Morse, Professor Gregg D. Polsky, Professor Stephen E. Shay, Tax Law Center
The Corporate Transparency Act (CTA) is part of the Anti-Money Laundering Act of 2020, which modernizes and reforms the Anti Money Laundering (AML)/Combatting Financing of Terrorism (CFT) regime. The CTA requires certain entities to report on their ultimate beneficial ownership to Treasury and became law on January 1, 2021. The Financial Crimes Enforcement Network (FinCEN) will implement and maintain the secure database of beneficial ownership information required by the CTA. This comment on one stage of FinCEN’s implementation of the CTA: (1) notes the strong link between the AML/CFT regime and domestic and international tax administration; (2) discusses tax administration access; (3) proposes a broad definition of “other similar entities” under the CTA; and (4) discusses tax law’s experience that different kinds of entities and arrangements are often easy to substitute for one another.
Written Testimony for Hearing, “Funding Our Nation's Priorities: Reforming the Tax Code's Advantageous Treatment of the Wealthy”
May 12, 2021
Chye-Ching Huang
This testimony focuses on aspects of the US federal tax system that give income generated by wealth certain tax benefits not available to income from work. It explains: (1) how these tax breaks are not only outright tax cuts, but also affect the tax system by leading to wasteful tax avoidance, sheltering, and even evasion; (2) how low- and middle-income workers typically have a very different experience of the tax system; and (3) the tradeoffs between maintaining these tax subsidies versus proposals to make other investments.
Testimony for the Hearing “How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment”
March 25, 2021
Chye-Ching Huang
This testimony first explains how elements of the post-2017 structure of the US international tax regime are opportunities and incentives for multinationals to locate profits and activities offshore. Second, it describes how some structural elements of this regime can be salvaged and strengthened to form a workable, coherent tax structure. Finally, it outlines how doing so would complement multilateral efforts to reform a century-old international tax framework.