This page provides a summary and links to relevant briefing by both sides in the litigation including amicus briefs. Read selected additional commentary illustrating the range of tax system participants concerned about the potential outcomes of the case.
This brief—filed on behalf of the Tax Law Center and four tax law scholars—explains that the real question presented in this case is not whether taxation of income requires realization, but instead, whether Congress may attribute income realized by a corporate entity to its shareholders and assess a tax based on their pro rata shares. It also explains that in relying on Macomber to argue that the answer to that question is no, the petitioners’ theory contravenes a century’s worth of judicial decisions and congressional enactments. Counsel for this brief are: Jonathan E. Taylor (Counsel of Record) and Alisa Tiwari of Gupta Wessler LLP, and Thalia Spinrad.
This testimony focuses on three important ways to broaden the federal tax base and shrink the federal tax gap: 1) Rejecting proposals currently on the table that would increase tax non-compliance and weaken the tax base; 2) Addressing the "big three" areas of the tax base that need attention: income from extraordinarily large fortunes, large U.S. multinationals’ foreign profits, and income flow through "pass-through" entities; 3) Choosing from the menu of other options, large and small, to broaden the tax base, as outlined further in the testimony.
Comment on Tax Treatment of Payments Received Through Certain Accident and Health Insurance Plans Regardless of the Medical Expenses Incurred
September 11, 2023
Sophia Yan, Grace Henley, Thalia Spinrad, and Jason Levitis
On July 12, 2023, the IRS and Treasury, the Employee Benefits Security Administration and the Department of Labor, and the Centers for Medicare & Medicaid Services and the Department of Health and Human Services released a number of proposed regulations generally concerning health insurance plans that do not provide comprehensive coverage. This comment letter, coauthored with Jason Levitis of the Urban Institute, analyzes the tax provisions of these proposed regulations, which clarify the tax treatment of certain benefit payments received under fixed indemnity insurance (including hospital indemnity) and specified disease or illness plans, without regard to the actual medical expenses incurred.
Specifically, the proposed regulations clarify that payments from such plans that are not tied to a specific section 213(d) medical expense are not excludable from income under section 105, and that excludable payments must be substantiated by plans making the payment under 105(b). The comment concludes that this clarification is limited in scope, compelled by statute, and within the authority of Treasury and the IRS even if these clarifications are thought to be changes in rule or practice.
Together, the EITC and CTC lifted 10.6 million people above the poverty line (including 5.5 million children) and made 17.5 million people less poor (including 6.4 million children) in one recent year. But available evidence suggests that millions of eligible people – primarily those with very low incomes falling below the required federal tax filing threshold, or “non-filers” – are not receiving the EITC and CTC. Much remains unknown about the full scope of this problem, including precise estimates of households falling into the EITC and CTC “participation gaps,” the demographic composition of these gaps, and the relative importance of the various reasons why eligible households may not claim tax benefits. This paper explores the potential benefits and challenges of the IRS designing and implementing a performance measurement framework focused on improving EITC and CTC uptake. Such a framework could drive activity to better understand the true size and composition of the EITC and CTC participation gaps, and guide program administrators, policymakers, and other stakeholders towards the most effective strategies for boosting uptake, such as outreach and enrollment initiatives, program delivery improvements, and potential statutory changes to eligibility and delivery. Such a framework could consider dimensions including the cost-effectiveness of interventions, impacts on equity, and, ideally outcomes for the wellbeing of households receiving the credits, including potential financial, health, educational, and other benefits.
Recommendations for Guidance Regarding Elective Payment of Applicable Credits and Transfer of Certain Credits
August 14, 2023
Mike Kaercher, Taylor Cranor, Kyle Sweeney, John Rooney, Sophia Yan, Grace Henley, and Roger Baneman
This comment analyzes selected issues arising in the implementation of sections 6417 and 6418 of the Internal Revenue Code (the “Code”), which were added to the Code by Pub. L. No. 117-169 (known as the Inflation Reduction Act or “IRA”). The IRA extended, expanded, or created over twenty tax credits and deductions meant to encourage the adoption and deployment of clean technologies.
Section 1202 was enacted in 1993 as an incentive for investments in small businesses, but the section has instead become an unnecessary subsidy for well-off taxpayers and VC funds investing in companies that would have launched with or without the benefit of section 1202. The proposed changes in the House tax package would only increase this subsidy without providing any additional incentive to invest in small businesses and would create some potentially serious new loopholes. Instead of expanding section 1202, the better approach would be to repeal the statute or, at a minimum, amend section 1202 to narrow the definition of a small business and repeal the $10 million gain exemption. These amendments would refocus section 1202 on its original purpose of incentivizing new investments in small businesses.
This paper explains how the deal to avoid U.S. default by suspending the debt limit will implement $21.39 billion of direct cuts to the Inflation Reduction Act's mandatory money for the IRS, and how setting inadequate levels of IRS base appropriations could translate into even larger cuts to the IRA's mandatory funding. We recommend that lawmakers appropriate IRS funds for FY2024 at the levels requested by the Biden budget, preserve the remaining IRA mandatory funding, and address the forthcoming "cliff" in IRS funding by the end of 2025.
This testimony focuses on three key points: (1) Reaching small businesses with direct tax subsidies requires careful policy design. Most federal tax subsidies take the form of non-refundable tax credits, deductions, accelerated cost-recovery, or income exclusions. Each of these types of subsidy requires the taxpayer to have income tax liability. Often, startup and small businesses do not have substantial (or any) income tax liability. Furthermore, even profitable small and startup firms may find that complexity can erode the value of tax subsidies. (2) The tax system supports critical investments in innovation outside of direct business subsidies. Investments like the Child Tax Credit can help future U.S. workers, researchers, innovators, and entrepreneurs realize their full potential. And the core function of the tax system is to raise revenue, which can be used to fund the public research and investment that supports a dynamic economy. (3) Tradeoffs matter. Choosing among different methods of supporting innovation often involves tradeoffs, as the options must be weighed against each other and prioritized within fiscal and political constraints.
This brief discusses Commissioner Werfel’s recent remarks on how the IRS plans to operationalize the Administration’s pledge that audit rates will not rise for tax filers with incomes below $400,000. We explain that the IRS should aim to return to representative historical levels of audit rates as quickly as possible rather than maintaining audit rates for 2018 tax returns; change how audits are distributed under the $400,000 threshold; and follow through on previous statements indicating that the pledge will only apply to households with less than $400,000 in actual income, or income that has been adjusted for under-reporting.
Amicus Brief Supporting the Government's Motion to Dismiss in The Buckeye Institute v. IRS
April 17, 2023
Brandon DeBot, with co-counsel Jonathan E. Taylor of Gupta Wessler PLLC and C. Benjamin Cooper of Cooper Elliot
The Tax Law Center filed this amicus brief supporting the government’s motion to dismiss in The Buckeye Institute v. IRS. The case involves a constitutional challenge to a federal statute that has existed for more than 50 years—the requirement that charitable organizations identify their major donors in their federal tax filings if they wish to receive the benefits of tax-exempt status under section 501(c)(3) of the Internal Revenue Code. The Tax Law Center’s brief explains why this reporting requirement directly advances the government’s interest in revenue collection. As the brief concludes: “A finding that the requirement is unconstitutional would directly undermine the federal tax base and would threaten the integrity of the tax system. The requirement is crucial to the federal government’s revenue collection efforts, and it should be upheld in its entirety.”
In its latest Greenbook, the Treasury Department proposed extending the wash sale rules to digital assets. The wash sale rules currently prevent taxpayers from engaging in wash sales to harvest losses on stocks and securities, but not on digital assets. Lawmakers should apply the wash sales rules to digital assets, which would prohibit an aggressive tax planning practice, treat digital asset investors the same as other investors, and raise revenue.
A recent working paper has found that although the Internal Revenue Service (IRS)’s audit selection processes are ostensibly “race-blind,” Black tax filers are 2.9 to 4.7 times as likely to be audited by the IRS as non-Black tax filers. Our report summarizes the paper’s conclusions, explains what we do and do not know about the causes of these disparities, and outlines next steps for policymakers to address racial disparities in audit selection.
The recently-enacted corporate alternative minimum tax requires the computation of a corporation’s adjusted financial statement income (“AFSI”) for two significant purposes. First, AFSI helps determine the tax base of the new regime. Second, AFSI helps determine whether a corporation is potentially subject to tax. The Tax Law Center submitted a comment letter addressing numerous technical issues that could impact the computation of AFSI, primarily in the context of related entities.
The Treasury Department and the IRS recently released proposed regulations clarifying when taxpayers have access to the Independent Office of Appeals (Appeals). The Tax Law Center submitted a public comment detailing why the proposed regulations are substantively sound and offering recommendations. In particular, the comment articulates why the proposed regulations correctly exclude from Appeals’ consideration (1) decisions regarding certain types of letter rulings; and (2) certain cases concerning challenges to the constitutionality of a statute or the validity of regulations or administrative guidance. The comment also recommends strengthening the second exclusion.
Assets of perpetual dynasty trusts can grow indefinitely and benefit multiple successive generations with little to no federal gift, estate, or generation-skipping transfer (GST) tax consequences. This proposal recommends that Treasury and the IRS strengthen existing regulations for the GST tax and propose additional regulations to clarify the application of GST tax rules and raise GST tax revenues from perpetual dynasty trusts.
The General Explanation of the Administration's Revenue Proposals, or "Greenbook," is released by the Treasury to accompany and explain the President's Budget. Our submission for proposals to include in the FY2024 Greenbook includes recommendations that would promote sound tax administration, save and raise revenues, and improve the fairness and integrity of the tax system.
High-net-worth individuals can abuse “valuation discounts” to significantly reduce the value placed on their assets for the purposes of calculating estate, gift, and generation-skipping transfer taxes, and so decrease their transfer tax liability.
This proposal would use Treasury’s regulatory authority to strengthen existing regulations to curtail the most abusive valuation discounts and create a set of valuation assumptions that would more closely align asset valuation for transfer tax purposes with economic reality.
The recently-enacted corporate alternative minimum tax includes numerous grants of regulatory authority to the Secretary of the Treasury Department. The guidance issued pursuant to this authority will play a critical role in ensuring the successful implementation of the new tax. The Tax Law Center submitted a comment letter articulating our understanding of the purposes of certain statutory provisions referenced under those grants of authority and their implications for regulatory and sub-regulatory guidance.
The Responsible Financial Innovation Act (RFIA) proposes to give digital assets special tax advantages over most other types of property. This report analyzes three major tax provisions of the RFIA, concluding that they would subsidize the use of digital assets and harm tax administration. Please see our executive summary for a high-level overview of the report.
The Tax Law Center submitted a public comment encouraging the IRS and Treasury to strengthen a proposed anti-abuse rule in the transfer tax space. The rule aims to prevent tax filers from making sham “gifts” before 2026 to exploit the temporarily increased “lifetime exemption” for estate and gift taxes and ultimately lower their estate tax bills at death. This comment includes recommendations that would ensure the anti-abuse rule is applied consistently to abusive transfers.
This set of facts, co-authored with Wendy Edelberg of The Hamilton Project, illustrates key aspects of the current international corporate tax landscape. These facts highlight the motivations for tax proposals that U.S. lawmakers are considering and their interaction with the "Inclusive Framework deal," a historic new multilateral agreement.
On April 5, 2022, the Treasury Department and the IRS released proposed regulations to address the so-called “family glitch” under the premium tax credit (PTC). The family glitch prevents certain dependents of employees from qualifying for PTC, and by extension for advance payments of PTC and cost-sharing reductions, through the Affordable Care Act’s (ACA’s) Marketplaces. This comment letter, co-authored with Jason Levitis of the Urban Institute, provides an analysis of the legislative and regulatory text that resulted in the family glitch. Based on a close reading of the ACA’s text, this comment concludes that the affordability rule in the 2013 Final Regulation was incorrect, and that the rule in the 2022 NPRM is faithful to the ACA’s plain language, statutory construction, and legislative intent.
Treasury and IRS use the Priority Guidance Plan to identify and prioritize tax issues that should be addressed through regulations and other types of guidance. Our submission on the 2022-2023 PGP recommends certain projects that would promote sound tax administration, encourage stronger tax compliance, and improve confidence in the fairness and integrity of the tax system.
Issue Brief on Rebalancing Reporting on Sources of the Tax Gap
May 3, 2022 (Updated July 11, 2023)
Tax Law Center
The issue brief provides more detail on the treatment of refundable tax credit error compared to the other elements of the tax gap, including the statutory and regulatory regimes that govern reporting on these sources of error.
This report recommends that the Administration conduct or facilitate research on the share of EITC recipients that do not make it through the correspondence audit process and have the credit disallowed, despite being truly eligible. The correspondence audit process is often challenging for filers with low incomes to navigate, and there is suggestive evidence that a significant share of filers who have their EITC denied or reduced on audit in fact meet the underlying eligibility criteria for the credit. The report discusses potential research approaches, and why this research would be consistent with Executive Orders to advance racial equity and improving federal service delivery.
Comment on Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network, which relates to regulations to be promulgated under the Corporate Transparency Act
February 7, 2022
The Corporate Transparency Act (CTA) is part of the Anti-Money Laundering Act of 2020, which modernizes and reforms the Anti Money Laundering (AML)/Combatting Financing of Terrorism (CFT) regime. The CTA requires certain entities to report on their ultimate beneficial ownership to Treasury and became law on January 1, 2021. The Financial Crimes Enforcement Network (FinCEN) will implement and maintain the secure database of beneficial ownership information required by the CTA. This rulemaking is the first of three and addresses FinCEN’s implementation of the CTA’s beneficial ownership reporting requirement.
The Tax Law Center’s comment on FinCEN’s proposed rules makes a series of recommendations aimed at ensuring that the implementation of the CTA is highly useful for tax enforcement and administration. This is necessary to meet the statutory requirements and purposes of the CTA, given the strong links between the AML/CFT regime and both domestic and international tax administration.
The General Explanation of the Administration's Revenue Proposals, or "Greenbook," is released by the Treasury to accompany and explain the President's Budget. Our submission for proposals to include in the FY2023 Greenbook includes recommendations that would promote sound tax administration, save and raise revenues, and improve the fairness and integrity of the tax system.
The slides outline findings from a Tax Law Center research paper co-authored with Professors Jane Millar and Peter Whiteford on how to design a monthly Child Tax Credit to avoid risks of families having to repay substantial amounts. The work relates the research to current policy proposals under consideration in the US. and discusses the measurement and treatment of error in the Child Tax Credit and Earned Income Tax Credit compared to other sources of the “tax gap” of taxes owed but not paid voluntarily on time.
This response explains why policymakers should not prioritize repealing the state and local tax (SALT) deduction cap over more progressive investments under the Build Back Better package, and also addresses concerns about the cap's effect on state budgets.
This response explains why the Child Tax Credit (CTC) is so important for families and communities across the country. Chye-Ching discusses the long-term benefits of investments like the CTC.
This testimony explores how sound tax policy can lift living standards of low- and moderate-income Americans and support economic growth with broadly shared benefits. Tax policy designed to achieve these goals should: raise revenues to support investments and ensure that investment flows to where it is most productive rather than where tax savings are the most lucrative. The testimony outlines revenue-raising proposals that are well-tailored to these ends. It reviews the evidence on this approach to tax policy versus one that focuses on maintaining tax cuts and subsidies for capital income.
The Importance of Minimizing the Risk of Repayment When Delivering Monthly Child Tax Credit Payments: Lessons from the United Kingdom, Australia, New Zealand, and Canada
July 13, 2021
Kathleen Bryant, Chye-Ching Huang, Professor Jane Millar, Professor Peter Whiteford
Lawmakers in the US are considering how to improve the design of the monthly Child Tax Credit. Some other countries with child benefits adopted a design that required some families to pay back large amounts of their child benefits when their family circumstances changed. In the United Kingdom, Australia, and New Zealand, repayment obligations imposed financial hardship on many families and caused substantial program instability. Canada's approach reduces but does not eliminate repayments. US lawmakers can adopt a design that reduces or avoids the risk of Child Tax Credit repayments.
Comment on the 2021-2022 Priority Guidance Plan
May 28, 2021
Tax Law Center
The Treasury/IRS Priority Guidance Plan identifies and prioritizes tax issues that should be addressed through regulations and other types of guidance. Our submission on the 2021-2022 PGP recommends that Treasury and the IRS place strong weight on projects that have strong tax administration and compliance benefits, and/or are important to low- and moderate-income filers. Heavily weighting such considerations would be consistent with Executive Order EO 13985 On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.
Comment on Advance Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network, which relates to regulations to be promulgated under the Corporate Transparency Act
May 5, 2021
Professor Susan C. Morse, Professor Gregg D. Polsky, Professor Stephen E. Shay, Tax Law Center
The Corporate Transparency Act (CTA) is part of the Anti-Money Laundering Act of 2020, which modernizes and reforms the Anti Money Laundering (AML)/Combatting Financing of Terrorism (CFT) regime. The CTA requires certain entities to report on their ultimate beneficial ownership to Treasury and became law on January 1, 2021. The Financial Crimes Enforcement Network (FinCEN) will implement and maintain the secure database of beneficial ownership information required by the CTA. This comment on one stage of FinCEN’s implementation of the CTA: (1) notes the strong link between the AML/CFT regime and domestic and international tax administration; (2) discusses tax administration access; (3) proposes a broad definition of “other similar entities” under the CTA; and (4) discusses tax law’s experience that different kinds of entities and arrangements are often easy to substitute for one another.
Written Testimony for Hearing, “Funding Our Nation's Priorities: Reforming the Tax Code's Advantageous Treatment of the Wealthy”
May 12, 2021
This testimony focuses on aspects of the US federal tax system that give income generated by wealth certain tax benefits not available to income from work. It explains: (1) how these tax breaks are not only outright tax cuts, but also affect the tax system by leading to wasteful tax avoidance, sheltering, and even evasion; (2) how low- and middle-income workers typically have a very different experience of the tax system; and (3) the tradeoffs between maintaining these tax subsidies versus proposals to make other investments.
Testimony for the Hearing “How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment”
March 25, 2021
This testimony first explains how elements of the post-2017 structure of the US international tax regime are opportunities and incentives for multinationals to locate profits and activities offshore. Second, it describes how some structural elements of this regime can be salvaged and strengthened to form a workable, coherent tax structure. Finally, it outlines how doing so would complement multilateral efforts to reform a century-old international tax framework.