Grown-Up Income Shifting: Yesterday’s Kiddie Tax Is Not Enough

This is the published version

Taxing Polygamy

The tax law treats married and unmarried taxpayers differently in several respects. Married persons, for example, can file and pay their taxes as a unified taxpayer, with rates that are different than those that apply to unmarried taxpayers. This different treatment of married persons has elicited criticism over the years. Some of the more salient criticisms include that married persons do not necessarily function as an economic unit, that joint filing discourages women from working, and that the various exclusions from the joint filing regime—including gay couples—is unfair. This Article looks at joint filing through the lens of polygamy. Polygamy stretches joint filing beyond what it can handle: while the current tax rates could accommodate same-sex couples without any substantive changes, applying the current married-filing-jointly tax brackets to polygamous taxpayers would have absurd—and often unjust— results. Polygamous marriage is not only quantitatively different than dyadic marriage—it is qualitatively different. These quantitative and qualitative differences render traditional joint filing an untenable fit. Ultimately, I conclude that changing from a joint filing system to a mandatory individual filing system that recognizes marriage for certain purposes would be the fairest and most administrable way to treat marriage. Because most commentators think, however, that eliminating joint filing will not happen in the foreseeable future, I also provide a second-best solution that would fit within the confines of the current joint filing regime

Watching the Watchers: Preventing I.R.S. Abuse of the Tax System

As a result of broad outcries against the incompetence and aggressiveness of the I.R.S., Congress reined in its behavior, requiring it to focus on treating taxpayers as customers. Congress also created oversight bodies to ensure that the I.R.S. would comply with the new mandate. Though those oversight bodies face some difficulties most notably, the unwillingness of Congress to adequately fund them they nonetheless have proven effective at checking the I.R.S.’s misbehavior with regard to taxpayers. Congress has not, however, been as solicitous to the tax law itself. The I.R.S. can act in ways that violate both the letter and the intent of the tax law. Where such violations either provide benefits to select groups of taxpayers without directly harming others, or where the harm to taxpayers is de minimis, nobody has the ability or incentive to challenge the I.R.S. and require it to enforce the tax law as written. Congress could control the I.R.S.’s abuse of the tax law. Using insights from the literature of administrative oversight, this Article proposes that Congress provide standing on third parties to challenge I.R.S. actions. If properly designed and implemented, such “fire alarm oversight” would permit oversight at a significantly lower cost than creating another oversight board. At the same time, it would be more effective at finding and responding to I.R.S. abuse of the tax system and would generally preserve the I.R.S.’s administrative discretion in deciding how to enforce the tax law

Paying for Gun Violence

Gun violence is an outsized problem in the United States. Between a culture that allows for relatively unconstrained firearm ownership and a constitutional provision that ensures that ownership will continue to be relatively unchecked, it has proven virtually impossible for politicians to address the problem of gun violence. And yet, gun violence costs the United States tens of billions of dollars or more annually. These tens of billions of dollars are negative externalities — costs that gun owners do not bear themselves, and thus that are imposed on the victims of violence and on taxpayers generally. What can we do about these costs? One way to reduce them would be to pass meaningful laws, laws that would reduce the likelihood of gun violence. In light of both the culture and the Constitution of the United States, though, such legislation seems improbable. Lawmakers face significant limitations on their ability to regulate firearms directly. If they cannot prevent gun violence, though, they can at least cause gun owners to internalize the costs. Where direct regulation is difficult, they can turn instead to a Pigouvian tax. In this Article, I propose a Pigouvian tax on firearms. The tax would be a hybrid excise tax and property tax, imposed at the state or local level. Legislatures would set tax rates that roughly approximated the amount of externality that gun violence created in their jurisdiction, and would use the revenue to reimburse individuals and governments for the costs they bore from gun violence. Such a tax would have little problem passing the constitutional muster, and, while it might have little behavioral impact, at least it would serve the interim purpose of making society financially whole, and requiring gun owners to bear a larger percentage of the costs of gun ownership

Standing on the Shoulders of LLCs: Tax Entity Status and Decentralized Autonomous Organizations

Since the formation of the first decentralized autonomous organization in 2016, their use has exploded. Thousands of DAOs now try to take advantage of smart contracts to solve a problem that plagues business entities: the gulf between ownership and management. Armed with smart contracts and requiring token-holders to vote on any change in strategy, DAOs dispense with the management layer so necessary in traditional business entities.DAOs owe their existence to technology. Without blockchain, without cryptocurrency, and without smart contracts, there would be no DAOs. But they owe their explosive to something much more unexpected: Treasury regulations.In the wake of limited liability companies, the last major new entity to emerge, Treasury created the check-the-box regulations. Prior to these regulations, a business entity had to determine whether it had more partnership or corporate characteristics to figure out whether it would be taxed as a partnership or a corporation. LLCs did not fit comfortably into either category, so businesspeople did not adopt the form. When enacted, the check-the-box regulations allowed most business entities to decide how they wanted to be taxed and file an election with the IRS for that treatment.This certainty futureproofed entity taxation. New business forms—including DAOs—no longer have to look like previous forms. They can choose their tax status. And without the impediment of taxes, people can—and did—adopt the DAO structure.Tax entity status comes with obligations, though. And while DAOs do not have to worry about their entity status, they do need to meet the obligations attendant to the status they choose. This Article discusses several of those obligations, obligations which, at times, run counter to the ethos of DAOs

The U.S. as Tax Haven? Aiding Developing Countries by Revoking the Revenue Rule

Over the years, many OECD countries, including the United States, have identified tax havens as a significant problem, and have acted to limit the ability of their taxpayers to use tax havens to reduce their taxes. The United States has implemented tax regimes, including subpart F and the passive foreign investment company rules, and disclosure regimes, such as the recently-enacted FATCA rules, to prevent U.S. taxpayers from taking advantage of tax haven jurisdictions. But the intersection of a number of U.S. tax rules, it turns out, makes the United States an attractive place for foreigners to invest—and hide—their money. Principal among these is the revenue rule, an eighteenth-century common law rule that prevents the United States from recognizing and enforcing foreign tax judgments. As a result, if a foreign taxpayer hides money in the United States and fails to pay taxes at home, her government has no recourse to satisfy the tax debt with the taxpayer’s U.S. assets. Such hidden money disparately impacts developing countries by reducing their ability to finance government through developing tax infrastructure, and instead forcing them to remain dependent on foreign aid

Repatriating Tax-Exempt Investments: Tax Havens, Blocker Corporations, and Unrelated Debt-Financed Income.

When a tax-exempt entity is both able and willing to lend its exemption to other taxpayers, tax-averse parties line up to take advantage of its largesse (and, in the process, reduce their own tax bill). Congress, eager to prevent such abuse of the exemption, decided that, in some circumstances, it would tax entities that would otherwise be exempt from taxation. In this Article, I show that Congress\u27s response to such lending has failed to solve the problem and, in fact, is harmful to the tax system and to tax-exempt entities. To address this problem, this Article proposes a new way to prevent such lending--one that builds upon existing law-in order to combat the abuses perpetrated through tax-exempt entities. Congress should repeal the unrelated debt-financed income rules, which experience has shown are ineffective and harmful. This repeal would end the distortions that tax-exempt entities currently face. At the same time, in order to prevent tax-exempt entities from lending their exemptions to taxpayers, Congress should expand the tax shelter rules to capture these abusive transactions

God Is My Roommate? Tax Exemptions for Parsonages Yesterday, Today, and (if Constitutional) Tomorrow

In 2019, the Seventh Circuit decided an Establishment Clause question that had been percolating through the courts for two decades. It held that the parsonage allowance, which permits “ministers of the gospel” to receive an untaxed housing allowance, does not violate the Establishment Clause of the Constitution. It grounded its conclusion in part on the “historical significance” test the Supreme Court established in its Town of Greece v. Galloway decision. In coming to that conclusion, the Seventh Circuit cited a 200-year unbroken history of property tax exemptions for religious property. According to the Seventh Circuit, that history demonstrated that both the Founders and subsequent generations of Americans recognized that there was no constitutional problem with exempting parsonages. The court’s historical significance analysis was fundamentally flawed, however. Had the court actually engaged with this history, rather than made the conclusory assertion of consistent and uncontroversial exemption, it would have seen at least two things that complicated its facile conclusion. Significantly, in treating the history of religious property tax exemptions as unbroken and consistent, the court elided the actual history, which was messy and varied. The actual history provides no support for the proposition that the Framers and those who followed viewed property tax exemptions as constitutional. Even if the history were as clean as the Seventh Circuit portrayed it, that history would have been irrelevant to the question of the constitutionality of the parsonage allowance. The Supreme Court did not incorporate the Establishment Clause against the states until 1947, so states faced no Establishment Clause bar to exempting for religious property. And the federal government only made four attempts at taxing property, none of which expressly exempted religious property. In this Article, I explore the historical and current tax exemptions for parsonages, and trace how states arrived at their current exemptions. Ultimately, I conclude that the historical significance test, as applied by the Seventh Circuit, does not support the constitutionality of the parsonage allowance. I further conclude that, given its complexity and the fact that attorneys and judges tend to be poor historians, the historical significance test is not well suited as a jurisprudential tool for analyzing Establishment Clause questions, and that courts should not adopt it