Tax Burdens and Tribal Sovereignty: The Prohibition on Lavish and Extravagant Benefits Under the Tribal General Welfare Exclusion

This article examines a portion of a relatively new federal tax statute, the Tribal General Welfare Exclusion (TGWE), that allows qualified individuals an exclusion from gross income for payments received from American Indian/Alaska Native tribes for any Indian general welfare benefit. Indian general welfare benefits are payments made to tribal members by the tribe pursuant to an Indian tribal government program for the promotion of general welfare, such as for health, education, or housing. The TGWE is intended, in part, to promote participation in American Indian tribal cultural and ceremonial practices. To that end, Indian general welfare benefits include payments made for participation in cultural or ceremonial activities for the transmission of tribal culture. The statute expressly states that excludable welfare benefits cannot be lavish and extravagant, but it does not define what lavish and extravagant means. This article makes the following contributions: It is the first piece of legal scholarship to examine the new TGWE, and it provides in depth description and explanation of the provision. The article also brings attention to federal tax enforcement on certain transfers between tribes and tribal members, particularly those transfers that occur in the scope of tribes engaging in cultural, ceremonial, or religious practices. This article also analyzes a particular limitation in the language of the TGWE, that transfers from tribes to tribal members may not be lavish and extravagant, and makes policy recommendations as to the interpretation of that language as the IRS and consulted tribes move forward with interpretative guidance. Finally, on a broader level, this article seeks to contribute to the greater conversations about tribal self-determination and self-governance and the role federal tax law plays as an instrument of those federal Indian policie

Many Unhappy Returns: The Need for Increased Tax Penalties for Identity Theft-Based Refund Fraud

The growing problem of fraudulent tax returns being submitted based on stolen identities is a “tsunami of fraud,” and victims, lawmakers, and law enforcement are struggling with how to deal with the fallout. The issues surrounding identity theft-based tax fraud are complex. Current IRS efforts to stem the tide involve pouring resources into assisting victims, updating IRS processes to detect and prevent refund fraud, and increasing the number of criminal investigations and prosecutions it pursues. The IRS’s approach and pending proposed legislation are not enough to address the problems created by identity theft-based tax fraud. This Article argues the IRS and Congress must use a holistic approach to attack this species of tax fraud. To that end, this Article supports enhanced criminal penalties and proposes new civil tax penalties aimed specifically at identity theft tax fraud. This Article pursues two goals. First, it documents and explains the problem of identity theft-based refund fraud, highlighting particular issues with respect to tax compliance. In so doing, it analyzes existing civil and criminal tax penalties to punish and deter identity thieves, an analysis which reveals that existing criminal penalties are insufficient and that there is no directly applicable existing civil penalty. Second, to address the gaps in existing law, the Article proposes standards for Congress to use in crafting a comprehensive penalty scheme to apply to identity theft-based refund fraud. This Article proceeds in three parts. Part II addresses the nature and scope of identity theft tax fraud, explaining the consequences such fraud has on tax administration, fair enforcement, and public confidence in voluntary compliance, which is the bedrock of our tax system. Part III explores the inadequacy of existing criminal and civil penalties. Part IV then proposes legislative action, evaluates proposed and pending legislation, and makes specific recommendations for enhanced criminal penalties and the creation of a new civil penalty aimed specifically at identity theft-based tax fraud

Sacrificing Sovereignty: How Tribal-State Tax Compacts Impact Economic Development in Indian Country

Economic development is a critical component of tribal sovereignty. When a state asserts taxing authority within Indian Country, there is potential for overlapping, or juridical, taxation over the same transaction. Actual or even potential juridical taxation threatens economic development opportunities for tribes. For many years, tribes and states have entered into intergovernmental agreements called tax compacts to reduce or eliminate juridical taxation. Existing literature has done little more than mention tax compacts with cursory cost-benefit analyses of the agreements. This is the first Article to critically examine the role tax compacts serve in promoting tribes’ economic development. This Article analyzes economic development activities in Indian Country as two types of transactions: when the tribe or tribal enterprise is engaging as a retailer, and when a tribe or tribal enterprise is working with non-tribal entities in joint ventures. Using these categories of transactions as a framework, and looking to existing compacts between various tribes and states as examples, the analysis focuses on the impact compacts have on economic development in Indian Country. This Article argues that compacts do not live up to the promise of resolving juridical taxation in a manner that fosters economic development opportunities for tribes

From Zero-Sum to Economic Partners: Reframing State Tax Policies in Indian Country in the Post-COVID Economy

The disparate impact COVID-19 has had on Indian Countryreveals problems centuries in the making from the legacy ofcolonialism. One of those problems is state encroachment inIndian Country, including attempts to assert taxing authoritywithin Indian Country. The issue of the reaches of state taxingauthority in Indian Country has resulted in law that is bothuncertain and highly complex, chilling both outside investmentand economic development for tribes.As the United States emerges from COVID-19, to focus only on thetoll exacted on tribes and their peoples ignores the tremendousopportunities for states to right these historical wrongs. Buoyed byfederal COVID-relief funds, state and local governments are in afinancial position to reframe their tax policies to promote tribalsovereignty and support economic development in Indian Country.This article argues for states to make diplomatic, responsible state and local tax policies that will create healthier intergovernmentalrelationships and an environment that in turn creates broadereconomic growth for tribes and states alike. Through policiesrequiring state governments to consult with tribes to make jointdecisions on tax policy and by refraining from exercising taxingauthority in Indian Country, states can move from a zero-sumgame. Instead of competing for precious tax revenue, state andlocal governments can partner with tribes to expand the totalamount of available revenue streams. Doing so will not just rightthe historical wrongs of colonialism—it could also help preventfuture crises, such as the COVID-19 pandemic, from having sucha disparate impact on tribes again

\u3ci\u3eA Consumer Protection Rationale for Regulation of Tax Return Preparers\u3c/i\u3e

Of the 150 million tax returns filed each year, approximately fifty-six percent are prepared with the help of a paid preparer. Although state-licensed lawyers and certified public accountants may prepare tax returns for clients, the vast majority of paid tax return preparers are completely unregulated. For low-income taxpayers who are eligible for refundable tax credits, these unregulated tax return preparers do more than just fill out tax returns. Return preparers who serve low-income taxpayers often also market consumer credit products, such as refund anticipation loans or checks. Government agencies and consumer advocates have documented widespread problems with the tax return preparer industry. In 2011, the IRS promulgated regulations on tax return preparers by instituting minimum competency, background investigation, and continuing education requirements. But in Loving v. Internal Revenue Service, the Circuit Court of Appeals for the D.C. Circuit struck down the regulations on the grounds that they exceeded the scope of the enabling statute. The IRS indicated it would pursue a legislative fix. In the wake of the government’s defeat in Loving, policy makers, scholars, and practitioners are weighing in on the question of how tax return preparers should be regulated. This Article addresses a more fundamental question: Why should tax return preparers be regulated? The calls for regulations and much of the existing literature on regulating tax return preparers explicitly stated or implicitly assumed that regulation would improve tax compliance. This Article contends that, while any improvement of compliance rates would be a benefit of regulation, the rationale for regulating tax return preparers who prepare tax returns for the working poor and sell consumer credit products should be to protect taxpayers as consumers. In support of this proposal, this Article first describes the myriad of services provided and products sold by tax return preparers to low-income taxpayers. Second, relying on empirical evidence on the relationship between tax return preparers and compliance, this Article challenges the rationale that regulation will improve compliance. Third, and finally, this Article re-frames regulation as a mode of consumer protection, supported by the relationship among low-income taxpayers, the government, and tax return preparers and as a check upon the market incentives that allow for exploitation of low-income taxpayers

Many Unhappy Returns: The Need for Increased Tax Penalties for Identity Theft-Based Refund Fraud

The growing problem offraudulent tax returns being submitted based on stolen identities is a tsunami offraud, and victims, lawmakers, and law enforcement are struggling with how to deal with the fallout. The issues surrounding identity theft-based tax fraud are complex. Current IRS efforts to stem the tide involve pouring resources into assisting victims, updating IRS processes to detect and prevent refund fraud, and increasing the number of criminal investigations and prosecutions it pursues. The IRS\u27s approach and pending proposed legislation are not enough to address the problems created by identity theft-based tax fraud. This Article argues the IRS and Congress must use a holistic approach to attack this species of tax fraud. To that end, this Article supports enhanced criminal penalties and proposes new civil tax penalties aimed specifically at identity theft tax fraud. This Article pursues two goals. First, it documents and explains the problem of identity theft-based refund fraud, highlighting particular issues with respect to tax compliance. In so doing, it analyzes existing civil and criminal tax penalties to punish and deter identity thieves, an analysis which reveals that existing criminal penalties are insufficient and that there is no directly applicable existing civil penalty. Second, to address the gaps in existing law, the Article proposes standards for Congress to use in crafting a comprehensive penalty scheme to apply to identity theft-based refund fraud. This Article proceeds in three parts. Part II addresses the nature and scope of identity theft tax fraud, explaining the consequences such fraud has on tax administration, fair enforcement, and public confidence in voluntary compliance, which is the bedrock of our tax system. Part III explores the inadequacy of existing criminal and civil penalties. Part IV then proposes legislative action, evaluates proposed and pending legislation, and makes specific recommendations for enhanced criminal penalties and the creation of a new civil penalty aimed specifically at identity theft-based tax fraud

A Consumer Protection Rationale for Regulation of Tax Return Preparers

Of the 150 million tax returns filed each year, approximately fifty-six percent are prepared with the help ofa paid preparer. Although state-licensed lawyers and certified public accountants may prepare tax returns for clients, the vast majority ofpaid tax return preparers are completely unregulated. For low-income taxpayers who are eligible for refundable tax credits, these unregulated tax return preparers do more than just fill out tax returns. Return preparers who serve low-income taxpayers often also market consumer credit products, such as refund anticipation loans or checks. Government agencies and consumer advocates have documented widespread problems with the tax return preparer industry. In 2011, the IRS promulgated regulations on tax return preparers by instituting minimum competency, background investigation, and continuing education requirements. But in Loving v. Internal Revenue Service, the Circuit Court of Appeals for the D.C. Circuit struck down the regulations on the grounds that they exceeded the scope of the enabling statute. The IRS indicated it would pursue a legislative fix. In the wake of the government\u27s defeat in Loving, policy makers, scholars, and practitioners are weighing in on the question of how tax return preparers should be regulated. This Article addresses a more fundamental question: Why should tax return preparers be regulated? The calls for regulations and much of the existing literature on regulating tax return preparers explicitly stated or implicitly assumed that regulation would improve tax compliance. This Article contends that, while any improvement ofcompliance rates would be a benefit ofregulation, the rationale for regulating tax return preparers who prepare tax returns for the working poor and sell consumer credit products should be to protect taxpayers as consumers. In support of this proposal, this Article first describes the myriad of services provided and products sold by tax return preparers to low-income taxpayers. Second, relying on empirical evidence on the relationship between tax return preparers and compliance, this Article challenges the rationale that regulation will improve compliance. Third, and finally, this Article re-frames regulation as a mode of consumer protection, supported by the relationship among low-income taxpayers, the government, and tax return preparers and as a check upon the market incentives that allow for exploitation of low-income taxpayers

A Reflection on Tax Collecting: Opening a Can of Worms to Clean Up a Collection Due Process Jurisdictional Mess

Almost 20 years ago Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), with the intention of protecting taxpayers against perceived abuses in tax collection by the Internal Revenue Service (IRS). RRA 98 contained provisions creating the so-called collection due process (CDP) provisions. CDP changed existing law by providing taxpayers with a pre-deprivation right to an administrative hearing and judicial review of any proposed collection actions by the IRS such as liens or levies. CDP has been both championed as a valuable mechanism to protect taxpayers from improper collection and criticized as a tool used by taxpayers making meritless arguments to further delay payment of tax. Regardless, the CDP provisions have exacted a toll on the tax administrative system, particularly on the IRS Office of Appeals, which conducts the CDP hearings, and the U.S. Tax Court, which generally has judicial review of the administrative hearings. CDP cases often require a disproportionate share of resources to resolve. One reason for this is that CDP cases can be messy. CDP cases can involve mistakes or anomalies made by the IRS and are often brought by taxpayers pro se. One particularly messy factual scenario occurs when a taxpayer raises an issue in a non-CDP tax year and asks the IRS and the Tax Court to adjudicate as to the non-CDP year. For example, if a taxpayer alleges that he or she has a credit from a prior year that should carry forward to satisfy a tax liability that remains unpaid or alleges that he or she has made payments that were applied to a non-CDP year that were meant to apply to the CDP year, the Tax Court has struggled with whether and how it can properly exercise jurisdiction over the non-CDP year. This Article makes two novel contributions. First, it highlights how CDP cases can be particularly messy and how the IRS and Tax Court have struggled in resolving CDP cases. In particular, this Article examines the Tax Court\u27s difficulty in determining its proper jurisdiction in CDP cases in which the taxpayer raises issues in non-CDP years by examining two relevant cases, Freije v. Commissioner and Weber v. Commissioner. Concluding that the Tax Court has properly exercised (or limited) its jurisdiction in both Freije and Weber, this Article reconciles the two cases in light of the purpose of the CDP provisions on the one hand and the Tax Court\u27s limited jurisdictional grant on the other. Second, this Article makes recommendations to the IRS on how to encourage administrative resolution of messy CDP cases to prevent litigation and reduce the cost of CDP