Tax Shelters and the Search for the Silver Bullet

This article describes the ongoing legislative and administrative efforts to curtail tax shelters. It concludes that these efforts, which rely largely on disclosure requirements and penalties, cannot succeed as long as taxpayers continue to win many of the litigated shelter cases. It also concludes that the recent proposal of the Joint Committee on Taxation, to codify the economic substance doctrine, is unlikely to solve the problem. Although the proposal would have the salutary effect of preventing courts from deciding that the economic substance doctrine does not exist, courts would remain free to conclude that the doctrine is not applicable in particular situations, or to find that the doctrine is satisfied in highly dubious circumstances. Narrowly tailored legislative responses to particular types of shelters are also not adequate as a solution to the overall shelter problem; since the legislative fixes are prospective only, taxpayers merely move on to new types of shelters not yet legislated against. Accordingly, the article suggests a new approach to the shelter problem, based on the general disallowance of noneconomic losses. This could be accomplished by either (1) the enactment of a Code provision flatly disallowing noneconomic losses, subject to an exception for noneconomic losses the deduction of which is clearly contemplated by Congress, or (2) a legislative grant of authority to the Treasury to promulgate regulations retroactively disallowing noneconomic losses, as necessary to prevent abuse

Tax Shelters and the Search for the Silver Bullet

This article describes the ongoing legislative and administrative efforts to curtail tax shelters. It concludes that these efforts, which rely largely on disclosure requirements and penalties, cannot succeed as long as taxpayers continue to win many of the litigated shelter cases. It also concludes that the recent proposal of the Joint Committee on Taxation, to codify the economic substance doctrine, is unlikely to solve the problem. Although the proposal would have the salutary effect of preventing courts from deciding that the economic substance doctrine does not exist, courts would remain free to conclude that the doctrine is not applicable in particular situations, or to find that the doctrine is satisfied in highly dubious circumstances. Narrowly tailored legislative responses to particular types of shelters are also not adequate as a solution to the overall shelter problem; since the legislative fixes are prospective only, taxpayers merely move on to new types of shelters not yet legislated against. Accordingly, the article suggests a new approach to the shelter problem, based on the general disallowance of noneconomic losses. This could be accomplished by either (1) the enactment of a Code provision flatly disallowing noneconomic losses, subject to an exception for noneconomic losses the deduction of which is clearly contemplated by Congress, or (2) a legislative grant of authority to the Treasury to promulgate regulations retroactively disallowing noneconomic losses, as necessary to prevent abuse

Granting Chevron Deference to IRS Revenue Rulings: The Charitable Thing to Do

The article focuses on the applicability of the standards of deference provided by the Chevron U.S.A. v. Natural Resources Defense Council, Inc. court case to U.S. Internal Revenue Service revenue rulings, and includes problems arising out of United States v. Mead Corp. court case

Golden Creditors, Copper Rules: An Analysis of Avoidance Actions Under Section 544(b) of the Bankruptcy Code in Cases Where a Federal Creditor Holds a Claim

Section 544(b) of the Bankruptcy Code endows the trustee with the power to avoid fraudulent transfers that an unsecured creditor could have avoided under applicable law. Most states have adopted versions of the Uniform Fraudulent Conveyances Act (UFCA) or Uniform Fraudulent Transfers Act (UFTA) that impose four- or six-year statutes of limitations on private creditors seeking to unwind fraudulent transfers. Certain government creditors, however, have access to longer statutes of limitation than those available to their private counterparts. Federal creditors acting pursuant to the Federal Debt Collection Procedures Act (FDCPA) or Internal Revenue Code (IRC), for example, can avail themselves of six- or ten-year limitations periods. Courts have disagreed sharply about whether the FDCPA and IRC constitute applicable law under Section 544(b) such that a claim held by a government creditor under the fraudulent transfer provisions of those statutes could be derivatively asserted by a trustee. Particularly, some courts have argued that treating the FDCPA and/or IRC as applicable law under Section 544(b) would impermissibly modify the operation of the Bankruptcy Code, inappropriately delegate inherently sovereign powers to private parties, or produce undesirable policy outcomes. This note argues that all of these arguments are unavailing. The plain text of Section 544(b) suggests that the FDCPA and IRC constitute applicable law under the meaning of the statute; any undesirable policy results should be addressed by Congressional revision rather than by judicial intervention

Reconciling Ripley and Joye: A Fact-Sensitive Analysis of Petition-Year and Pre-Petition-Year Income Tax Claims in Chapter 13 Bankruptcies

Parties to a chapter 13 bankruptcy often contest the status and dischargeability of income tax claims, especially when proofs of claim for these taxes are filed late. Prepetition claims that are filed late may be discharged once the debtor successfully completes a chapter 13 repayment plan. Taxing authorities, however, often allege that these liabilities represent nondischargeable postpetition claims that have become payable after the bankruptcy petition was filed. Courts have resolved this issue in conflicting ways: while some have found that taxes become payable at the end of the taxable year, most have ruled that the tax return\u27s due date was decisive. This Note observes, however, that this conflict appears rooted in a difference of fact. Courts favoring a tax-return rule have been addressing tax claims in the year the bankruptcy was filed. By contrast, courts that apply a taxable-yea r rule have been discussing tax claims for the year immediately preceding the bankruptcy filing. Finding this distinction significant, this Note presents an outline for analyzing income tax liability in chapter 13 cases and concludes that both the type of tax claim faced by each court and the petition-filing timeline are as significant to the courts\u27 analyses as their respective interpretations of the phrase become payable. Applying this framework, this Note illustrates that the taxable- year rule better establishes the critical date upon which taxes should become payable to a taxing authority