How Managed Care Growth Affects Where Physicians Locate Their Practices

Managed care has had a profound effect on physician practice. It has altered patterns in the use of physician services, and consequently, the practice and employment options available to physicians. But managed care growth has not been uniform across the United States, and has spawned wide geographic disparities in earning opportunities for generalists and specialists. This Issue Brief summarizes new information on how managed care has affected physicians’ labor market decisions and the impact of managed care on the number and distribution of physicians across the country

Taxing Buybacks

A recent rise in the volume of corporate share repurchases has prompted calls for changes to the rules governing stock buybacks. These calls for reform are animated by concerns that buybacks enrich corporate executives at the expense of productive investment. This emerging antibuyback movement includes prominent politicians as well as academics and Republicans as well as Democrats. The primary focus of buyback critics has been on securities-law changes to deter repurchases, with only passing mention of potential tax-law solutions. This Article critically examines the policy arguments against buybacks and arrives at a mixed verdict. On the one hand, claims that buybacks reduce corporate investment and inappropriately reward executives turn out to be poorly supported On the other hand, the Article identifies legitimate tax-related concerns about the rising buyback tide. Buybacks exacerbate two of the U.S. tax system\u27s most severe flaws. The first is the Mark Zuckerberg problem : the effective nontaxation of firm founders on what is essentially labor income. The second is what we call the Panama Papers problem : the use of U.S. capital markets by investors in offshore tax havens to generate tax-free returns. Our search for solutions to the Mark Zuckerberg and Panama Papers problems brings us back to a prescient 1969 article by then- Yale Law School professor Marvin Chirelstein. The main innovation of Chirelstein\u27s article was to explain how buybacks could be taxed the same way as dividends at the shareholder level. Chirelstein\u27s proffered justification for his proposal has obsolesced in the succeeding five decades, but the proposal nonetheless provides a technically elegant framework for addressing two of the modern-day U.S. tax system\u27s major ills. This Article evaluates Chirelstein\u27s proposal and updates it for the twenty-first century. We outline the mechanics of the proposal, suggest a range of tweaks, and show how adoption of the proposal would substantially improve the US. capital-taxation regime. Along the way, we illustrate the benefits of incrementalism both in tax policy and tax scholarship. Progress, we argue, often involves reviving the best ideas of yesteryear rather than writing on a blank slate

The Employment Tax Challenge to the Check the Box Regulations

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Litigation Expenses and the Alternative Minimum Tax

One of the chief features of the alternative minimum tax (the AMT ) is a broadened tax base, accomplished in part through the disallowance of deductions that are not central to measuring an individual\u27s net income. Yet in achieving its objective of limiting deductions, the AMT casts a wide net. Thus, in certain instances, an individual can be robbed of the tax benefit of expenses that were critical to the production of the income being taxed. An extreme example of this problem is the treatment of certain litigation expenses under the AMT. If an individual incurs attorney fees and other associated costs in connection with litigation that produces a taxable recovery and the litigation does not relate to the individuals\u27s trade or business (excluding the trade or business of performing services as an employee), then deduction for litigation expenses is disallowed. This AMT trap results in the individual being taxed on the gross proceeds of the litigation for AMT purposes. The most common lawsuits in which the AMT trap arises are employment- related lawsuits, such as those involving discrimination, harassment, whistleblower, and breach of employment contract claims. However, the AMT trap also affects other common claims, such as civil rights, intentional infliction of emotional distress, and defamation claims, provided that these claims do not involve personal physical injury.\u27 The AMT trap is disconcerting for a number of reasons. First, it so obviously violates the fundamental income tax policy principle that expenses incurred to produce taxable income should not be included in the tax base. Second, the adverse consequences of the trap are typically quite severe. Third, though a legislative amendment would be relatively inexpensive, such an amendment has not yet been enacted because the victims of the trap lack sufficient political muscle and coordination. Fourth, the trap has consumed a tremendous amount of judicial resources. While most of these resources have been devoted to litigating the underlying tax issue, courts have been called upon to address a host of non-tax issues that arise on account of the AMT trap. This Article discusses the AMT trap, beginning in Part I with a description of the mechanics of the trap. This Part also examines the current Circuit Court split regarding the tax issue that underlies the AMT trap and previews the upcoming United States Supreme Court decision that will resolve the Circuit Court split. Part II of the Article then considers the implications of the trap on plaintiffs, their lawyers, defendants, and the courts. Finally, Part III describes and critically analyzes two bills that have been proposed, but have not yet been enacted, that were designed to solve the AMT trap

Taxed Structured Settlements

Congress has granted a tax subsidy to physically injured tort plaintiffs who enter into structured settlements. The subsidy allows these plaintiffs to exempt the investment yield imbedded within the structured settlement from federal income taxation. The apparent purpose of the subsidy is to encourage physically injured plaintiffs to invest, rather than presently consume, their litigation recoveries. Although the statutory subsidy by its terms is available only to physically injured tort plaintiffs, a growing structured settlement industry now contends that the same tax benefit of yield exemption is available to plaintiffs’ lawyers and nonphysically injured tort plaintiffs under general, common-law tax principles. If the structured settlement industry is correct, then all tort plaintiffs and their lawyers may invest their litigation proceeds in a tax-free manner simply by using structured payment arrangements. Structured arrangements, therefore, would be far superior to traditional tax-favored retirement accounts (e.g., 401(k)s, IRAs), which provide the same tax benefit of yield exemption but are subject to significant constraints. Accordingly, if proponents of structured arrangements are correct in their interpretation of the tax law, these arrangements can be described as “super-IRAs” because they provide full yield exemption without any corresponding limitations or restrictions. This Article examines the taxation of structured payment arrangements, ultimately concluding that the structured settlement industry’s positions are unpersuasive. Nevertheless, because of the muddled state of the tax law on the issue, this Article recommends legislative and administrative action to close the yield-exemption loophole with respect to its unintended beneficiaries

Close the Yield Exemption Loophole Created by Childs

The proposal would reverse the holding of Childs v. Commissioner, 103 T.C. 634 (1994), and clarify that a contractual payment obligation received by a service provider is subject to immediate taxation under section 83 if the obligor is a person other than the recipient of the service provider’s services. As a result, the proposal would ensure the appropriate taxation of investment income in structured payment arrangements. The proposal is based on a more comprehensive article by the authors, forthcoming in volume 51 of the Boston College Law Review, titled ‘‘Taxing Structured Settlements,’’ a draft of which is available at http://ssrn.com/abstract=1403248. The proposal is made as a part of the Shelf Project, a collaboration by tax professionals to develop and perfect proposals to help Congress when it needs to raise revenue. Shelf Project proposals are intended to raise revenue without raising tax rates, because the best systems have taxes that are unavoidable to reach the lowest feasible tax rates. Shelf Project proposals defend the tax base and improve the rationality and efficiency of the tax system. Given the calls for economic stimulus, some proposals may stay on the shelf for a while. A longer description of the Shelf Project is found at ‘‘The Shelf Project: Revenue-Raising Proposals That Defend the Tax Base,’’ Tax Notes, Dec. 10, 2007, p. 1077, Doc 2007-22632, or 2007 TNT 238-37. Shelf Project proposals follow the format of a congressional tax committee report in explaining current law, what is wrong with it, and how to fix it

Taxing the Promise to Pay

The IRS recently disclosed that it has identified more than 100 executives at 42 leading public corporations that participated in a tax shelter designed to defer the recognition of income from the exercise of stock options. While the agency thus far has identified approximately $700 million in unreported gains from these shelters, it predicts that the revenue loss to the government will ultimately exceed$1 billion. Compared to most tax shelters, this particular transaction (commonly known as the Executive Compensation Strategy or ECS ) is remarkably simple. Rather than exercise the options individually, a participating executive instead transfers the options to a family limited partnership in exchange for the partnership\u27s 30-year unsecured balloon promissory note. Very shortly thereafter, the partnership exercises the options, sells the underlying shares, and invests theproceeds in other investments. Pro-moters of the shelter claim that the partnership takes a cost basis in the options, resulting in little or no gain to the partnership upon exercise. Meanwhile, promoters assert, the executive does not realize income until principal payments are made the on the note 30 years in the future. This shelter can be attacked from a variety of perspectives. Commentators who have previously examined the shelter have focused on whether the sale of the options to the partnership is made at arm\u27s length. If the sale does not constitute an arm\u27s length transaction, regulations under IRC Section 83 effectively disregard the sale, causing the executive to recognize income when the partnership exercises the option and defeating the purpose of the shelter. Unfortunately, because the arm\u27s length issue is inherently dependent upon the unique facts and circumstances of each transaction, it is not an ideal silver bullet issue for attacking the shelter. Another way to attack the shelter is to argue that the mere receipt of the partnership\u27s promise to pay constitutes a taxable event for the executive, thereby undermining completely the goal of the shelter. This Article analyzes this issue, concluding that, because the partnership\u27s promise constitutes a third-party compensatory promise (i.e., one made by a party external to the service relationship), it is immediately taxable to the executive upon receipt. In discussing this issue, the Article examines the origin and development of the economic benefit doctrine, as well as the history and purpose of IRC Section 83. The Article closes with an explanation of why limiting tax deferral to the second-party promise context comports with sound tax policy

There\u27s a Problem With Buybacks, But It\u27s Not What Senators Think

In a deeply divided Washington, one of the few issues on which leading lawmakers on both sides of the aisle appear to agree is that corporations should be discouraged from buying back their stock from shareholders. This short article argues that, while this anti-buyback sentiment is misguided, there nevertheless are good tax policy arguments for reforming the tax treatment of buybacks. The article recommends adoption of a 1969 proposal made by Professor Marvin Chirelstein that would recharacterize (for tax purposes) buybacks as a pro rata cash dividend, followed by sales of shares from the shareholders who participate in the buyback to the shareholders who do not

Examining the Tax Advantage of Founders\u27 Stock

Recent commentary has described founders\u27 stock as tax-advantaged because it converts founders\u27 compensation income into capital gains. In this paper we describe various founders\u27 stock strategies that offer this character conversion and then analyze whether they are, on the whole, tax advantageous. While the founders\u27 stockstrategies favorably convert the character of the founders\u27 income, they simultaneously turn the company\u27s compensation deductions into non-deductions. Whetherfounders\u27 stock is tax-advantaged overall depends on whether the benefit of the founders\u27 character conversion outweighs the cost of the company\u27s lost deductions. We use various hypothetical to illustrate this tradeoff. We conclude that founders\u27 stock is likely to be significantly tax-advantaged only in those cases where the start up company shows great promise early on but ultimately never develops into a profitable enterprise.Even in that subset of cases where founders\u27 stock turns out to be tax-advantaged, the advantage exists only because of the tax law\u27s overly harsh treatment of net operating losses. Therefore, whatever tax advantage that exists for founders\u27 stock is best viewed as a partial move towards the optimal treatment of tax losses, not as a stand-alone tax benefit that needs to be eliminated