MauledAgain

Anyone who wonders how the tax law can become complicated can get a glimpse into the process by reading through this explanation of how one well-intentioned new deduction has opened up a debate the answer to which isn't as obvious as either side seems to think that it is. Though I know what I would do if I were writing the statute, that's irrelevant, because the statute, as written, doesn't provide enough guidance to resolve the issue. So there's complexity-causing step number one: Congress fails to provide a sufficiently specific direction. In many ways this is not only step number one, it's the only step. It isn't fair, is it, to treat the next steps in the process as "complexity-causing"?

The provision in question is the new section 199. Section 199 allows a deduction equal to a specified percentage (it increases over the next few years) of the lesser of something called "the qualified production activities income of the taxpayer for the taxable year" or taxable income for the taxable year. The second element can be ignored, as it is designed to prevent the deduction from generating a negative taxable income, an issue not germane to this discussion. But what is "qualified production activities income" or QPAI as it has come to be known? The statute provides that it equals any excess of the taxpayer's "domestic production gross receipts" for the taxable year, over the sum of the cost of goods sold allocable to those receipts, other deductions, expenses, or losses directly allocable to those receipts, and a ratable portion of other deductions, expenses, and losses not directly allocable to those receipts or to another class of income. Whew. Fortunately, the issue requires a focus on "domestic production gross receipts" or, to use the rapidly emerging acronym, DPGR. What is DPGR?

The statute tells us that DPGR means the taxpayer's gross receipts derived from any one or more of three major areas of activity. The first major area is any lease, rental, license, sale, exchange, or other disposition of any of three types of property. The first type of property is any qualifying production property manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States. The second type of property is any qualified film produced by the taxpayer. The third type of property is electricity, natural gas, or potable water produced by the taxpayer in the United States. The second major area of activity is construction performed in the United States. The third major area of activity is engineering or architectural services performed in the United States for construction projects in the United States. The statute also tells us that DPGR does not include the taxpayer's gross receipts derived from the sale of food and beverages prepared by the taxpayer at a retail establishment, or from the transmission or distribution of electricity, natural gas, or potable water.

Anyone with experience reading tax statutes, or the sort of paraphrasing I've shared, and even folks who've never seen a tax statute can figure out that Congress engaged in some picking and choosing in designing the deduction. The limitation to activities in the United States is at the heart of the deduction, which is designed to give U.S. enterprises an incentive to generate product and to sell it (hopefully overseas so as to reduce the trade deficit, but no one really wants to say that because it re-opens the door to the mess that Congress tried to solve with the deduction and some associated provisions). But why distinguish between food prepared at a retail establishment and food prepared elsewhere? I explored this in my first analysis of this new deduction and I'll let those who missed it go take a look when they're finished with the present concern.

Because we're going to focus on "construction performed in the United States" there's no need to analyze the definitions of qualifying production property, qualified film, or the words "manufactured, produced, grown, or extracted." Suffice it to say many paragraphs could be written on each of those. Beginning to get a sense of why tax law becomes so complicated?

The statute does not define "construction." Should it? After all, don't all of us know what "construction" is? It means to build something, right? Well, maybe.

So the IRS had to step forward and define the term. In Notice 2005-14, a long document that parses much of the statute, the IRS (in section 3.04(11) of the Notice) said more about construction than one might have guessed (other than those who know me and know that I can speak or write for long periods of time based on one key word or key phrase).

The IRS began by defining construction as the construction of real property, and then defined real property as "residential and commercial buildings (including items that are structural components of such buildings), inherently permanent structures other than tangible property in the nature of machinery, inherently permanent land improvements, and infrastructure)." The IRS points out that local law is not controlling in determining whether property is real property for these purposes, citing the Conference Report to the legislation. OK, so there's complexity-causing step two, namely, the writing of rules by the staff of the Joint Committee on Taxation to fill in the gaps in the legislation that come to its attention after the legislation is too far along to be changed but before too much time goes by. The IRS also notes, not surprisingly, that tangible personal property such as appliances, furniture and fixtures, sold as part of a construction project is not real property for purposes of the decution. But then the IRS throws in a reference to another rule in its Notice, concluding that if more than 95% of the total gross receipts derived by a taxpayer from a construction project are attributable to real property, ALL of the total gross receipts derived by the taxpayer from the project are treated as DPGR from construction.

Having defined construction as the construction of real property, the IRS then turned to the definition of "construction" in the phrase "construction of real property." If this seems a bit weird to those of you not immersed in the reading of tax (or other statutes), understand that it is "normal" in the world of statutory legal analysis. Hmmm. No wonder lawyers are sometimes seen as being a bit "cagey" with their words. So, the IRS explains that it and the Treasury Department (of which it is part) "believe" the term "construction" includes "most activities that are typically performed in connection with the erection or substantial renovation of real property, but does not include tangential services such as hauling trash and debris, and delivering materials, even if the tangential services are essential for construction." But, it also notes, "if a taxpayer performing construction also, in connection with the construction project, provides tangential services such as delivering materials to the construction site and removing its construction debris, the gross receipts derived from such tangential services are DPGR." The IRS explains that "[i]mproving land (for example, grading and landscaping) and painting are activities that are considered 'construction,' but only if they are performed in connection with other activities (whether or not by the same taxpayer) that constitute the erection or substantial renovation of real property." And, because of how the statute is crafted, the IRS excludes from the definition of "construction" any activity within the definition of "engineering and architectural services."

Hang on. We're almost there. Because it doesn't bear on the issue under discussion, we can skip over the definition of infrastructure, which was used in the definition of construction as "construction of real property," and the definition of substantial renovation. Those are two tangents that lead to paths we will not travel today. Those who have never been in one of my classes can see glimpses of how I construct coverage of a topic, shunting to the side deeper analyses of terms and issues that distract from the bigger picture.

But it is important to consider one more term before turning to the issue. The IRS defined the phrase "derived from construction" as including both the proceeds from the sale, exchange, or other disposition of real property constructed in the United States, whether or not sold immediately after construction is completed, assuming all other requirements are met, and compensation received for construction services performed in the United States, assuming all other requirements are met). However, the IRS concluded that DPGR does not include gross receipts from the lease or rental of constructed real property. And the IRS concluded that DPGR does not include gross receipts attributable to the sale or other disposition of land.

It didn't take long before representatives of "a coalition of U.S. firms engaged in the residential land development and homebuilding businesses" responded (in this document) to the IRS invitation to comment on Notice 2005-14 and objected to the exclusion from DPGR of gross receipts from the sale or other disposition of land. They took a two-part approach in their criticism of the IRS rule.

First, the coalition representatives pointed out that the statute does not exclude land, and that because Congress did identify certain activities or products as ineligible for the deduction, it would have excluded land had it intended to do so. Of course, no one really knows what Congress, or any individual member of Congress intended, or even if they intended anything considering few, if any of them, read their legislation, but I'm being picky in terms of how the coalition representatives make their point. A stricter reading yields the simple argument that there is nothing in the statute excluding land proceeds from DPGR, period. The coalition representatives pointed out that although Notice 2005-14 contains no explanation for the exclusion, IRS and Treasury officials have expressed publicly concerns that land speculators will engage in minimal construction activities in order to get a deduction, something that the coalition's members would not be doing because they are engaged in construction development and not land speculation. Of course, the line is not that bright, but the coalition representatives, borrowing from a similar provision in another area of the income tax law, proposed an alternative approach that would weed out land speculators from construction project developers. They also argued that land is a raw material in the construction of a building just as coal and gold are raw products used in the manufacture of products made from them. Finally, they argued that it makes no sense to treat land as a different sort of real property when it comes to defining proceeds derived from construction of buildings that necessarily are built on land.

Second, the coalition argued that compliance with the rule in Notice 2005-14 would be difficult, if not impossible, to achieve. Separating gross receipts, cost of goods sold, and deductions into those attributable to the land and those attributable to the buildings and other qualifying property would require accounting in which developers currently don't engage. Worse, they explain, "[t]he exclusion would therefore force land developers and homebuilders to undertake both sampling and valuation methodologies that would engender substantial controversy upon subsequent examination by the Internal Revenue Service." Anyone familiar with the issues and disputes arising when purchase price is divided between nondepreciable land and depreciable buildings can envision the sort of audit and litigation that would be generated by even more complicated apportionments of not only purchase price, but construction costs, and sales proceeds.

If it weren't for the fact that huge amounts of money flow into and out of land development and building construction each year, this analysis might not be more than an academic exercise in the study of tax complexity origins. However, the dollar amounts involved make this an issue of great practical importance, and one that needs to be resolved sooner rather than later.

What's at stake is the profit that, however measured, is attributable to the land component of the construction project. If the coalition is correct, and the proceeds attributable to the land should not be taken out of the computation, then the cost of the land also should not be taken out. Because the deduction is based on QPAI, and because QPAI is computed by subtracting costs from receipts, it is the profit on the land that is at issue. Because it can take as many as 10 years from the time the project begins with the acquisition of the land or an option to purchase the land until the final building on the property is sold, the profit attributable to the land can be considerable.

So who's right?

Technically, I think the coalition is correct because its representatives rely on a statute that does not exclude land from the picture. I think IRS and Treasury Department concerns about abuse can be handled not only by something along the lines of the proposed anti-abuse provision (which would deny the deduction if non-land construction costs were less than 10% of the total project cost), but also by the Notices' use of construction industry standards in identifying eligible taxpayers and by the W-2 wage limitation, which would limit or eliminate the deduction for land speculators because they pay little or no wages in connection with their investment.

On the other hand, the deduction focuses on "production" and although construction companies "produce" buildings, roads, infrastructure, and similar land improvements, they don't "produce" land. Unlike processors of coal and gold, who remove the substances for use in other places, the land is there when the construction company arrives, and it is there when they leave. They don't leave behind exhausted coal fields or empty gold mines. Actually, many developers do scrape off the topsoil and sell it, a practice that annoys me no end for several reasons (e.g., environmentally unsound, requires new homeowner to replace the topsoil perhaps by purchasing it from the construction company's purchaser) and now that they'll get a deduction for a percentage of their topsoil extraction profit, it's even more annoying. But the upshot is that the statute doesn't restrict the deduction to "qualifying construction" the way it restricts the deduction in the manufacturing, extraction, growth, or production areas. If Congress had used the adjective "qualifying" then the IRS would have a much firmer foundation (sorry!!) on which to rest its conclusion.

Those who wish to micro-manage the interface between tax and the economy would limit the deduction to the portion of the profits attributable to the land that arise from the impact of the construction activity but not the portion arising from general price increases or developmental sprawl in general. In other words, the land developer's deduction would reflect the contribution made by the developer's activity to the value of the land as a part of the economy. After all, any land developer willing to tell it as it is must admit that there remains an element of land value speculation even as the construction project moves along from zoning changes to ribbon-cutting.

Observe how a tax expert must understand the land development and construction business in order to begin analyzing the issue. Fortunately or unfortunately, depending on how I look back at life, I've had more than the average person's share of building construction experience, as plumber's assistant one summer way back in my high school days, to purchaser of new homes built under my watchful (and, to the contractors, annoying) eye. Perhaps some members of Congress have had similar experiences. Perhaps they thought about and envisioned the "construction" process when they were writing (oops, they don't write) and voting for the legislation enacting the deduction. Nah. Didn't happen that way.

So for want of a conscious decision by the Congress, necessitated by the practical realities of the construction business, the IRS and taxpayers must expend time and money resources trying to resolve this matter. Perhaps it will be resolved in a revised Notice or other administrative issuance. Perhaps it will be resolved through audits that end up in litigation. Perhaps it will be resolved when the Tax Court's decisions are uniformly affirmed, or reversed, by the Courts of Appeal. But perhaps it won't be resolved until conflicting Courts of Appeals decisions end up compelling the Supreme Court to take on the issue, probably late in the decade. Yes, indeed, if enough steps are taken on the tax-law-as-a-complexity journey, that's where the question ultimately will land. Oh, that was awful.

Oh well. Perhaps for some this post broke new ground.

The grading marathon continues, and I take occasional breaks to let my brain rest. During one break, I took a look at incoming email from one of the law lists to which I subscribe. It contained an abstract of an article by Tom Alleman originally published in Texas lawyer. It's an article well worth reading. Here's the part that captured my attention and should encourage others to read his take on pro se litigants. He describes what it was like in his first post-law school job, one that he held at the federal court house in Kansas City:

As time went on, I met all manner of people who had business for the court. We met several people who complained that some government department or other was beaming invisible rays at their heads. One of these poor souls came in on a quiet Friday afternoon, so another clerk and I took him over to the Lexis terminal, at that point an imposing stand-alone console about the size of a small desk. We turned it on, typed in "Stop beaming rays at John Doe's head," hit "enter" and turned it off. Doe left happily, the voices in his head now silent, and we returned to our duties, knowing that we had helped one American citizen obtain justice in an imperfect world.

I remember those Lexis terminals. Maybe I can dig one up and keep it on standby in my office. It might come in handy someday.

OK, I'd better get back to grading. Before my students start beaming subliminal A messages to me.

When I first started teaching law school, I was "warned" by older colleagues that the most burdensome part of being a law professor is examination grading. I can understand why some law (and other) faculty feel that way, but I'm not convinced it's the most burdensome.

I mention this because I have three examinations to grade this semester. One was administered Monday evening, with some rescheduled for last night. All have been graded. Another examination is being administered as I write, and the third will be given tomorrow morning. Grades are due by mid-week so that they can be processed and graduation information prepared. So this post will be short, as will be Monday's.

CREATING an examination is the tough part. It is challenging. One must find questions "that work" but that don't invite students to do no more than write "all they know" about a subject. Law school is a graduate school, and it would be more effective, but inefficient, to have students take oral examinations in front of three-person or five-person faculty panels. Ideally, they would be comprehensive rather than limited to specific courses. That would put an end to the "write all you know and hope the professor finds worthwhile information in the dump" approach. My examinations deter and penalize that behavior, which is why they are so challenging to design.

The grading itself can be tedious. Not that I have any right to complain, but handwriting has become very difficult to read as a general proposition. I'm waiting to find out if the software that permits students to do examinations on computers comes in a version that prevents them from "taking" a digital copy of the examination. That's important because I do not make previous examinations available. Especially in tax, once I design a good set of facts, I can spin all sorts of questions off that fact situation. I do not want to coach students on those specific facts, which is what they would want to have done for them if they had those facts. Nor do I want to go through what I had to do when I did publish old examinations, which was an explanation of why a particular question made no sense, or had useless information, or lacked information, because the tax law had changed. Now that tax law changes every year, it is easier to design new questions by adapting older ones, but that is not where I want student focus to be.

What is most burdensome with examinations is coping with the disappointment that comes from discovering one's students, as a group, have learned some very strange things about the law. This is, of course, offset by the glee of discovering a student who was apprehensive about their course grade has done well. It varies from semester to semester and from course to course. Sometimes, classes as a whole write great exams. Other times, it isn't so great. There almost always are students with excellent grades. It's when some students begin to populate the lower grade regions that it's time to contemplate if this reflects deficiencies in the course. Almost always, the reason is either the student's inattentiveness to and absence from the course, or some sort of outside distraction afflicting the student during the examination period.

Part of the problem is that student anxiety increases when the entire course grade rests on one end-of-semester examination that is packed in with other examinations. Students who are in both of my J.D. courses this semester have examinations on back-to-back days. Their brains will be tired tomorrow morning. I have tried to offset this "sink or swim, never have feedback" approach still prevalent in many law school courses by giving assignments during the semester that count for a portion of the grade. Some of the assignments are done out of the classroom, and others are in-class exercises that are unannounced.

For students, the primary benefit of these exercises is feedback. They can determine if they are on the right track. They can make adjustments before it is too late. It is superior to finding out AFTER the examination period that one has a particular study, testing, or writing flaw that poisons all one's exam performances. It builds up self-confidence where and when it ought to be nurtured. For me, it lets me know which students need to be reminded to refocus. It tells me if I am "losing" a substantial portion of the class such that I need to make adjustments. Although students sometimes complain about being graded throughout the semester, almost all come to appreciate what the Dean calls "huge amounts of work" by me. After all, in courses such as Trial Practice and those meeting the practical writing requirement, along with Clinic experiences, students are evaluated constantly rather than at one time. The misleading attractiveness of the "one exam at the end" approach is that it is easier, but when I can give a much shorter examination because some of the scoring already has been done, I endure much less "burdensomeness" than do many of my colleagues as they test their endurance grading everything at once.

In the J.D. courses, students drop the lowest 2 of 10 scores (so that I don't need to deal with whether class absence was or was not justified). In the Graduate Tax Program course, students drop the lowest one of 4 scourse, even though all 4 are, at the moment, out of classroom exercises. The J.D. total exercise score counts for 1/3 of the grade, but in the Graduate Tax Program it counts for 1/5.

I want to find a way to shift more of the scoring into the semester. Doing that in the J.D. program will be a fairly simple matter. The use of student response pads ("clickers") means that I can count more in-class question responses toward a grade, and I am pondering making 40%, rather than 1/3, of the grade dependent on semester work. Perhaps even 50%. In the Graduate Tax Program, it is more difficult. Students attend only 14 100-minute classes rather than 42 50-minute classes. Thus, it is far more likely students will be absent when an in-class exercise is given. The limited 2-credit course and the nature of the material (Partnership Taxation) already puts a huge time pressure on adequate coverage, and in-class exercises simply would increase that time constraint problem. I've not yet introduced clickers into my Graduate Tax Program course. I'm still trying to get Graduate Tax Program students to check the on-line Blackboard classroom as often as they should. Some do, but far too many do not, even with the help of the Program's staff who take time to teach the students the very easy 3 steps for accessing Blackboard.

So, back to grading I go. And I'll let others wonder if it is really true that no matter how challenging it is to take an examination, it is even more challenging to create and grade them. It's true of crossword puzzles. That's the clue.

The debate over Social Security reform has taken a turn that is getting much-deserved attention, no matter how one stands on the substance of the proposal. By advancing the concept of "progressive indexing," the President has championed putting into the social security benefits equation the concept of needs-based determination. Of course, progressive indexing is a far cry from genuine needs-based benefits determinations, but at least it opens the door to the hallway that leads back to the word INSURANCE in the official name of the social security system.

Currently, social security benefits are indexed to increase based on increases in the wage index. Some reform proposals have suggested that all social security benefit increases should reflect price index increases. If the goal of social security is to ensure that retired folks have enough income to pay their bills, then the price index increase is the better measure of adjustment than is the higher wage index increase. On the other hand, those who turned social security into an entitlement program characterized as a savings plan, which, of course, it was never intended to be, then it is easier to understand how and why politicians decided to use the more expensive wage index increase as the benchmark for determining social security benefit increases.

The President's proposal would limit social security benefit increases to the more slowly climbing price index only for so-called high and middle income workers. It remains to be seen what dollar amount will define those categories. People with some sense of what might develop are suggesting amounts such as $25,000 and $100,000 as the thresholds. Of course, with you-know-who in the details, a change of $10,000 one way or another in the boundary can make a huge difference in the total dollars involved in the reform computations. It would make sense, would it not, to scale the adjustment so that a $5 change in income level doesn't trigger a huge difference in benefits.

The challenge to accomplishing reform is that people who think they have vested interests and people with vested interests reject any attempt to make the system more equitable, even if the vested interest is not equitable. The major flaw in social security is that an insurance program was morphed into an entitlement program, subsequently justified by claiming that it is a "savings" program. It is not a savings program, and anyone designing a savings program would not suggest the convoluted mess that social security has become. Why did it become an entitlement program? Simple. At the time, with high worker-to-retiree ratios, it posed low short-term costs for the accumulation of high numbers of votes. Now that the piper has come to be paid, with low worker-to-retiree ratios, longer life expectancies, and benefit increases reflecting the higher wage index rather than the price index, a financial catastrophe looms.

Any genuine reform must roll back the baggage that has been piled onto the system. The tough challenge is accommodating those retirees and soon-to-be retirees who relied on the system with expectations of coverage. The President promises that they will not be disadvantaged. But someone will be disadvantaged. Easily $8 trillion of social security benefits have been paid over the years to retirees in excess of contributions. Even with increases in the payroll tax rate and the wage cap, the deficit for all current and past participants, including current workers, is on the order of $11.2 trillion. Wow. If someone other than the government set up such a plan, they'd be charged with operation of an illegal Ponzi or pyramid scheme. Social security has come to represent the flaws of handing out entitlements without acknowledging, knowing, or understanding that when there are only 10 cookies, it's impossible to give each of 30 children an entire cookie.

Private accounts don't solve the problem. Certainly not unless workers are required to put into the accounts amounts sufficient to fund the retirement income that they wish to have, or that the "government" decides they should have. Hmmm, that latter bit sounds like a Soviet five-year plan to me. Anyhow, it's quite easy to figure out what someone needs to save each month in order to have a retirement income of a specified number of dollars, and the amounts being put into social security, whether plowed into private accounts in a volatile stock market, or, as presently is done, loaned to the government to finance huge deficits in the budget, won't do the job.

On the other hand, as INSURANCE, the premiums that are being paid are more than adequate. It makes no sense to tell a person who retires with a $5,000,000 annual pension (plus severance payments, golden parachutes and all other sorts of goodies) or with a $150,000 annual pension that they are not expected to be able to get along in life without some government payments. To those who insist that the payments are a return to the retiree of his or her contributions, check again. Only if the person dies within a few years of retirement with no survivors is that true. How else did the huge deficit between contributions and benefits get generated? Clearly, when seen as insurance, a claim for a return of premiums or for a payout makes about as much sense as a homeowner, after 30 years of living in a home that didn't burn down or otherwise suffer a casualty, suing an insurance company for breach of contract because the homeowner "didn't get anything out of it" and "wants their money to which they are entitled." What makes insurance work is that only a few, or some, of those who purchase the insurance end up getting something back, and usually they really don't want to have the experiences that justify the payment. A huge exception is life insurance, which ranges from very expensive whole life insurance (because one must pay the true cost), to time-limited but cheaper term insurance (which is cheapest for those least likely to die and extremely expensive, even if available, for those nearing the end of their life expectancies).

The key to social security reform, then, is undoing the mindset such as the one found in this government advertising, which emphasizes the absence of a needs test and the entitlement quality of social security. Consider this explanation of social security as an earned right: "Social Security is more than a statutory right; it is an earned right, with eligibility for benefits and the benefit rate based on an individual's past earnings." Written with full disclosure, it would read "Social security sets benefits at varying levels depending on an individual's past earnings, but in all events other than early death by a retiree with no survivors, the benefits paid exceed the amounts contributed and the earnings on those amounts, with the difference being made up by imposing increasingly higher taxes on those still working, a ploy which will no longer be available in a few years because there will be two workers for every retiree instead of 20 workers for every retiree as there was when this pyramid scheme was turned into an entitlement program."

Revision of the explanation of social security as "self financed" might help undo the entitlement mindset that politicians grafted onto the Federal INSURANCE Contributions Act system. The government advertising says "And, unlike many foreign plans, Social Security is entirely financed by dedicated taxes, principally those deducted from workers' earnings matched by employers, with the self-employed paying comparable amounts." Rewritten with full disclosure, it should read, "So far, and for another few years, social security is financed by dedicated taxes deducted from workers' earnings matched by employer contributions, or from comparable taxes on self-employed individuals, with the excess being loaned to the federal government to cover deficits, but eventually under the system as implemented by the Congress there will be more retirees with higher claims on payments such that the system will need to ask the federal government to repay the loans or significantly increase social security taxes, or both, causing a huge financial crisis with significant socio-economic and national security overtones."

The government advertising touting the lack of a means test deserves a full quotation: "In contrast to welfare, eligibility for Social Security is not determined by the beneficiary's current income and assets, nor is the amount of the benefit. This is a key principle. It is the absence of a means test that makes it possible for people to add to their savings and to establish private pension plans, secure in the knowledge that they will not then be penalized by having their Social Security benefits cut back as a result of having arranged for additional retirement income. The absence of a means test makes it possible for Social Security to provide a stable role in anchoring a multi-tier retirement system in which private pensions and personal savings can be built on top of Social Security's basic, defined protection." The problem with this analysis is that it has been disproven. The existence of social security has eased the consciences of corporate employers who have trashed their retirees' and employees' retirement plans, who have engaged in mergers disastrous to retirees, who have engaged in profiteering and fraud that has destroyed retirement accounts, and who have demonstrated that low public confidence in privately-operated (especially corporate) retirement plans is understandable. The government justification of "no means test" is equivalent to telling us that homeowners, secure in the knowledge that their casualty insurance will be there for them, can instead focus on using their homes in ways that pose greater risk of fire and other damage.

If the concern is that a means test would entice people to sit back and let the government support them because they failed to save for retirement, the solution is mandatory retirement savings, operated in a manner that precludes risky investment or mismanagement. Insurance companies know how to spot fraudulent claims (though they too often pay up because it's cheaper than litigating), and a well-managed mandatory retirement savings plan should be able to do the same. Of course, whether the government is in a position to filter out fraudulent claims after it has been operating the social security pyramid for decades is an interesting question. The answer, of course, is to remember that the government is of, by, and for the people, and that the pyramid scheme was a creature of politicians. Only by changing the political landscape can social security reform be accomplished. A pessimist would note that such a change is unlikely. A realist would add that, if true, the days of the "American Empire" are numbered, as were those of every previous empire. The optimist would respond that perhaps, just once, the citizens can demonstrate that they know how to put the national interest above the me-first mentality that permeated the politician playground in good government has been held hostage for too long.

A new survey from the National Council on Economic Education reinforces my expressed desire that K-12 education be revamped so that high school graduates enter society with the survival tools needed for life in the 21st century. Specfically, after interviewing and testing several thousand adults and students, the NCEE disclosed that:

*** Virtually all adults (97%) believe that economics should be included in high school education. However, only 50% of high school students say they have ever been taught economics in school (either in a separate course or as part of another subject).

*** On average, adults get a grade of 70 (C) for their knowledge of economics and personal finance, based on a 24 question quiz. Students’ average score is 53 (F).

*** 34% of adults and 9% of high school students get an “A” or “B” on the Economics Quiz.

*** Males are more likely than females to get an “A” or “B” (adults: 51% vs. 17%; students: 12% vs. 6%)

*** Economic understanding increases with age. Ninth – tenth graders are least likely to get an “A” or “B”, while adults 50 years and older are most likely to
get an “A” or “B”:
................ 8% of 9th – 10th graders get an “A” or “B”
................ 10% of 11th – 12th graders get an “A” or “B”
................ 25% of 18 – 34 year olds get an “A” or “B”
................ 34% of 35 – 49 year olds get an “A” or “B”
................ 38% of 50 – 64 year olds get an “A” or “B”
................ 42% of 65+ year olds get an “A” or “B”

*** College graduates are 4 times more likely than those with only a high school education to get an “A” or “B” on the quiz (61% vs. 15%). Twelfth graders
are just as likely as adults with only a high school education to get an “A” or “B” on the quiz (14% vs. 15%)

*** Most adults and students underestimate the impact of a college degree on earnings. Only two in ten know that adults who are college graduates earn about 70% more per year on average than adults who are high school graduates only.

*** Half of adults and even fewer students do not know that keeping savings as cash at home has the greatest risk of losing value due to inflation.

The good news is that student performance, compared with results in a similar 1999 survey, held steady or improved. Progress! But still a long way to go.

My tax teaching and tax blogging colleague Jack Bogdanski wishes everyone a Happy Statute of Limitations Week because on April 15, 2005, the three-year statute of limitations applicable to 2001 tax returns (due no later than April 15, 2002) expired.

So, Jack turned on the shredder and had at his receipts from 2001. He saved the tax returns themselves. He's hoping that an IRS audit letter dated April 14 doesn't show up in the April 17 mail. I'm sure it didn't. We'd have heard about it by now.

Jack carefully notes that the three-year statute is typical, and that if we haven't heard from the IRS about our 2001 returns by now we're "most likely" not going to hear from it. He chooses his words carefully. There is a six-year statute of limitations for 25% or more omissions of gross income, and the statute of limitations is for all intents and purposes eternal if there is fraud.

So when Paul Caron wrote up Jack's blog post, he called it Time for a Tax Bonfire. Before I looked at Jack's post, I had visions of Oregon's forests in flames because, well, there's a lot of stuff to burn when clearing out tax files. Fortunately, Jack wasn't burning anything.

But, folks, go easy with the shredder. DON'T SHRED anything that has to do with what you've paid for assets, or to improve those assets, because those amounts become part of adjusted basis, which is used to compute gain or loss when the asset is sold. Likewise, don't shred any information about the value of inherited property when the decedent died, or the donor's adjusted basis in property received by gift. Hang onto those contractor's invoices for the addition built onto the home. Keep all those investment records showing dividends plowed back into the stock through a dividend reinvestment program.

Why? Because a sale of property in 2006 can require the taxpayer to prove facts from 1996 or 1983 or 1964 or whenever, if those facts related to adjusted basis.

So, what to do? Be like me. Throw out the junk when it arrives (such as those bank privacy notice Jack mentions). Digitize what can be scanned with minimal effort. Buy a few more file cabinets. Build an addition onto the house.

Aha.... finally. We discover why the housing market continues to hum along, with so many families moving to bigger residences. It's to make room for all the tax paper.

Oh, if you've printed out this comment, don't burn it. Someday it could be worth a fortune and could send your great grandchildren to that $875,000 per-year private college.

As undergraduates approach the time of the year when they begin thinking about their course enrollments for the upcoming academic year and even about declaring majors, it's a good time to stop and consider the answer to this question: "I want to go to law school, so what should I select as my major?"

For many decades law schools have replied that it doesn't matter. The Pre-Law Committee of the ABA Section of Legal Education and Admissions to the Bar takes the position that it does not recommend, and it is impossible and undesirable to recommend, preferred undergraduate majors for students intending to attend law school. Instead, it suggests these students should seek educational, extra-curricular and life experiences that will enhance development of analytic and problem solving skills, critical reading abilities, writing skills, oral communication and listening abilities, general research skills, task organization and management skills, and the values of serving others and promoting justice. The American Association of Law Schools states that undergraduate education should be focused on "comprehension and expression in words; critical understanding of human institutions and values with which the law deals; creative power in thinking."

Unquestionably, selection of a major does not bear on the chances of getting into a law school, as indicated in this explanation from Peterson's on the Yahoo Education site: "Perhaps the most common misconception about getting into law school is that certain majors are looked upon more favorably than others in the admissions process. Also, since virtually no school has a "prelaw" undergraduate major, many students believe that political science is the prelaw major. Not so. Any rigorous program of study, from anthropology to zoology, is fine. You should major in an area you enjoy, since you'll do better in that subject than in any other. Engineering or physics majors often think that they cannot apply to law school because they lack a liberal arts degree. This is wrong! Law schools are happy to receive applications from engineers, chemists, physics majors or anyone who majored in any of the so-called "hard" sciences."

In one respect, the notion that undergraduate major does not matter is true. A student who is bright, motivated, and disciplined can do very well in law school no matter the undergraduate major. That's no guarantee, though, that the student can do well without investing far more hours than the student can or is willing to invest.

If, however, the question being asked masks a different concern, then the reply that it doesn't matter is misleading. Perhaps the undergraduate is asking, "I want to go to law school, and I want to arrive with a package of educational experience that enhances my chances of success and minimizes the avoidable academic struggles that might otherwise afflict me, so what should I select as my major?"

To that question, I suggest the answer is as follows: "Select a major that teaches you how to think, that compels you to solve problems, that rewards you for communicating effectively and efficiently, that demands you develop organizational skills, that requires you to be disciplined, and that encourages you to examine details in the framework of a larger contextual fabric." That's a positive response. A negative response is as follows: "Avoid a major that encourages mere memorization and recitation of information, or that emphasizes expression of feelings over careful application of logic and analysis." Most majors do the former, if the student takes his or her academic responsibilities seriously. Some majors are more demanding than others. I'm not going to provide a list of "not so helpful majors" because I'd rather students figure it out for themselves. After all, for me, good teaching is motivating and helping students to solve problems rather than handing them answers on a plate.

Of course, undergraduate departments are not reluctant to nominate their major as ideal. The economics professoriate point to the higher than average results for economics majors on the standard tests, and on surveys showing that lawyers who majored in economics earn 10% more than the average lawyer (gee, I'm really messing up those statistics!). An interesting report comes from the economics program at Winthrop, and another from the program at Clarion. Similar invitations to major in a particular area come from philosophy departments (e.g, Clemson), history (e.g., "perfect preparation for law school", and "highest rate of admission to law school"), liberal arts generally (e.g., "students who graduate with a solid liberal arts preparation are among the most successful law school candidates"), political science (e.g, "one of the best undergraduate majors for students who want to go law school "), and, I am sure, others that I haven't found yet.

The issue, though, is not so much the selection of the major in terms of its substance, but whether the major is designed so that the student can find time in his or her schedule to balance the courses in the major with courses that broaden the student's educational experience. Because undergraduate students often lack the wisdom or experience to package course selections in ways that are beneficial for the long-term, they should be encouraged to consult with, and learn from, experienced course advisors whose outlooks are in tune with these principles. Selecting courses for reasons of ease in grading, schedule, or other purposes can cause the undergraduate to fall short, and to face remedial burdens while in law school. Quoting again from the Pre-Law Committee of the ABA Section of Legal Education and Admissions to the Bar, and I do love this statement, "Taking difficult courses from demanding instructors is the best generic preparation for legal education." They should add that doing the same in law school is the best preparation for law practice. Can I put that in bold? Paraphrased, "Taking difficult law courses from demanding instructors is the best generic preparation for legal practice."

Putting all of this together generates a conclusion expressed, for example, in these terms, by the folks at Collegeview. They advise, "In law school, students read, write, and think voraciously. As a result, undergraduate majors who work on these skills really include a broad base of possible majors. Consider a combination of courses, regardless of the major you select. For example, if you choose to be an English major (reading/writing), then make certain that you take courses in logic and math (thinking). If you major in history (reading/writing), similarly make certain that you take courses that require you to analyze information critically (computer science, philosophy, math). "

What matters more than major, in many respects, is undergraduate course selection. Students who take courses in a narrow field of study, without reaching out to other disciplines, do themselves a disservice. Even if the requirements of a major leave little room for electives, there no harm in taking more courses than are required for graduation. Schools that require students to take courses from a variety of schools and departments, as was the case with Wharton when I was an undergraduate, set a fine example. Earning a degree in economics while majoring in accounting with a business law minor, I took courses in English Literature, Physics, Anthropology, Roman History, Organization Theory, American Civilization, Sociology, and several others in addition to a long list of business courses. There were so many courses that graduation from Wharton required 120 credit-hours rather than the 90 required for the B.A. from the College of Liberal Arts. Hmmm. I confess that at the time I grumbled a bit, and yet now from the perspective of a few years (decades, really) of experience, I've come to appreciate the benefits of most of those non-business courses.

When it comes to undergraduate course selection, I have no doubt that certain courses are essential, unless the student has acquired a similar exposure through some other experience. Most law courses deal with the application of principles to facts arising in the course of a person's life or entity's existence. Thus, to understand how law is applied one needs to understand the underlying transaction or event. It's no surprise that first-year law students generally disfavor contracts, property, and civil procedure as much as they take to torts and criminal law. The transactions of the latter two courses are common, perhaps much too common, in people's lives, and thus it isn't difficult to visualize the automobile accident, the stop-and-frisk, the physical assault, or the high-speed police chase. In contrast, few law students are familiar with the details of life estates, exoneration clauses, or similar contractual or property matters. Amazingly, most law students have signed real property leases and engaged in bailments, and yet don't quite appreciate the legal significance of what they have done.

From my perspective of teaching tax and probate courses, there's no question that the Decedents' course is less challenging in some ways than is the basic tax course, because most law students have had acquired some awareness of wills, understand that people die and become disabled, and can envision the dynamics of family relationships that shadow these issues. They struggle more with trust concepts. In tax, they can absorb the principles dealing with scholarships, student loan interest, and dependency exemptions far more easily than those applicable to life insurance, annuities, and land purchase options, not so much because the law is less complex or easier to understand but because they've dealt with the former and have had little or no experience with the latter. Is there any reason, for example, why people with at least 16 years of education have not learned SOMETHING about life insurance and annuities, not because they might go to law school but because these are matters that affect everyone no matter what they do in life?

Thus, I suggest this to undergraduate students who are planning to attend law school:

Take a course in business basics, so that you understand the time value of money, the difference between a stock and a bond, the essentials of a corporation and limited liability company, the significance of interest rate changes, the purpose and function of life insurance and annuities, the definition of the trade deficit, the rules of supply and demand, and how to balance a checkbook. Why? Because lawyers deal with these things, and law students encounter them in many of their courses.

Take a course in American history, not so much as to learn events but to understand the significance and context of those events. If you have a chance to take a course in American Civilization, do so.

Take a course in French-Norman-English history. Why? These courses will expose you to the background against which American law developed. It will make it easier to understand the medieval property concepts that pop up in the Property and Decedents courses because they are the foundation of modern property, probate, and other areas of law.

If you haven't had Latin, and even if you have, take a year of French. Why? These are languages that have left their mark in American legal terminology, and not only does knowing some basic Latin or French assist in deciphering the word questions on the LSAT, it spares you interrupting your first-year reading 10 times an hour in order to look up "res ipsa loquitur" or "stare decisis" in your Black's Law Dictionary (which really does slow you down tremendously). Taught well, they also introduce you to appreciating other cultures, something that lawyers often need to do, considering the extent to which law, like many other things, has globalized. And, having a second (or third) language skill will be valuable in your career development (crass translation: job search success), and also give you the opportunity to do public service, as do some of Villanova's students who serve as translators in the School's Immigration Law clinic.

Speaking of looking up things, take an undergraduate law course, especially one that focuses on procedure. Why? Arriving at law school understanding basic legal process and the meaning of terms gives a student an advantage because it means less time need be spent coming up to speed in that regard. And you might get a better idea if law is something that appeals to you as an area of study.

Take a course that involves reading and understanding the Constitution. If you need to ask why, think again.

Take a course in understanding how something complex works and how its parts interrelate. In other words, take a course in one of the "hard" sciences, or engineering, or computer programming. Why? The sort of thinking that goes on in those types of courses is very much like the sort of thinking that goes on in many law courses.

Take a course that requires you to write. No, not necessarily English literature. A course that requires you to take something complicated and explain it. Why? Because that's what lawyers do, all the time.

Take a course that requires you to stand up in front of your classmates and explain something. Why? Because that's what lawyers do, much of the time. Perhaps the American History course, or another of the recommended courses, will require this of you. If so, you'll achieve a double benefit.

Take a course in psychology. Why? Lawyers are de facto psychologists. They deal with people, all of the time. And people bring to their lawyers loads of psychological baggage. Law students are surprised to discover that the human condition has as much to do with how one deals with a client, or opposing counsel, or any other person, and with what one recommends, than do the machine-like patterns of legal principles.

Many undergraduate schools are now putting together pre-law programs or packages. These generally are not majors as such, but bundles of suggested courses tailored to the resources and schedules of the particular school. It is not my intent to examine and critique the various course combinations that are required or suggested as part of these endeavors, though I do invite pre-law advisors and others who design the requirements to read my preceding suggestions and consider them when they next revise their programs and advisory materials. It is my intent to make students aware of the need to think about these issues when they arrive at college, not during their junior year when they decide to contemplate a rapidly arriving graduation.

There is one bit of advice sometimes given to undergraduate students thinking about law school that disturbs me. Because, unlike major, GPA is a significant factor in law school admissions decisions, students are told to take courses that maximize the GPA (in contrast to being told to set priorities so that GPA is maximized). This is a short-term logistical maneuver that leads to long-term strategic failure if it causes the student to enroll in undemanding courses that don't develop good law school skills. Aside from the fact law schools are getting better at distinguishing one A from another based on course description, entering law school with a high GPA earned on an easy path is like a high school graduate trying to play in the NBA after scoring 50 points a game playing against middle school competition. Do your best, put your academics high on your list of priorities, and let your GPA reflect who you are and what you can and cannot do.

I close with one last bit of advice: Major in life. Real life, not the "anything but classes or public service" fun times "life" students can find at most colleges and universities. Yes, there is much benefit in taking off a year or two between college and graduate school. "Life-hardened" individuals tend to do better in law school, and, though I'm no expert on the question, in other graduate programs. Why? First, they're in law school because they want to be in law school, not because they had no other choices and hopefully not because their parents "made" them go to law school. Second, they're more mature. Third, they've seen the reality of life and how it differs from what too often becomes the cocoon of college. Fourth, it's more likely they are paying their own way, and thus they're motivated to "protect their investment." Fifth, they bring life experience, as a paralegal, police officer, health care worker, telecommunications intern, whatever, back into academia, making it easier to understand at least some of the transactional backgrounds against which the law develops.

Two developments entering my consciousness during the past several days have coalesced into a hopefully coherent thought about the future of legal education. One is the news in last Friday's Philadelphia Inquirer that Drexel University plans to open a law school, and a critical "we don't need more lawyers" letter to the editor in today's edition of that paper. The other is an on-going discussion on the lawprof listserv about the advantages and disadvantages of seeing one's published articles sold by Amazon and other on-line vendors, the wisdom of seeking royalties, and strategies for accomplishing one's goals in this regard.

For those who are not lawyers or law students, and even for some who are, it helps to understand how legal education is structured in terms of goals, resource allocation, competition for students, placement of graduates, rankings, and other economic factors. Although not all agree with the model, a law school can be seen as an academy of law faculty who educate those who want a legal education. Not every law student plans to be a lawyer, and many who planned to be a lawyer discover that their interests, skills, disposition, and priorities inspire a move to other careers in which a legal education serves them well. That is why I carefully distinguish between "those who want to be lawyers" and "those who want a legal education," choosing the latter rather than the former.

Of course, no matter the immediate or long-term goal, because almost all law school graduates do practice law at least for some period of time, law schools should direct their resources to the preparation of law students for law practice. Law practice includes not only the familiar law firm environment, but judicial clerkships, corporate legal departments, government agencies, and non-profit advocacy institutions. In theory, at least, law school graduates emerge after three years of education ready to sit for a bar exam and enter practice. In practice, pun intended, law graduates emerge ready to sit for a bar exam and enter into a position where they will be apprenticed, guided, and nurtured by a mentor. In recent years, as business concerns (i.e., profits) have overtaken the profession of law, fewer attorneys have the time or resources to serve as mentors. The impact of this unfortunate development is beginning to manifest itself in what I, and some others, at least, see as a decline in the quality of lawyering and lawyer work product.

Each year, approximately 35,000 to 40,000 students graduate from law schools. There are slightly more than 1,000,000 lawyers in the United States. So it is easy to understand the "why another law school?" and "we don't need more lawyers" reaction to the news that Drexel University plans to open a law school. A closer look, though, suggests that there are several reasons why more lawyers and more law schools are needed.

First, although 35,000 to 40,000 new lawyers enter the ranks each year, close to that number leave each year. Some die. Some retire. Some switch to other professions and careers. Some take extended leaves to raise families. A few are disbarred. So the total number of lawyers is not growing such that after 20 years another 1,000,000 lawyers will appear. After all, law schools have been graduating 30,000 or more lawyers for the past 35 years, and yet added to the number of lawyers in 1970, there would be almost 2,000,000 lawyers. But there aren't, for the simple reason that lawyers also are leaving the profession.

Second, the population of the country has been increasing. Even if one assumes that the per capita need for legal services remains the same, and even adjusting for the efficiencies of technology, more lawyers are needed simply for the delivery of legal services to hold steady.

Third, the need for legal services is growing at a faster pace than legal services can be delivered. Think of all the individuals and non-profit institutions that need legal services and don't get them. Even when on best behavior, the population needs help with wills, healthcare acquisition, tax planning, workplace rights enforcement, environmental cleanup efforts, business formation, business liquidations, bankruptcy, and the list goes on and on. And, of course, some folks aren't on best behavior, so there is need for criminal defense assistance and prosecutorial efforts. Accidents happen, and people who don't know their rights end up on the short side of the ledger. We live in a litigious society. It isn't because there are lawyers or too many lawyers. It's because the "me first" and "my rights are more special than yours" culture that has permeated society makes us more aware of rights, the deprivation of rights, and the assertion of rights than were our grandparents.

That's not to say that there isn't a need for a "different kind" of lawyer, or for a realignment of how lawyers presently are arrayed in the hierarchy of law practice. Lawyers with wealthy clients do well, and get much of the attention that causes the "no more lawyers" and "we hate lawyers" reactions that percolate through society. On the other hand, there are many lawyers trying to eke by on $25,000 or $30,000 a year, which may sound comfortable to some folks until one takes into account that they are trying to pay back education loans at the rate of $12,000 a year. And that, shortly, will bring us back to legal education.

Keep in mind that what adds to legal fees is the cost of taking along a first or second year associate who is doing more learning than producing, and whose presence at the firm and whose need for mentoring is salved by the fact his or her billable rate exceeds by far his or her hourly-allocated compensation. Although in recent years some clients have become resistant to paying for the services of a "bag toter" there still are many instances in which the contributions of the first, second, or even third-year associate are not what they could be had the legal education in law school been different. And with that, back we go to legal education.

From what I understand reading the news reports, Drexel intends to produce a "different kind" of law graduate. One that, I suppose, and hope, will make for a "different kind" of lawyer. Or at least a graduate who can get untracked more quickly. The plan is to take Drexel's renowned and successful co-op program, used for years in engineering, and adapt it for law students. Each year, students would be in the classroom for 26 weeks, and in law offices for the other 26 weeks. In traditional law schools, students are in the classroom for 28 weeks each year, plus 4 weeks for exams. No law school other than Northeastern University (Boston) takes this practical approach to legal education.

Years ago, a person could not be a lawyer, that is, could not sit for the bar examination, until the person served what could be called an internship with an experienced lawyer. Of course, they ended up working for very low salaries, and eventually the requirement was dropped because the number of law graduates was more than the existing bar could handle. It's unfortunate, because law schools did not rush to fill the void. Decades later, despite the objections of the traditionalists, clinics were established at law schools to provide assistance to people otherwise lacking legal assistance, and this provided at least a small handful of law students an opportunity to set aside books and theory and meet clients and reality. Providing a clinic experience to all law students is expensive. The faculty-student ratio needs to be kept at the order of 8 or 10 to 1, which would require at least 10 clinician faculty for the typical law school, assuming the experience was a one-semester experience.

If Drexel can work out in law what it has in engineering, which is lining up employers to accept a student for a 6-month internship (or externship if the law school terminology is used), it would close the gap that most practitioners assert, and a few academics admit, exists between law school and law practice. It also is possible that Drexel would enter into arrangements with practicing attorneys to mentor a certain number of students for 6 months, and to teach during the other 6 months. This sort of shift from the traditional law school faculty alignment (full-time faculty must account for most of the student contact hours, and the use of adjuncts (practitioners who teach a course) is best limited to specialty areas (e.g., patents, trial practice)). Considering that Drexel plans to keep its tuition below that at the other area law schools, how will it make this work financially? I'm not the first to ask the question. I'm certain it already has been raised, if nowhere else than at Drexel.

Aside from a few heavily endowed law schools and state-supported law schools, the principal source of law school funding is tuition. In many schools tuition provides as much as 98% of the law school budget. Law school tuition averages a bit more than does undergraduate education. Think $30,000 (aside from other costs), sometimes $25,000, sometimes $35,000, and for state-supported schools subtract roughly $10,000. For most people, that's a significant expense. Don't forget to multiply by three. Yet applications for admission to law schools continue to climb, sometimes rapidly, occasionally more slowly, every once in a while pausing for a "flattening" of the year-to-year line in the visual graph used to illustrate the growth. Deans and budget officers are very skilled at figuring out how much of an annual tuition increase can be "absorbed" without cutting back demand to the point that law schools would struggle to find qualified applicants.

What do law schools do with the tuition and other income? They spend it. There are four major areas of expenses: faculty salaries and benefits, information technology (library and computers), staff salaries and benefits, and physical plant maintenance. In most instances, the university with which the law school is affiliated takes a cut, to cover overhead for things such as utilities and security. What makes this "work" in terms of balancing the budget is the fact that the typical student contact hour load for a law school faculty member is 12 credit hours per year, with about 160 students in 4 or 5 courses during the year (so a faculty of 40, each teaching 4.5 classes of 35 students, would teach rougly 6400 "student enrollments" in those classes, which would be what a 700-student school would need with each student enrolled in 4 or 5 courses each semester). Though the credit hours vary slightly, with some as low as 9 and some as high as 16, "student enrollments" vary widely, from as few as 40 per year to as many as 450 or more. That wouldn't work well in a medical school, or a dental school, or in most graduate programs. It works well at law schools because much of the teaching is lecture hall rather than one-on-one interaction. That's why clinics pose a challenge. Although it is possible to teach a substantive area course, such as tax or decedents, to a classroom of 90 or even 165 (I've done that), there's no way a clinic could be operated with one faculty member guiding that many students. Other graduate programs generally have much lower enrollment, and make the finances work by having graduate students teach undergraduate courses (thus freeing up resources), or, in the case of medical and similar schools, being affilated with teaching hospitals to whom the faculty, with their students in tow, provide services for compensation, which is pooled as a school resource.

Law faculty, though, do more than teach. Many are involved in public service activities. These include serving on boards of non-profit institutions, providing assistance to bar associations and their committees, giving legislative testimony, serving as counsellors to the indigent, working with law reform commissions, etc. But the most substantial non-teaching activity, for most faculty, is writing. Specifically, the writing of scholarship. Originally, law faculty wrote articles that were published by their schools, but very quickly the practice became one of having articles published in another school's law review. Law reviews, unlike journals in most other disciplines, were not peer-reviewed, but were (and still are) edited by second and third year law students. More of that weird phenomenon in a moment. As a law school's reputation began to get linked to the prestige of the other law schools in whose law reviews its faculty published, law faculty became subject to the ritual of "submitting" articles to 20-something students at other schools, whose decisions could (and still do) determine the publishing success of the faculty member, influence the reputation of the faculty member's school, and make or break the tenure decision with respect to that faculty member. Why? Tenure is not granted to law faculty unless, among other things, they have established themselves as scholars, which means, have managed to get published in student-edited law school law reviews. In the meantime, the cost of publishing those law reviews has been climbing.

Oh, what is tenure? Yes, it's an aside, but it's important that I don't assume readers know. As a practical matter, once a faculty member has tenure, the university cannot dismiss that person, that is, cannot refuse to renew the contract, unless the person commits a grievous violation of rules or unless the university downsizes or terminates a program. Tenure is something that exists almost nowhere else, namely, a job for life. After all, until now, very few law schools have closed, and downsizing for universities generally can be accomplished through the normal course of retirement and early retirement incentives.

Well, then, you ask, "Once someone gets tenure, what's the incentive?" For years, the answer generally was professional pride. Perhaps a faculty member had a "need" to write. I'm someone like that. But it was not uncommon for a faculty member's publishing to end once tenure was obtained. There even were schools where tenure was obtained without a need for publishing, but that practice ended, at the latest, in the early 1980s. In the meantime, U.S. News and World Reports, and some others, began ranking law schools, using publication (or its reputational effect) as a significant factor. What's a Dean to do? Simple. Design a merit or incentive compensation system, that adds a small amount to a salary, or is paid as a one-time bonus for having published. Studies show that these plans did have some effect.

"But doesn't that distract the faculty member from teaching?" is a common question. It's a good question. In theory, a person's scholarship and publications would dovetail with the courses he or she is teaching, thus enriching the students. As a practical matter, the disconnect is frequent and wide. Students are learning at basic levels, and faculty are writing at very advanced levels on narrow areas. Some faculty take the understandable position that one can do much damage as a teacher by taking one's law review article into a course, using days to cover the topic in fine detail, at the expense of other topics, when other faculty teaching the same course would not allot that topic more than 5 or 10 minutes. In other words, it's not good teaching, other than in a small seminar, to take students in a general scope course onto a month-long side trip touring a narrow topic thrashed out in a law review article.

Traditionally, faculty members are not paid by law reviews for the article. If faculty get merit or incentive raises or payments, they're being paid by students' tuition dollars or, in some instances, by the income of endowed funds. Recently though, someone discovered that Amazon.com and some other on-line vendors were selling law review articles and pocketing the proceeds or perhaps sharing those proceeds with the law review that originally published the article. Is that right? Is that fair? It depends on what the author has negotiated in terms of the copyright and licensing rights. Some faculty report having little leverage to bargain, and are essentially being told that if they want to publish, they must accept the law review's terms. Others report that they have been able to get language that satisfies their concerns. There's insufficient data at the moment to determine if there is a correlation between the faculty member's tenure status and his or her negotiating leverage.

Needless to say, the idea that law review articles are being sold, and faculty are not sharing in the proceeds, has generated much discussion. Some have pointed out that having one's article made available to the widest possible audience is the best return. Others ask who's buying, considering that very few judges and practicing lawyers read law review articles, and those who do have free access to the pool of articles. My response was that a book I publish is offered on Amazon for a higher price than I charge. The free market may be free but it's also weird.

Into this mix throw in one more factor. When law faculty (or practicing lawyers) write books, they earn royalties. To date, I'm unaware of any law school that requires its faculty to turn over royalty income the way medical school faculty pool the revenues from the medical services they provide to the patients in the teaching hospital. Not that it hasn't been proposed, almost always by the faculty who haven't produced a royalty-generating book. To put this in perspective, we're not talking John Grisham book and film right royalties here. No one has ever proposed turning one of my tax books into a movie. Egads! My only chance would be to plug the thing as dealing with a three letter word ending in x, which supposedly sells, but they'd be onto me within 30 seconds.

This explains one reaction that law faculty expect royalties from books but not from law review articles. The distinction is, perhaps, more one of tradition than substance or policy.

Against this long but hopefully interesting background, I set the words I shared earlier today with law professors across the country:

Why would we write anything for free? We don't.

Generally, we are paid by publishers for writing books. Sometimes we are paid by publishers for writing articles. It happens.

We are paid salary to write whatever we write for our courses (which varies considerably from those who prepare their own unpublished materials as the sole resource, through those who prepare supplemental materials, to those who go off-the-shelf).

We are paid salary to write articles. Supposedly. Sometimes. If someone has the option to write books and chooses to do so in lieu of writing articles, an interesting question arises. Should they return some salary for failure to write articles? Does the school accept books as worthy alternatives to articles? (Usually) Are the royalties turned over to the school? (Hardly) Or, could it be that the salary is for doing things that put the school on the map (and in recent years, earn points, statistics, votes, or whatever goes into those absurd rankings)? Generally, in recent years law schools have been tossing rather minimal "merit" raises designed to encourage writing. Interesting concept. No one who is paid by a publisher to write seems to need as much encouragement as those who aren't inclined to write for the pure joy of writing.

Personally, if someone wants to pay me to write, it tells me a lot about what they think of my work. It's surely a lot more fun than peddling and begging 22-year-olds to "accept" my work product and then do things to it that may or may not be good for it (including the bane of those who write in quick-changing areas, delay). Interestingly, my blog (for which no one pays me) does at least as much to put me (and the school, to a lesser extent) on the map than any other writing (and considering that the only other blog at the moment among the law faculty here is the Dean's, that makes me wonder where "merit" is heading or at least how strenuously I should argue the point when it is more a matter of principle than dollars).

For years, the cost of publishing law reviews has been borne by law schools, or, more accurately, by law students. Aside from a few places that have law review endowments, or that otherwise are heavily endowed for scholarship, tuition dollars pay the salaries of the unpaid article writers and pay the costs of publishing the law review that aren't covered by subscription revenue. The Internet reduces the cost of publishing. Why would any journal publisher need for some other outfit (other than a contracted web page programmer) to do Internet publishing of its output? Yes, there always are "agents" looking for a cut, but what "value added" is provided by Amazon or HeinOnline that is worth what they're taking?

Ultimately, marketplace economics will dominate law authorship. The question is whether it will be a free market, a corporate-dominated market, a government-regulated market, or something else. The division in the law author world between those who write for compensation, and those who don't or can't or won't (with an acknowledgement that there are those who put a foot in each camp) will sharpen. The murmurs of "share the royalties" will begin to resound as a chorus. There are some things on the horizon that I'm going to guess are not on the radar screen of many (most?) law faculty.

And eventually law students will ask why they are paying tuition dollars to subsidize writing that they see as having little direct impact on what they think they are buying. Right or wrong, law student
perception in a competitive marketplace will have an impact. The law schools that begin the shift from the "old law school model" will gain an advantage once they learn to sell themselves based on the
accomplishments of graduates and not the computational grindings of magazine surveys and ratings. The advantage? A combination of lower tuition and increased teaching resources. The challenge? The "old law school model" law schools will use accreditation withholding as a lever to salvage the guild.

And there were those who said digital technology and the Internet would have so little impact on what we do. Right.

And this brings me back to Drexel University's proposal for a new law school that focuses on law practice internships. Because it would be following Northeastern into a different educational environment and developing a new 21st century model of law schools, would it care about the rankings of the "old law school model" law schools in U.S. News and World Reports? Will it want its faculty devoting time and resources to publishing law review articles that pretty much are read by a few dozen or sometimes a few hundred other law professors, and that unlike publications for which the market provides a recompense, are rarely read thousands or tens of thousands of times? Will Drexel prefer that its faculty put in 8 to 10 hours "in the classroom" each semester (instead of 5 to 7) so that students get a more personalized experience and individualized attention? Will Drexel succeed in its presumed public relations campaign to demonstrate that lower tuition can mean higher quality because resources are not directed to law review scholarship? If so, will Drexel manage to attract students who would otherwise attend other law schools rather than dipping into those in the applicant pool who currently don't get admitted to any law school? Will prospective students give more weight to practical experience than to U.S. News rankings? Will the idea of paying tuition used in part to finance the writing of little-read law review articles offend students to the point that they will choose Drexel over traditional law schools? Will law firms, weary of carrying the burden of closing the gap between traditional legal education and practice, turn to Drexel as a source of experienced, interned, ready-to-go law graduates? Can Drexel succeed in turning out students who bring a fresh wave of change throughout the legal profession? If time proves the answers to these questions to be yes, legal education may undergo its biggest shakeup since Christopher Columbus Langdell decided that reading cases in a classroom was a better way to prepare for the practice of law than working in a law office. Oh, that was more than 100 years ago.

When the Drexel news broke, someone who has heard my monologues on legal education over the years said to me, "They're using your model." I replied that it wasn't my model, because it isn't. My model may be different in some ways but Drexel has not released, and probably hasn't made decisions with respect to, details sufficient to determine how close its plans would come to my model. Publicly, the other area law schools have been polite and reserved in reaction to Drexel's plans, wishing the institution well, pointing out that it takes years to build a reputation, and describing the competition for students as not a zero-sum game. I wonder what is being said behind the closed doors. I wonder who, if anyone, sees writing on the wall.

Though it's not quite tax, theology, genealogy, or chocolate chip cookies, sailing across the Atlantic is something in which I not only have an interest but is something I've done. More than once. I could connect this with tax, theology, genealogy, and even chocolate chip cookies, but I'll simply let you find the one instance where the word "tax" appears in this post.

I must admit that when it comes to ships, there's something about grand size that catches my attention, even though size alone rarely impresses me. The first time my son and I saw the QE2 we looked at each other and said, "Whoa!" He then added something to the effect that it was "a little bit bigger than my Sunfish." Yeah, a little bit. Try a whole lot and then some. His Sunfish is about 12 feet long. The QE2 comes in near 1,000.

Anyhow, the news a few weeks ago about the damage done by the 70-foot wave that hit the Norwegian Dawn brought inquiries from family members and a few friends seeking my reaction. After all, I keep telling people how much fun it is to sail, trying to persuade them to try it, and here comes news that would frighten away all sorts of people.

What prompts this post is the picture accompanying this report from NBC 10 in Philadelphia. My sister wanted to know "So, is that God's finger? Was he punishing the poor passengers? Is the cruise ship story a hoax? Was it really just a toy ship? Are we all "little people" in a world of giants?"

Models of cruise ships do exist, though the one in the picture would need to be very small. That's what it appears to be. It could be a finger in front of a scaled-down photograph or screen shot, but why? Probably to show where the wave hit?

I reminded everyone that veteran passengers of the QE2 remember, and all passengers have been told about, the time a 90-foot (or 87-foot, or 92-foot, or 95-foot, depending on which report one reads) wave hit generated by the remnants of Hurricane Luis hit the ship. It is difficult to estimate wave height on the ocean, but because this wave broke at bridge level, the estimates are within the ballpark of reality.Here's the ship's log and here is a more detailed report. Several years ago, a film production company producing a documentary for the Discovery Channel about a new wave phenomenon was looking for eyewitnesses. Has the film been made?

In a September 17, 1995 article, headlined "PEOPLE SLEPT ON QE2 THROUGH 95 FEET WAVES " and reprinted partway down the page of this website, Colin Nickerson of the Boston Globe reported that then-Captain Ron Warwick, having no way to avoid the remnants of the hurricane, slowed the ship to 5 knots, ordered the passengers to stay below deck, and guided the QE2 through the rogue 95-foot wave (and a second wave that was only slightly lower) while the winds blew at 120-miles-per-hour. Ron Warwick is now Commodore, and I've met him several times. I'd go to sea in a hurricane with him or any of his Cunard captain colleagues without any hesitation. They're that good.

Of course, I'd want to be on the QM2 or the QE2, because they are built to withstand the fury of the North Atlantic. The damage to the QE2 consisted of a few bent bow railings and some scratched paint. No one was injured. Passengers awoke the next morning to find a certificate under their doors (yes, there's a print shop on board) telling them that they had sailed through a 95-foot wave. Most had been unaware of the episode because they were asleep.

The folks on the Norwegian Dawn expressed much unhappiness about their captain's decision to sail into the storm. Whether he had any other alternative or was, like Warwick, unable to find a storm-free course, hasn't been definitively answered. However, he was mastering a cruise ship, not an ocean liner. Cunard never passes up an opportunity to explain the difference between the two, and now, unfortunately, there's something more than theory and the QE2's 1995 experience to show the difference. Had the Norwegian Dawn been hit by a 95-foot wave while buffeted by 120-mile-per-hour winds, it could have been a disaster far worse than what did in fact transpire.

When I first announced I was sailing across the Atlantic on the QE2, Sandy Degler, then president of BNA Tax Management, Inc., for whom I write Tax Portfolios, expressed doubt that I would be comfortable with the slowed-down pace of life aboard ship. Considering my usual high-paced level of activity, her comment made sense. However, I figured that some sort of "enforced relaxation" would suit me well, and it did. Of course, there's so much to do on the QE2, and its trans-Atlantic successor, the QM2, that the slowdown isn't quite a switch to couch-potato status. Yet it is refreshing, relaxing, and eliminates the aggravations of jet lag (especially return jet lag).

Will I sail again? Yes. Having been through, on my very first crossing, a storm that generated Force 9 winds, and having found that experience exhilarating, I can understand, to some extent, the pleas of those passengers who beg the captains to head FOR rough weather. Of course their requests go unheeded other than as fodder for story-telling. But if I ever do meet up with a monster wave, I'll want to be on a Cunard liner and not on a cruise ship. You would, too.

Two weeks ago I shared my analysis of the tax consequences of amounts received by bloggers from their readers. One of the bloggers mentioned in the Philadelphia Inquirer article that triggered my blog post, and who was mentioned in my post, wrote to me expressing concern that I had reached my conclusions without all the relevent information. Susie Madrak, who writes the Suburban Guerilla Blog, has agreed to let me post her message. That way, my response makes far more sense than it would had I posted it alone. To make it easier to follow, I have separated her message and my response into four segments.

Ms Madrak's first point:

My readers had no reasonable expectation of saving a kitten's life because I have no kitten. I am famously allergic to them, in fact. The post was a takeoff on a famous National Lampoon cover of a dog with a gun to its head and a caption: "Buy this magazine or we kill this dog." Plus, some bloggers post doting pictures of their cats on Fridays and it was also a takeoff on that - as evidenced by the headline "Here's your Friday cat blogging, pal!"

She raises a good question: Does the analysis change if the blog readers know that the kitten's life is not in any real danger and that they are not paying money to save a kitten's life? I explained why it doesn't make a difference in the analysis:

Whatever may have been the intent in using the kitten photo, as a matter of legal analysis it shifts the situation from one of detached and disinterested generosity to one of solicitation. Legally, it is irrelevant whether a kitten existed, whether a kitten was in peril, or whether there were allergies to kittens. Donors saw a captioned photo that connected continuation of a blog with monetary transfers to the blogger. Of course, a caption "I will blog whether or not I receive money" underneath the picture would have defeated the whole purpose of the message because it would have been inconsistent with it. The fact that bloggers who do not set up payment mechanisms, ask for money, or otherwise encourage contributions do not receive "tips" or "contributions" whereas most of those who do set up payment mechanisms and solicit get a response makes the "voluntary, unsolicited gift" characterization a legal conclusion inconsistent with the facts.

Ms Madrak's second point:

As I said to the Inquirer reporter who interviewed me: If she writes a story about a single mother whose home is destroyed by fire on Christmas Eve, and readers send her money, is that money taxable income - or gifts? If I write a story about the engine going on my car, and the fact that I have no money to fix it, and I mention that I know of a more reliable car for sale and my readers send me money, is that income - or donations?

This time, she utilized a good tool of legal reasoning, namely, comparative analysis. Isn't she in the same position as the fire victim who gets help from strangers? I responded by addressing the lack of parallel in the analogy and by pointing out the uncertainty of the conclusion with respect to the fire victim's tax consequences:

You are correct, that if there was nothing more than a reader-donor choosing to send money without any suggestion other than the reader-donor's own internal mind-set or conscience, the situation would be very similar to that of the person whose home is destroyed by fire. There is a difference, though, between a reporter suggesting to readers that they assist a victim, and a person directly soliciting financial contributions. Hence the "detached" portion of the "detached and disinterested generosity" test for status as a gift excludible from gross income.

Even so, believe it or not, until a week ago, it would not have been clear-cut that the amounts received by the fire victim in your hypothetical would be excluded from gross income. If it were clear-cut, there would have been no need for the Congress to have just enacted an amendment to the Internal Revenue Code providing that disaster relief payments received by taxpayers are excluded from gross income. That settles the question for disaster victims (at least with respect to funds received from specified sources). It arguably changes prior law to that extent (for if it did not change prior law, what's the point of enacting the amendment?). However, it leaves your analogy unhelpful to you for yet another reason. Unlike the disaster or casualty loss victim, a person whose car engine dies is not within the scope of disaster or casualty as defined in the Internal Revenue Code and its regulations.

Ms Madrak's third point:

I told the reporter I objected to the use of the term "tip jar" for the very reason you mention. I blog whether readers send money or not. There is no quid pro quo, no exchange of services - and no base pay to supplement. What do you think my readers thought they'd get - cab service? My job requires me to be on the road and my readers contributed toward keeping me employed. If anything, they knew I'd do even LESS blogging with a more reliable car, because I can accept more assignments.

On this point, she brought her comment to the very core of the problem, and I responded by trying to explain the reasoning behind the somewhat counter-intuitive tax rule concerning tips:

Tips are included in gross income even though, in many instances, there is no expectation of a benefit or quid pro quo. Consider the person who leaves a tip as they depart from a place to which they will not return. At that point, they expect nothing in return. That argument has been made by tip receivers in such situations, and that argument has been rejected, consistently, even though it does have a lot of logic going for it. For example, the "find me a good seat" tip is very different, and yet the courts have held that all tips, whether made to employees or independent contractors, constitute gross income. The lack of a quid pro quo is ignored.

The overwhelming weight of opinion among tax professionals accords with the views I expressed. The case law (especially the one involving the radio preacher) also supports that view. My advice to any blogger would be to avoid anything, satirical or otherwise, that suggests any sort of solicitation. Setting up a payment mechanism (whether or not called a tip jar) is inconsistent with avoiding the appearances of solicitation. Amounts received by persons who beg for money, especially if the amounts received constitute are significant, are gross income, and are subject to self-employment taxes (Barry v. Shalala, 840 FSupp 29 (SD NY 1993)). In response to the applicable legal principles, under some circumstances, and I speak not to yours specifically nor offer advice in that regard, it might make sense for a blogger who is engaged in public service to consider the establishment of a tax-exempt organization, which would provide an array of tax and other benefits (and an array of responsibilities).

I tried to clarify that my comments were based on what the law is, and not what on it perhaps should be:

It is an unfortunate fact of tax law life that outcomes turn on technical definitions and questionable policy decisions. After all, why are disaster victims more deserving of tax relief than those whose car engines die or whose hot water heaters give up? The fact that in my posting I analyzed existing tax law doesn't necessarily mean I would have written the law to be what it is. One of the toughest aspects of law practice is to tell someone that they don't have a case, even if their position is sympathetic.

Of course, if an income tax law were written the way I think it should be, the issue wouldn't exist because I would treat all income as gross income, permitting such a low set of rate brackets that the income tax law would get about as much attention as the one in Pennsylvania, where the rate is low enough that most taxpayers conclude it's not worth struggling with the income base question. Surely, though, there is a level of incongruity in letting assistance to certain victims go untaxed and imposing taxes on amounts sent to persons with other sorts of financial setbacks. Should the tax outcome depend on whether the car stops running because the engine dies or because a tree falls on it? Of course, most bloggers who are receiving money from their readers aren't pointing to specific instances of unfortunate episodes. Thus, I continue to wonder, as I shared in my response to Ms Madrak, what comes next:

It will be interesting to observe the reaction of the IRS to the "blogging contribution" phenomenon. I have a hunch that the IRS will not simply consider the situation to be one of excludible gifts. Assuming that it has sufficient resources to proceed, the IRS likely will audit and assess deficiencies against several high-profile, large receipt bloggers whom it selects with an eye to litigation success. Then, as it does with respect to almost every other issue, the IRS will rely on the deterrence effect it believes its audit and litigation successes have.

Finally, I addressed the concern Ms Madrak raised in the opening paragraph of her message:

As the blogger to whom you refer in your post, let me clarify your misleading remarks. I'd hope a law professor would know better than to render what you put forth as credible professional opinion without complete information:

I explained:

Thus, I do not think that my remarks were misleading. If the reporter's statements about your blog or your words were misleading, that is something else. My readers know that my analysis was based on the information provided by the reporter, and I made that clear in my post. In this instance, the additional facts (concerning the satirical nature of the captioned kitten photo) do not change the legal analysis I shared with my readers, or that I paraphrased in this email to you.

I was careful to characterize your quoted words as correct in and of themselves, and I was careful to note that I disagreed with the application of the gift conclusion to the situation that was described in the story. I see nothing misleading in how I handled the reporter's quotation of your position.

If the dollar amounts mentioned in the Philadelphia Inquirer article that triggered my post on the issue aren't exaggerations, and if the practice of sending money to bloggers is as widespread as it appears to be, this is a tax issue that isn't going to go away. Coupled with the mistaken notions floating around with respect to the tax consequences of selling items on eBay, the conclusion that monies received by bloggers from readers are excluded as gifts probably will move the IRS to act, either through issuing rulings, through audits, or both. It will be worth keeping an eye on further developments in these areas.

Analyzing how to deal with a person's emails when the person dies, on which I previously posted this original analysis, this followup, and this followup, has been made a bit more complicated by developments in the Ellsworth case. As reported by the Detroit Free Press, under a court order that it did not oppose, Yahoo delivered to the family of a marine killed in Iraq a CD containing the decedent's emails. According to the decedent's father, the CD contained incoming emaisl but no outgoing emails. It isn't clear whether there were any outgoing emails on Yahoo's server. None of the emails that the decedent was known to have sent and that had been received by his family before he died were on the CD.

According to the report, the CD contained the equivalent of 10,000 pages of email. That's a lot of email. I'm wondering exactly what it was that Yahoo provided on the CD. Apparently Yahoo also is wondering, because after being told of the puzzling status of the emails it responded that it was going to try to fix things.

The family wonders why Yahoo didn't simply provide the decedent's username and password. Is there some way for a decedent to provide his or her username and password for use after death without having a security breach while alive? Perhaps leaving the information in a sealed envelope with a third party, such as an attorney, would work, but every time the username or password is changed, the contents of the sealed envelope would need to be changed. How many people, when changing an email password for security purposes or opening an account with a new provider, would think to update the information in the envelope?

Yahoo appears to take the position that issuing the username and password to the decedent's survivors would violate its privacy agreement with its users. But perhaps Yahoo and other providers can give users an option to select when opening an account, namely, "if and when you die, do you wish for us to provide your username and password to your executor or administrator?" accompanied by instructions on the identity and contact information for that person.

Many decedents have email accounts. Eventually almost every decedent will have an email account. Something needs to be done so that the courts are not inundated with litigation with respect to every estate. Although Jennifer Granick, executive director of the Stanford Law School Center for Internet and Society, is correct when she says, "The family got a court order, and that's an appropriate process. Yahoo is allowed to disclose this stuff under the law," surely there has to be a better, more efficent way.

One possibility is the sign-up option that I described, which would leave the resolution to private party contracting. Another, perhaps less than ideal, would be legislation. These are not mutually exclusive alternatives. Legislation probably would be needed to deal with situations in which the contract approach is not taken.

Today, in the Decedents' Estates and Trusts course, we reached the topic of public policy restraints on property disposition. Specifically, we discussed destruction of property, and treatment of decedents' emails. The consensus appears to be that decedents should have a right to order their email destroyed rather than distributed to heirs, even if the email has value. So perhaps that, too, should be an option in the email provider contract. Of course, if for some reason a government agency issues a subpoena to acquire the email, that subpoena would override the decedent's directive.

The explosion in technological advances has opened up all sorts of questions for which legislatures have not provided answers and which impose on courts the obligation to apply inadequate law to challenging situations. Tomorrow, in the same class, we will be discussing a case involving attempts by a decedent's children to prevent his surviving girlfriend from using his frozen sperm to become pregnant. I guess one lesson is not to leave the instructions in an email.

It would have been far less expensive, and far less time consuming.

It amazes me when old news makes headlines as new news. Perhaps old news is new news to the folks who were unaware of the news when it was old news?

This morning's Philadelphia Inquirer brought this inner page headline:

Too many deductions, credits fill U.S. tax code, panel finds
That's news?

Taxpayers are paying for a Commission's expenses so it can reach a conclusion some of us reached years ago?

Connie Mack, the former Florida Senator who chairs the tax reform commission, said, "It wasn't until we really had the opportunity to listen to so many different people talk about so many different aspects of the code that it really sunk in about how much and how often the code is being used these days to either create incentives or disincentives for either investment or behavior."

Excuse me, Mr. Mack, but weren't you part of many Congresses that amended the Code, adding layer after layer of special interest provisions masquerading as palliatives for the nation as a whole? Didn't you pay attention to the parade of tax legislation prancing past your desk month after month, session after session, Congress after Congress?

Goodness, commission members, just read (or skim) BNA Tax Management Portfolios 501, 503, 505, and 506, where I overview (and in some instances analyze) every gross income exclusion and inclusion, every deduction, and every credit. If that's not enough, Portfolio 504 does the same for every deduction limitation, and Portfolio 560 slogs through every basis provision. Yes, I had the wonderful experience of searching through the entire Code looking for every reference to income, deduction, credit and basis. Then I sorted them into categories so that I could write the Portfolios in an organized manner. Yes, for the cost of one phone call, I could have told you that there are too many deductions, credits, and, yes, exclusions, in the tax law. Or you could have called any one of many of my professorial and practitioner colleagues. They would have said the same thing.

For example, the commission reports that two credits, one deduction, and "special savings plans" are designed to subsidize higher eduction. That list is a wee bit too short. Nonetheless, the choice should be (a) do not subsidize eduction, (b) subsidize education other than through the tax code so that its true cost can be seen, or (c) subsidize education through the tax code using ONE provision. But do we really think Congress will tolerate removal of choice (d) from the menu. Yes, choice (d) which is "subsidize education through as many different, overlapping, conflicting, confusing, and definitionally inconsistent provisions as there are members of Congress who want to jump on the 'I'm for education it's almost as American as apple pie' bandwagon in an effort to rack up a few more votes from people who complain about complicated tax laws but who shoot themselves in the foot voting for the very folks who create the mess." After all, eliminating choice (d) might just compel a reformation of American politics and the culture that spawns it. Just imagine! Well, I guess I just made a bunch of new friends in D.C.!

The commission also noted the proliferation of urban and rural empowerment zones, enterprise zones, renewal communities, and a wide array of provisions designed as incentives for investment and job creation in certain areas. Yes, indeed. There are so many that I had enough to write an entire portfolio, namely BNA Tax Management Portfolio 597, Tax Incentives for Economically Distressed Areas. At least I can't complain that the commission didn't read it, because it's "at the press." It was delayed, because just after I submitted the manuscript, Congress tinkered and fiddled with most of the provisions, so back to the drawing board I went. It's a wonderful example of how it's a challenge to write about the tax law, because Congress changes things faster than I can write. Considering how fast I do write, as readers of this blog know, it is rather frightening that Congress can change the rules of the game faster than the game is played.

So now that it's taken the commission this long to figure out what everyone in the know already knew, what's next?

Not much, I fear. Taxpayers can easily be stampeded into supporting objections to the removal or reform of just about every provision in the tax code. Lobbyists are good at that. Years ago they managed to convince Americans that withholding on interest and dividends was a "new tax" and triggered what was then the largest write-in compaign (on bank-provided pre-written postcards) asking Congress to repeal a provision designed to increase compliance with an existing tax. Yes, there are a lot of tailors in the business of making new clothes for the emperor.

Already, several deductions have been declared too sacred to be repealed or limited. The idea of a sacred deduction is a rather interesting theology. No deduction is sacred. No tax is sacred. What is sacred is doing the right thing, and the current tax law is far from the right thing.

It's time for change. It probably won't happen. So, what is the outcome when change that is overdue doesn't happen? History tells us the answer. I'll leave that for the historians to explain.