Toward Consistent Fiduciary Duties for Publicly Traded Entities

After the 2008 recession, it is difficult to imagine that the public is investing billions of dollars in publicly traded entities with little regulation of board conflicts and no fiduciary duty protections. Yet, that is precisely the case for more than $284 billion of investments. Investors have flocked to publicly traded limited partnerships (LPs) and limited liability companies (LLCs), collectively known as master limited partnerships (MLPs), because many are high-performing energy companies with a tax preference. MLP market capitalization, while only$14 billion in 2000, topped $284 billion as of February 2016, and more initial public offerings are on the horizon. Dazzled by the possibility of high yields, individual investors are likely unaware that they do not enjoy the same fiduciary duty protections that apply to stockholders of publicly traded corporations. Delaware corporate law offers significant investor protections largely flowing from an unwaivable duty of loyalty. In contrast, Delaware’s alternative entity scheme permits the waiver of all fiduciary duties in LP and LLC agreements. Publicly traded LPs are also exempt from listing rules that normally require independent board members. Even where special committees vet conflicted transactions, committee members may have affiliations with the MLP’s corporate sponsor and owe conflicting duties to the sponsor and the limited partners. Scholars suggest that “uncorporate” substitutes could theoretically mitigate the absence of fiduciary duties, but empirical research shows that publicly traded MLPs rarely adopt such substitutes. The realities of the MLP marketplace leave investors with only the implied covenant of good faith and fair dealing, which is not a substitute for traditional fiduciary duties. This Article exposes the many obstacles investors have faced in obtaining remedies under MLP agreements. It argues that Contractarian theories or legal diversification constructs do not justify the under-regulation of publicly traded MLPs. This Article recommends reinstating the duty of loyalty for MLPs and ending the LP exception from board independence requirements

Corporate Tax Avoidance and Honoring the Fiduciary Duties Owed to the Corporation and Its Stockholders

Corporate tax avoidance is a pressing issue of both national and international concern. Corporations usually claim that they are legally required to engage in aggressive tax strategies. But this Article proves that claim is incorrect when based upon the fiduciary duties owed to the corporation and its stockholders. Directors and other corporate managers often look to the classic case of Dodge v. Ford, which is ubiquitous in corporate law from the boardroom to the courtroom, as a North Star that guides them toward and defines their fiduciary duties to the corporation and its stockholders. In Dodge, the court held, “A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end.” This holding has been interpreted by many directors and other corporate managers not only as a decree to relentlessly seek profit, but also as an absolute edict to maximize profits, even if it means hurting society, damaging the environment, or destroying anything standing in the corporation’s path. The problem is that this interpretation of the Dodge mandate is wrong. The mandate requires only that directors and other corporate managers run the corporation “primarily for the profit of the stockholders,” leaving room for other secondary considerations. Beyond that, many limitations on the Dodge mandate exist, including the business judgment rule, which gives directors and other corporate managers substantial discretion in running the corporation. The Dodge mandate, while offering general guidance as to how a corporation should be run, i.e. “primarily for the profit of the stockholders,” utterly fails to offer guidance in assessing any specific analysis. As a result, other doctrines are needed to fill this gap. This Article discusses some of the doctrines, including corporate social responsibility, sustainability, and economics, that should be employed to protect society from the damage that tax avoidance can create. It concludes that while some minimal amount of tax avoidance may be acceptable, very aggressive forms of tax avoidance should be avoided

NOL Poison Pills: Using Corporate Law for Tax Purposes

Hundreds of thousands of corporations report net operating loss (NOL) carryovers every year.1 Corporations, with the benefit of NOL rules, may turn disappointing losses into favorable tax results. During economic recovery, corporations are in better position to fully utilize the benefits of NOLs generated in prior years. NOL usage is not without peril, however. Corporations should carefully monitor corporate ownership changes to ensure that NOLs are not lost to the NOL trafficking rules. Under the NOL trafficking rules, excessive shareholder turnover triggers substantial NOL limitations. Unfortunately, corporations are not in control of their shareholder turnover, and therefore not in complete control of their NOLs. To maintain NOL control, corporate tax planning may utilize defensive tactics found in corporate law, including an NOL poison pill plan. This article discusses the motivations, benefits and consequences of NOL poison pill plans

Applying Sustainability to Tax

This Article argues that sustainability can and should be applied to taxation to ameliorate the effects of industrialization on society and the planet. In making the case for a sustainability approach to taxation, we suggest that prior approaches to tax policy analysis have been insufficiently interdisciplinary and have failed to fully embrace challenging normative questions that underpin tax. Using sustainability literature from other disciplines, we show how sustainability can provide a superior approach. Specifically, sustainability requires an examination of foundational, normative questions, integration of interdisciplinary collaboration, embrace of long-term solutions, and adaptation to an ever-evolving technological society. Using these attributes as a guide, we introduce a series of questions to prompt tax scholars to consider how tax policy can support the society that we wish to sustain

Lost Opportunities: The Underuse of Tax Whistleblowers

Legal literature on whistleblower programs often assumes an agency’s ability to effectively use a whistleblower tip. This article challenges that assumption in the context of tax enforcement by exposing the Internal Revenue Service’s dismal performance. The article uses Fourth Amendment jurisprudence, taxpayer privacy law, as well as whistleblower and tax enforcement literature to propose a new approach to using information from tax whistleblowers

Paying the IRS Whistleblower: A Critical Analysis of Collected Proceeds

Congressional changes to the IRS Whistleblower Program were intended to induce more participation in the program by allowing larger incentives and greater certainty that whistleblowers would be paid. Since the Program was amended, tax whistleblower tips have increased 76 percent1 and revenue collected due to whistleblowers has increased 79 percent.2 Despite a rise in tips and revenue collected, whistleblower payments have not increased. In fact, the number of tax whistleblower awards paid has decreased 44 percent.3 We hypothesize that this trend is due to the administration of the program but also to the interpretation of “collected proceeds.” Collected proceeds are tax revenues collected due to a specific whistleblower tip and comprise the pool of money from which a tax whistleblower award is made. While scholarship exists examining the Whistleblower Program amendments and their effects, no scholar has critically examined the crux of the Whistleblower Program: what should constitute collected proceeds

Toward Consistent Fiduciary Duties for Publicly Traded Entities

After the 2008 recession, it is difficult to imagine that the public is investing billions of dollars in publicly traded entities with little regulation of board conflicts and no fiduciary duty protections. Yet, that is precisely the case for more than $284 billion of investments. Investors have flocked to publicly traded limited partnerships (LPs) and limited liability companies (LLCs), collectively known as master limited partnerships (MLPs), because many are high-performing energy companies with a tax preference. MLP market capitalization, while only$14 billion in 2000, topped $284 billion as of February 2016, and more initial public offerings are on the horizon. Dazzled by the possibility of high yields, individual investors are likely unaware that they do not enjoy the same fiduciary duty protections that apply to stockholders of publicly traded corporations. Delaware corporate law offers significant investor protections largely flowing from an unwaivable duty of loyalty. In contrast, Delaware’s alternative entity scheme permits the waiver of all fiduciary duties in LP and LLC agreements. Publicly traded LPs are also exempt from listing rules that normally require independent board members. Even where special committees vet conflicted transactions, committee members may have affiliations with the MLP’s corporate sponsor and owe conflicting duties to the sponsor and the limited partners. Scholars suggest that “uncorporate” substitutes could theoretically mitigate the absence of fiduciary duties, but empirical research shows that publicly traded MLPs rarely adopt such substitutes. The realities of the MLP marketplace leave investors with only the implied covenant of good faith and fair dealing, which is not a substitute for traditional fiduciary duties. This Article exposes the many obstacles investors have faced in obtaining remedies under MLP agreements. It argues that Contractarian theories or legal diversification constructs do not justify the under-regulation of publicly traded MLPs. This Article recommends reinstating the duty of loyalty for MLPs and ending the LP exception from board independence requirements

Applying Sustainability to Tax

This Article argues that sustainability can and should be applied to taxation to ameliorate the effects of industrialization on society and the planet. In making the case for a sustainability approach to taxation, we suggest that prior approaches to tax policy analysis have been insufficiently interdisciplinary and have failed to fully embrace challenging normative questions that underpin tax. Using sustainability literature from other disciplines, we show how sustainability can provide a superior approach. Specifically, sustainability requires an examination of foundational, normative questions, integration of interdisciplinary collaboration, embrace of long-term solutions, and adaptation to an ever-evolving technological society. Using these attributes as a guide, we introduce a series of questions to prompt tax scholars to consider how tax policy can support the society that we wish to sustain