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taxes

It’s a win for small tax return preparers and a loss both for unilateral assertions of agency power (Congress had never given the Internal Revenue Service the power it claimed here) and for big national tax-prep chains, which had supported the regulation with a view to suppressing “kitchen table” competitors. Andrew Grossman analyzes for Cato, and the Institute for Justice, representing independent tax preparers, can take due credit for a big legal win.

More: H & R Block’s CEO — of course! — is unhappy. And John Steele Gordon explains the role of the Horse Act of 1884.

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Before you surrender entirely to schadenfreude, reflect that the payout will come at the expense of other taxpayers. [Home Maxwell; Kay Bell, Don't Mess With Taxes] More: Lowering the Bar.

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“Estate Says $2,105, IRS Says $434,000,000.” [TaxProf]

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At Treasury’s mercy

by Walter Olson on November 14, 2013

How “money laundering” regulations give the U.S. Treasury power to destroy foreign banks [Stewart Baker, Volokh] Meanwhile, if Canadians imagine that the Foreign Account Tax Compliance Act (FATCA) is something only Canadian-Americans need to worry about, they should think again [Maclean's]. Excerpt:

To say that FATCA is controversial is an understatement. The law is so complex and onerous to implement that some foreign banks have reportedly kicked out their U.S. clients in order to avoid dealing with it. Americans living abroad are queuing to give up their U.S. passports over it. The other problem with FATCA is that it asks foreign banks to do things that are often illegal in their home countries, such as passing on certain private information.

Earlier on “know your customer” here and on FATCA here.

Speaking of the Institute for Justice’s legal work: “The Obama administration on Tuesday defended its effort to regulate the tax return preparation business for the first time in U.S. history, basing its case largely on a 19th century law dealing with horses lost or killed in the Civil War.” Earlier here. [Reuters]

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Many previous posts in this space have addressed the Foreign Account Tax Compliance Act, which presumes to regulate overseas banks and financial institutions that do business with Americans, and which goes into effect next June. So it’s nice to see the Paper of Record running a reasonably informative introductory piece on its problems, even if at too late a date to get the thing stopped. “Global banks and investment firms have made their dislike of the law known, though they are reluctant to speak out individually” — and how common that last point is these days, given the retaliatory potential of the U.S. government’s vast regulatory and enforcement apparatus for a business that does dare to speak out. Still, a few critics are willing to show their heads above ground, including

Georges Ugeux, a dual Belgian-American citizen, a lecturer at Columbia Law School and the founder of Galileo Global Advisors, an international business consulting firm. He described the law as “bullying and selfish.” The United States, he said, “is acting outside its borders as if they were its home.”

Sen. Rand Paul of Kentucky has introduced legislation to roll back part of the law, and there is a site called RepealFatca.com. [Lynnley Browning, NYT via TaxProf]

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Many — most? — Des Moines taxpayers probably don’t care all that deeply whether the city extracts taxes via one broad-based method or another. But due to class-action procedure and the barriers it erects to opting out, they all get to be plaintiffs in the resulting suit, and the lawyers (self-) appointed to bring the case are expecting to pocket 37 percent, or $15 million, of the $40 million changing hands, a sum that could amount to $1,400 an hour. [Ryan Koopmans (On Brief blog), Des Moines Register, earlier]

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The Washington Post splashes an investigative story about the tax lien business, in which outsiders buy up delinquent municipal property tax liens sometimes amounting to mere hundreds of dollars, then roll in lawyers’ fees and costs that can push up the bill into many thousands, eventuating in the foreclosure of family homes. The narrative is less than clear about exactly how the process works, and even leaves the impression that a tax lien purchaser owed, say, $6,000 can walk away with all the proceeds from the foreclosure of a $197,000 house without having to hand any of it over to mortgage holders, let alone the original owner. And some of the solutions offered (let’s not allow lien foreclosures on elderly people!) would have unintended consequences that are also, to be polite, underexplained. Still, enough of the story is there that an important general principle comes through: it’s dangerous for the law to put opportunistic actors in a position to run up $450/hour legal fees pursuing adversarial process that might not actually have been needed to vindicate their interests.

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..a surge in U.S. citizenship renunciations by expatriates [Bloomberg] The United States is “the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside,” a departure whose disincentive effects are magnified now that Congress is insisting on regulating foreign financial institutions that deal with Americans. Earlier on FATCA here. More: Dan Mitchell, Cato.

With enough enforcement linkage between different branches of government, do we even need a Panopticon? “Beginning this year, [New York] drivers who owe more than $10,000 in state taxes face losing their license until the debt is paid.” Does this mean persons who have fallen behind on taxes won’t be able to get to their jobs to pay off the arrears? Well, it seems “there is a ‘restricted’ license that you can apply for in the event that your license is suspended” which “would allow you to commute to and from work only.” How this is to be enforced — whether the hapless motorist will be nailed for stopping off for a loaf of bread on the way home, or venturing out for a job interview — is your guess as well as mine. [Kelly Phillips Erb, Forbes]

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August 2 roundup

by Walter Olson on August 2, 2013

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“Detroit had the highest property tax rates of all 50 [largest U.S.] cities” [Chris Edwards/Cato, Alex Tabarrok] Some of the city’s weaknesses go back far enough that Jane Jacobs was pointing them out in 1961 [Urbanophile] How other cities avoided Detroit’s fate, and why, as Boeing shrank, “Will the last person to leave Seattle please turn out the lights?” turned out to be such a misplaced joke [Ed Glaeser, 2011 via Amy Alkon] And in two Cato podcasts on the city’s plight, Caleb Brown interviews Megan McArdle (Daily Beast, Bloomberg) and Emily Washington (Mercatus Center). Plus: Some reasons Baltimore is not Detroit [Frank DeFilippo, Splice Today] And Stephen Eide on the pension-negotiating strategies of emergency manager Kevyn Orr [Public Sector Inc.]

July 27 roundup

by Walter Olson on July 27, 2013

  • Authorities arrest woman they say obtained $480,000 by falsely claiming injury from Boston Marathon bombing [CNN]
  • More on the buddy system by which Louisiana officials pick private-practice pals for contingency contracts [WWL, The Hayride, Melissa Landry/La. Record; earlier on levee district's new megasuit against oil industry]
  • “Why would the President meet with the IRS chief counsel rather than his own counsel at OLC, and without the IRS commissioner present?” [Paul Caron, TaxProf] “The IRS as microcosm”: government lawyers lean left politically [Anderson, Witnesseth]
  • California county lead paint recoupment case finally reaches trial, judge jawbones defendants to settle [Mercury-News, Chamber-backed Legal NewsLine]
  • The insanity of film production local incentives, Georgia edition [Coyote]
  • Questioning NYT’s underexplained “Goldman aluminum warehouse scam” tale [Yglesias, Stoll, Biz Insider]
  • Yes, government in the U.S. does do some things to accommodate Islam, now don’t get bent out of shape about it [Volokh]

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All 50 states have escheat laws awarding to state governments ownership of unclaimed property in business hands, which can range from bank, insurance, and stock holdings whose proper owners cannot be found to retail gift cards never cashed in. The revenue looms peculiarly large for the state of Delaware, because it is the state of incorporation for so many businesses. In recent years friction has been growing between the state and its corporate citizens as the state government has taken an increasingly aggressive stance in auditing corporations for unreported escheatable property. [WSJ] So far, perhaps, so routine (except for the parties to the dispute), but some accounts omit one of the most salient angles, summed up by one critic [Douglas Lindholm, IBD via Volokh] as follows:

Last year alone, Delaware seized $319.5 million from liquidated property while returning only $18.9 million of unclaimed property to its rightful owners.

Delaware does this through an unfair, onerous and expensive audit system that “looks back” to 1981, and contrives unclaimed property if the company doesn’t have records for all those years. This process often costs companies millions of dollars, mires them in years of audits, and forces them to deal with third-party auditors who are motivated by contingent fees to invent unclaimed property where none exists.

Kelmar, which conducts most of the audits for the Delaware Department of Finance and works on a contingent fee, was paid more than $30 million in the second half of 2012 alone.

Again and again — whether in forfeiture laws entitling law enforcers to a share of the booty seized, or percentage awards for informants under whistleblower laws, or traffic camera systems in which the operators of the cameras get a share of ticket revenue, contingency fees for participants in law enforcement prove deeply problematic. In my chapter on contingency fees in The Litigation Explosion, I summed things up this way:

Contingency fees tend to be disfavored in professions to whom the interests of others are helplessly entrusted, where misconduct is hard to monitor…. Giving traffic cops contingency fees by hinging their bonuses on whether they make a ticket quota arouses widespread anger because it so obviously tempts the officer running under quota to be unfair to the motorist. The same is true of giving tax collectors contingency fees by hinging their bonuses on how many deductions they disallow or how many assets they seize. (“Tax farming,” the old system where private parties were deputized to collect taxes and keep some of the haul for themselves, was abolished long ago in well-run countries, not because it was the least bit inefficient — it was a favorite way for Roman emperors to extract revenue from conquered provinces — but because it encouraged brutality and trampling of due process in tax collection.)

Delaware seems to have gotten its image in trouble through a variant on tax farming. Let’s hope a lesson is being learned.

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IRS scandal update

by Walter Olson on June 28, 2013

Despite vigorous efforts from some quarters to establish a “progressives were targeted too” narrative, Jonathan Adler explains why the IRS scandal is “still a scandal (but still not ‘Watergate’).” More: “The Internal Revenue Service scrutinized ‘progressive’ groups less harshly than conservative groups, the Treasury Inspector General said in a letter to Congress this week.” [ABC] Earlier here, here, etc.

  • Next big church-employee bias case? Teacher signed “abide by Catholic teachings” contract, wins $170K anyway [AP] ACLU, which cheers that ruling, upset that new ENDA version would give more liberty to religious entities [BuzzFeed]
  • “Employee Who Changed Word Secretly in Severance Agreement Allowed to Proceed With Discrimination Claim” [Daniel Schwartz]
  • Sleeper Supreme Court case, University of Texas Southwestern Medical Center v. Nassar, tackles mixed-motive retaliation, oft-recurring fact pattern [podcast with Emory lawprof Charles Shanor, Fed Soc Blog]
  • You needn’t be anti-gay to oppose ENDA [Coyote, Scott Shackford] Case for public-accommodations version in state of Washington must be symbolic since it’s light on substance [Shackford]
  • English-only policies at workplace an “interesting and seldom litigated issue.” [Jon Hyman]
  • Bad, unfair move: “California Senate Passes Law to Revoke Status of Nonprofits With Anti-Gay Policies” [Philanthropy News Digest; Scott Walter, Philanthropy Daily]
  • Among those seeking broad religious exemptions from anti-bias laws, prohibition of discrimination on grounds of religion ought to be more controversial [BTB] Arizona bill carving out religious exception to bias laws also authorizes new suits against business [AZCentral]
  • “Across the country, human rights commissions cause more harm than they prevent.” [Scott Beyer, City Journal; Mark Hemingway, Weekly Standard]
  • New Colorado law allows workers to collect from small businesses in discrimination lawsuits [Judy Greenwald, Business Insurance]

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June 8 roundup

by Walter Olson on June 8, 2013

  • “They want us to run government more like a business? OK then, we’ll start dropping $10K fees each on ludicrous motivational speakers.” [me on Twitter, background on IRS]
  • Responding to scurrilous attacks on Fifth Circuit Judge Edith Jones [Ann Althouse and more, Tamara Tabo, Gerard Bradley, Bart Torvik]
  • As Hasan cites Taliban, Obama Administration’s claim that Fort Hood attack was “workplace violence” is looking brittle [Christian Science Monitor]
  • “The Good Wife’s bad politics and awful law” [Bainbridge]
  • Hey, it worked for Sheldon Silver: “Giving Albany bosses the power to block probes of themself in secret is laughably unworkable” [Bill Hammond, New York Daily News]
  • Per Mickey Kaus, immigration bill would allow retroactive EITC refunds for past years of unlawful residence [Daily Caller]
  • Someone’s getting rich off the federal cellphone program, but it’s not Mrs. Hale of Bethalto [KMOV]
  • “Goodnight stars. Goodnight moon. Goodnight spooks on iChat, peeking into my room. Goodnight PRISM. Goodnight cell. Goodnight Verizon. Goodnight, Orwell.” [Radley Balko]

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Did you know the IRS has asserted, and apparently exercised, a right to read your emails without a warrant? I didn’t, until now. [ACLU; more from ProPublica]

Regarding yesterday’s revelation that the National Security Agency has been collecting the phone records of millions of Americans, Glenn Greenwald at the U.K. Guardian has the original scoop, quoting my Cato colleague Julian Sanchez about one of the most salient aspects of the program: it scoops up everyone’s phone data in a dragnet, rather than proceeding against some narrower category of phone records for which there is individualized suspicion. More coverage: Guardian sidebar on what telephone metadata can reveal; Timothy Lee/Washington Post; Orin Kerr/Volokh (“This is potentially a huge story. If the NSA is getting all call records from every domestic call from Verizon, then that’s a very big deal”); Adam Serwer/MSNBC; Electronic Frontier Foundation (“There is no indication that this order to Verizon was unique or novel. It is very likely that business records orders like this exist for every major American telecommunication company, meaning that, if you make calls in the United States, the NSA has those records. And this has been going on for at least 7 years, and probably longer.”) And from a slightly different perspective, Joshua Foust, who cites Congress for having repeatedly voted to give the Executive ultra-broad surveillance powers, and writes: “The information the NSA is collecting is metadata, not content (like a wiretap), and not account names. Uncovering personally identifiable information would require separate warrants to do so. This was a pattern analysis, not really mass surveillance as we traditionally understand it.”

P.S. On the IRS’s claims of a right to read email without a warrant, Justin Horton: “Not limited to IRS; this is basically government’s position and only 6th Circuit seems to disagree.”

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