MauledAgain

The folks at Blawg Review graciously invited me to host the Carnival of Law Bloggers for what many people call “Tax Day.” It is an honor, a privilege, and a serious responsibility to host a Blawg Review. I welcome the opportunity and hope that you learn as much reading this post and checking out the blogs that I mention as I did putting this post together. Don’t worry, serious responsibility does not mean I stop trying to bring smiles to my readers’ faces from time to time.

Every Day is Tax Day

People are calling April 17 “Tax Day” because April 17 is the day federal income tax returns are due this year because April 15, the usual deadline, falls on a Saturday. Although it is possible to get an automatic six-month extension of time to file the return, the tax liability continues to be due on April 17.

Every year, the Tax Foundation calculates what it calls Tax Freedom Day. This year, we’re told by its 2006 report, Tax Freedom Day arrives on April 26. The day is calculated by assuming a person’s earnings are devoted entirely to taxes until the year’s tax liabilities are paid, and that from that day forward whatever is earned is retained by the taxpayer. Tax Freedom Day for 2006 is the 116th day, three days later than in 2005 and 10 days later than it was in 2004.

It is deceptive, though, to consider any day free of taxes. Every day during which a person engages in a transaction, a tax is not far behind. Sales taxes. Real estate transfer taxes. Use taxes. Telephone taxes. Tire excise taxes. Occupation taxes. Emergency services taxes. Inheritance taxes. Gift taxes. Estate taxes. Income taxes. Every day, every year. Does anyone want to write a screenplay for “Tax Takes a Holiday”?

Tax Is Pervasive

So it’s readily apparent that a chief characteristic of taxation is its pervasiveness. It is difficult to describe an area of law where one can practice in blissful ignorance and delightful disregard of tax. Yes, there are a few narrow niches, and every area of law has a few topics that can be researched and argued without consideration of taxation, but eventually tax, whether federal, state, local, or international, will pop up with a cheery hello.

Tax is everywhere. I challenge my students to generate hypotheticals in which tax is not casting a shadow on the transaction. There are tax issues waiting for us in birth, education, business, employment, gifts, marriage, travel, hobbies, politics, religion, shopping, and yes, even death.

As a professor of law who devotes a majority of teaching time to tax, I require myself to engage in a continuous updating of what is happening in the world. It is from the world that we who teach tax gather our hypotheticals. To quote myself and my colleagues, “We don’t need to make up this stuff.” Or to paraphrase what a Philadelphia Inquirer columnist once noted about my approach to teaching tax, I see tax everywhere I look.

So let’s begin by looking at some blog commentaries on recent developments in the law that implicate tax issues. Sometimes the commentator notes the tax questions, but often it’s left for the tax explorers to discover.

Over at the WorkPlace Prof Blog, we find a report on the Ninth Circuit’s upholding a three-judge panel’s conclusion that Title VII was not violated by a casino that fired a bartender “because she refused to comply with the casino's grooming policy requiring female bartenders to wear make-up.” If she had complied, would the cost of the makeup be deductible as an employee business expense because she otherwise does not use it? I’m not going to answer this or any of my other questions because I don’t want to spoil all the exam possibilities that I and my tax colleagues can glean from these stories.

Many of the reports on the Sports Law Blog easily can be transformed into tax law exams. For example, when deciding the causes of action to list in the lawsuit planned by Barry Bonds, were tax considerations taken into account? I don’t know. But they’re there. Surely there are tax issues in treating athletes’ wagers as compensation.

The number of legal issues that can pop up when autos and other vehicles are manufactured, purchased, repaired, driven, sold, and scrapped are almost matched by the number of tax issues affecting wheeled conveyances. The interview with Prof. Stephen Bainbridge at AutoMuse about his, shall we say, fascination —he uses a different word— with fast cars is a must-read for all tax types with money to spend and a craving for rapid acceleration. I don’t understand why the interviewer didn’t ask the prof if there were any tax breaks entering into his purchase decision. I don’t think I’ve ever purchased or leased a vehicle without the word tax entering the conversation more than a few times.

Tax questions issues also thread through the litigation triggered by one economist’s assertion that the research of another economist cannot be replicated, as reported on Overlawyered. The tax consequences of the cost of pursuing and defending the suit, and the tax treatment of any settlement or court-ordered payments, surely hover over the parties. And, considering that economists have pretty much pushed the tax lawyers aside on the Congressional tax policy stage, perhaps a successful outcome of this lawsuit will have a chilling effect on tax policy debate. When’s the last time anyone duplicated the economic research used to justify tax legislation?

And when’s the last time legislatures did something with health care that didn’t involve an amendment to the tax law? Over at the Health Care Law Blog, the suggestion that RSS technology be used to facilitate rapid delivery of critically-needed health care information about patients may turn out to be a wise one. I don’t know enough to say. But I do know enough to predict that for it to gather steam in the legislature someone probably will lobby for a tax credit or tax deduction for implementing the proposal.

Speaking of health, Patent Baristas has a worthwhile article asking, “Are Tax Breaks for Biotech Worth the Price?” It offers good insights into the claims that tax incentives are necessary and, in fact, deliver dividends.

The Antitrust Review explains the FCC’s announcement about the procedures to be used for its auction of spectrum licenses for Advanced Wireless Services. The outcome of the process will have a significant impact on most of us. Wireless, like tax, is everywhere. OK, almost everywhere. Don’t think the tax planners haven’t been consulted about the details of the business ventures that are forming around the awarding of these licenses. I’d like to say they’re wired into the deal making, but I guess we’ll need to find a new metaphor.

Speaking of wireless, and why it will permeate our lives almost to the extent tax does, there’s a fascinating article on Law Practice Management about the use of a wireless service called location-based service (LBS, remember the acronym) that is touted as a way for parents to locate their children. Helpful but Orwellian, as the article explains, the technology will also permit employers to keep track of their outside employees. The legal issues arising from this development are myriad, but I can see one implementation, in the world of tax audits, that compels me to paraphrase the article’s title, “Do You Know Where Your Child / Employee Is?” to “Do You Know Where Your Tax Dependent Is?”

Over at the Mommy Blawg, an anonymous lawyer from Dallas keeps an eye on legal developments, and other events, affecting the joys and challenges of motherhood, including updates on laws affecting breast-feeding and mid-wifery. Taxes and motherhood? Yes, indeed. This is evident from the title of one of my early articles: Federal Tax Consequences of Surrogate Motherhood, 60 Taxes 656 (1982). The Mommy Blawg also delivered a nice reminder of how taking care of children is never that far from the casualty loss deduction: Things You Don’t Want to Hear Your 5-Year Old Say: “Mommy, I figured out how to get clothes down off the ceiling fan.”

Tax (At Times) Is Humorous

To help us remember that tax law is with us wherever we go, Jack Bogdanski, he of Jack Bog’s Blog, has embarked on a frightening and yet smile-generating project. According to his description of the enterprise, he plans to record his reading, yes, his reading, of the entire Internal Revenue Code. Because of the Code’s size, each section will be a separate file. Jack is thinking of bringing in celebrities. I think it would be fun to have members of Congress read some of their convoluted work product. I’d suggest having code sections named after legislators read by those honorees, but several already are dead, giving new meaning to the word “legacy.” Jack’s even threatening to put some of this to music. Does scraping one’s fingernails along a chalkboard qualify? It surely would be fitting.

In the “we tax folks don’t make these things up” department comes another report from the WorkPlace Prof Blog. This time it’s a reference to a report on the Future of Work Blog, explaining that a survey by Insight Express and SonicWALL disclosed that “[a]bout 39 percent of respondents of both sexes said they wear sweats while working from home, but 12 percent of males and 7 percent of females wear nothing at all.” Check out those posts for further commentary, and simply let me wrap it (ouch) in this tax concern: I guess for that latter group there’s no chance that they can qualify for a work uniform deduction?

Over at Joe Kristan’s Tax Updates, there’s a story about a taxpayer struggling to find the right words to describe her occupation on her From 1040. She is a foot fetish model. Joe gave his interesting write-up the sort of headline (or should that be footline) that I enjoy: “Does This Make Her a ‘Sole’ Proprietor?” I can’t imagine the taxpayer and the IRS going toe-to-toe over this issue, though she might get more than a few IRS employees to arch their eyebrows as they try to decide if listing one’s occupation as foot fetish model is instep with the instructions to Form 1040. OK, time to step along with the rest of this post.

If you really want to get into the world of tax jokes, stop by the Tax Guru and scroll down through the page. A variety of tax cartoons and other fun are sprinkled throughout the serious questions and answers shared by Kerry Kerstetter. It looks like the digital equivalent of the wall outside my office door.

But Some Tax Things Just Aren’t Funny

Sometimes, though, even humor won’t work to blunt the serious side of taxation. Tax reaches so thoroughly into every aspect of people’s lives that inevitably the laughter must fade.

The Empirical Legal Studies Blog took a look at The Polls–Modern Morals. Respondents were given ten behaviors to rate as “morally acceptable, morally wrong, or not a moral issue.” Coming in second, at 79%: not reporting all income on tax returns. What’s first? Go take a look. Getting mauled wasn’t a choice. Phew!

When challenged to identify an area of law where taxes barely register, many will respond “criminal law.” Wrong. Ask any state’s attorney general about the work of his or her office, and most of the time tax law enforcement will be included in the response. So it makes sense to keep an eye on theAG Watch. A recent post dealing with a legislative proposal in Massachusetts that would change the outcome of pending litigation raises an objection about ex post facto legislation that brings back memories of several similar situations in the tax world during the past several decades, one involving a retroactive increase in the tax rate and the other involving a retroactive imposition of a stricter limitation on an estate tax deduction. As tough as it is to change one’s business practices when laws are changed in the middle of a project, or even in the middle of a lawsuit, imagine how tough it is to change one’s estate plan after one dies.

Speaking of the estate tax, a theologian’s take on permanent repeal shows up on Mirror of Justice, in this report on Martin Marty’s juxtaposition of stewardship, fund raising, and politics. The posting on human endowment taxation deserves a look not just from tax practitioners but from anyone interested in current developments on the philosophical edge of tax and theology.

Yet When All is Said and Done, the Tax World is Rather Civilized

OK, so tax practitioners are viewed as, hmm, unexciting, as noted in this blog comment: “The people I work with have the personality of a tax lawyer raised by morticians,” surely not intended as a compliment.

Nonetheless, I’ve not seen in tax litigation the sort of news that we find on The Dark Goddess of Replevin Speaks. The Motion for Fist Fight in Montana Fourth Judicial District Court makes it easier to understand why boxing is not offered in LL.M. (Taxation) Programs.

And has there ever been a tax proceeding in which things got as unprofessional as they did in this deposition? Perhaps it’s good that tax types don’t take themselves too seriously.

What They Do With Tax Dollars is Just as Important

I’m going to guess that the blogging world probably pays more attention to government spending than it does to revenue collection. What governments do with tax revenues has a serious impact on how they tax, what they tax, when they tax, and who they tax. It’s more visible and it’s more easily understood.

We get a Pork list from Russ Fox of Taxable Talk. Pulling some extracts from Citizen Against Government Waste’s 2006 Congressional Pig Book, Russ draws our attention to some randomly highlighted entries, making it a bit easier to understand the attitudes of the people who simply don’t want to pay taxes. Check out Russ’ site and then wander over to the book itself. Don’t do this while eating or operating heavy machinery.

As if to drive the point home, the Club for Growth Blog reports that 80 percent of people asked in a recent poll about how Congress views tax revenues think that Congress Thinks Its Their Money. Well, duh, of course it does. It’s nice, though, to see that most Americans understand the problem. I think. In other words, somewhere the words “stewardship,” “fiduciary,” and “public trust” seem to have fled Washington.

When Deciding What to Bill, Don’t Forget the Income is Taxed

Over at f/k/a, a blog focusing on legal ethics, we are treated to an interesting comparison of value-based babysitter billing and value based legal billing. More on lawyer billing practices from the anonymous Greatest American Lawyer. Greatest? Has to be a tax planner. Or tax litigator. An interesting discussion on PointofLaw.com deals with the appropriateness of contingent fees. I like the idea that plaintiffs’ lawyers who avoided tax courses find themselves dealing with EV = F*Pr*D – C as they figure out whether to take a case and how to price their services. Tax may be everywhere but it has no monopoly on the use of numbers and formulae in the legal world.

In exploring the economics of law firms, Adam Smith, Esq. presents a post asserting that all law firms are unmanageable and that lawyers have serious issues with trust, the desire for autonomy, detachment, and decision making. And other professions don’t?

I wonder how much of this is driven by or drives the soaring salaries paid to associates. Another post from Adam Smith, Esq. exploring the reaction to these “handsome” amounts of compensation deserves a look, especially by people attracted to a career in law because of the dollars. Specifically, check out the last paragraph, and take note of the response offered by David Maister. Remember also, as nice as those salaries appear to be, a sizeable chunk doesn’t get taken home. One of the many great teaching moments in my basic tax class is the first day, when I show the students what happens to a “typical first-year associate’s salary” on the way to the bank. There are times the gasps are audible, leaving me to wonder how one gets to be 22 years of age without having learned the tax facts of life.

Surely if courts require personal representatives to hire lawyers to conduct the probate process, as reported in this f/k/a report, the ever-present need to find revenue won’t be as challenging for attorneys who understand death and taxes.

Ben Cowgill hangs on as one of a slowly disappearing cadre of solo practitioners, making good use of his SoloBlawg to dispense advice about practicing law in autonomous mode. In Are You a SANE Lawyer, he describes what it takes to succeed as a solo. Whether tax practitioners are sane has been debated, but few dare to venture out as independents.

Tax Folks Advertise, But What Animal Are They?

Back to f/k/a’s blog for a story about fall-out from last week’s decision by the Florida Bar Association declaring the use of a pit bull on an attorney’s letterhead in contravention of attorney advertising rules. It seems that pit bulls are too “ferocious” for such use, but that lions aren’t. This leaves the attorneys at Panter, Panter, and Sampredo wondering about the outcome of the investigation into their use of a panther silhouette, especially considering the fact that “the person in charge of lawyer advertising with the Florida Bar Association” characterized panthers as vicious.

OK, tax practitioners rarely are labeled as ferocious or vicious. See the earlier segment in this post, Yet When All is Said and Done, the Tax World is Rather Civilized. Meek and mild we are. Hah. So what animal should the tax attorneys use? Let’s see. The canary, because the IRS wants us to sing when they subpoena client records? No, that sends the wrong message. The duck? No, we’re not the profession that is afflicted with quacks. Here are my runner-up selections: The giraffe for those who prepare returns that are quite a reach; the halibut, for those whose prepare returns that are fishy; the chicken, for those representing the most cautious of clients. Here are the co-winners:.the goat, because we’re the ones that get blamed by clients unhappy with their final tax bill; the bull, because cleaning up after Congress plays with the tax law as we must do is pretty much the same as cleaning up after a bull.

Tax Blogs: Why?

About two weeks ago, on PrawfsBlawg, Linda Beale shared a well-written explanation of why she blogs about law and in particular about tax law. To paraphrase her essay, it gives us a chance to share our thoughts that we gather when we study a tax proposal. We provide a service by offering a place where readers can find links to original sources and other commentaries on the topic. Blogging can open up a forum for continued dialogue on the question. Linda’s blogging philosophy, including her comments on care and experimentation, should be valuable to blawgers from every place on the legal map even though she starts her blog journey from Taxland.

I like the proposition made at In-house Blog. Though dated, it is, like tax, timeless. According to Your Legal Duty to Blog, lawyers have much to offer and should be sharing their talents. I like the idea, which originated with Kevin O’Keefe of LexBlog, who put the idea in terms of a moral duty to blog.

Kaimipono Wenger’s classification of bloggers using the DSM on Concurring Opinions amused some and riled others. The only category I seem to fit is the possibility that I am delusional because I think blogging “counts as actual scholarship.” Sorry, some blogging surely is as good as, if not better than, what goes for scholarship in the world of scholars. Oh, and it’s usually much more timely. One person’s delusion is another person’s joy.

And when it comes to scholarship, or should I say the ostentatious hyping by law schools of selected faculty writings, examine what is at the moment the latest dialogue on the debate, published at ProfessorBainbridge.com, particularly the disagreement over the tag that some have placed on the practice. I won’t repeat the phrase in this post because I don’t want the search engines, my mother (who reads MauledAgain regularly), or the Villanova deans and faculty getting confused by something slipping into the wrong context. Just because tax is a three-letter word ending in x is no reason to.... Suffice it to say that there exist related words which could be used to describe what some tax practitioners and taxpayers do to the fabric of the tax law, and some very special phrases that could be crafted to tag what Congress continues to do to it.

Every Day is Tax News Day, Too

It would be much more difficult to blog tax stories if it were not for the contributions of those bloggers who function as tax journalists, bringing to the blogosphere’s attention the latest developments in the world of tax. The same can be said of those who have assumed a similar responsibility for other legal topics.

Almost every day I visit Paul Caron’s TaxProf Blog, which on Saturday celebrated its two-year anniversary. I must disclose I do have a symbiotic relationship with the TaxProf Blog, but that in no way reduces its value, as evidenced by the fact it had reached 1,475,753 hits when I checked it Saturday evening. What did take me aback was what happened when I put “maule” into the box for searching TaxProf Blog’s Topical and Chronological Archives and pressed the Enter key: up popped this tidbit from Google: Results 1 - 100 of about 36,500 from taxprof.typepad.com for maule. That’s 50 times a day for the two-year life of Paul’s blog. Fifty? Wow.

I also find useful tax news at Talking Taxes. This site carries much more state and local tax news than does the rest of the tax blog world.

For those whose primary focus is not tax, there are 27 other subject matter-related blogs in the Law Professor Blogs Network. At least 8 of them find me visiting from time to time, on a more or less regular basis. Fear not, these blogs are of great value to everyone practicing in the particular area, and are not restricted in access or utility to law professors. From time to time a posting might reflect something of little importance outside academia, such as an announcement about a new casebook being published, but the timely release of breaking news about cases, capsule summaries of newly-published articles, and similar items intended to keep law faculty up-to-date are equally as valuable to lawyers in practice. Look at the topics listed on the right-hand side of the page. If you don’t see what fits your practice, call a law professor friend who teaches in that area and use your powers of persuasion to convince him or her to start a new blog. Perhaps someday that blog will be invited to host Blawg Review.

As Tax Season Winds Down

The end of this fun parade of “tax is in there somewhere” posts is now passing my reviewing stand. One last entry from f/k/a’s blog, this time a hopeful look back at the newly discovered Dickens’ masterpiece, An Easter Carol. What the World History Blog calls a day of doom (April 17) inspired its conjecture about taxes being a contributing factor to the decline and fall of the Roman Empire. OK, so it’s not a law blog. It’s a nice reminder that not only will taxes be with us forever, they have been with us since the beginning.

On Saturday evening’s 11 o’clock news show on the local television station, a reporter did a story about April 17 taking the place of the usual April 15. She interviewed a preparer who promised that so long as someone came in by 11 in the evening on April 17, he could have their returns finished in time for filing by midnight. What will this guy do when someone walks in with a typical “more than a one hour job” shoebox? Does he think it’s as simple as the four-page form used back in 1913?

It’s a Tax Wrap

Little did I realize when I started MauledAgain 26 months ago that I’d find myself hosting Blawg Review. This being issue number 53 in a weekly series, that means Blawg Review has just celebrated its first birthday. Make that candle big and hold it high. Just don’t spill the wax onto the icing.

It has been a wonderful week of exploring blogs I had not previously visited and returning to some with which I was familiar. Despite the doubts and denials of those reluctant to wander into the land of law-related blogs, the world of lawyering is changing and in no small part that change has been reflected in and affected by what bloggers have been writing. I appreciate having had this chance to check in with few of my companion blawg adventurers.

Blawg Review has information about next week's host, and instructions how to get your blawg posts reviewed in upcoming issues.

It is with words that lawyers conduct their profession. And though many might think that it is with numbers that tax lawyers and other practitioners conduct tax practice, it is with words that they perform much of their work. As every law student learns soon after arriving in law school, if not already understood, the use of the wrong word can be devastating. Sometimes the use of the wrong word isn't so much devastating as it is misleading.

For example, for many years examples and hypotheticals involving tax compliance and tax planning for married couples focused on the husband. The pronoun "he" was used for the taxpayer. The husband would be the one with the higher, or only, income, and the one with the lion's share of assets. Until, of course, the estate planners did some "estate equalization" work.

Decades ago, the place for entering names on the IRS Form 1040 had two boxes, one labeled husband and the other labeled wife. The box for the husband was above that for the wife. When "newspeak" swept like a wave through the culture, and over the IRS, the Form 1040 was changed to reflect the more politically correct terms taxpayer and spouse. No longer would the male's name necessarily dominate the female's name, nor would any of the not-necessarily-so presumptions about relative income or wealth be reinforced by the Form.

Or so it seemed.

I don't think anyone has ever done an empirical study of how married couples filing joint returns place their names on Form 1040. I will guess that in most instances, perhaps almost all, the husband's name ends up above the wife's. Why? That's how tax return preparers almost automatically enter the information, and anecdotes, for whatever they are worth, confirm that the husband almost always is listed first. And, as the IRS warns in the instructions to Form 1040, "if you filed a joint return for 2004 and you are filing a joint return for 2005 with the same spouse, be sure to enter your name s and SSNs in the same order as on your 2004 return." Why? Apparently the IRS tracks the return using the SSN of the taxpayer whose name is listed first. Switching places gets the IRS computer very confused.

No big deal, right?

Yesterday, a subscriber to the ABA-TAX listserve posed a question. The subscriber's firm had prepared a federal income tax return for a married couple for whom the firm had not previously prepared returns. It seems that the wife had prepared the previous years' returns. On the 2005 return, the firm first listed the husband, and then the wife. The wife became very upset, claiming that her name should be first because she had put her name first on the previous years' returns and had done so because she made more money than did her husband. Then she challenged the preparer to "look it up in the code."

Well, nothing in the code addresses this question. I don't see anything in regulations or rulings, though researched rather cursorily, that prevents a married couple from choosing whose name goes first. The only restriction, as I've noted, is that once the couple decides which spouse's name goes first, they need to stick with that sequence lest the IRS computers balk. One responder to the posted question vouched that switching the names from one year to the next indeed does cause problems. I have first-hand knowledge that the IRS computer system struggles to deal with situations in which the first-named spouse dies and the survivor, formerly a second-named spouse on a joint return, then begins putting his or her name as the first and only name on a single or head of household return. So I would advise not tempting the IRS computer with a solution of "taking turns with the top line." That approach may be a fair one as between the spouses but it poses the risk of tax havoc.

It also makes no sense to determine which spouse's name is listed first based on income. If the spouse who has more income in one year becomes the spouse with less income in the following year, using income as the determinant would cause the same sort of name switching that makes the IRS computers go haywire.

Responses to the question at times were humorous. Perhaps the spouse who is most important to the preparer should be listed first. One preparer explained that based on this approach he lists his sister ahead of her husband, his daughter ahead of his son-in-law, but himself ahead of his wife. It also was suggested that the spouse who pays the preparer's invoice should be the first one listed. Ah, but what if they take turns with the tax return preparation bill each year? And does one base the determination on who paid last year's bill or this year's bill? What if they tell the preparer the wife is paying the bill, and after the return is prepared or even filed, the husband writes the check? Would the return need to be amended? Another preparer noted that the husband goes first "except if the numerical equivalent of the aligned planets at the wife's birth totals 13 or more," on the basis that this is as logical as some code sections.

Jokes and wisecracks aside, someone posed the question of whether the spouse listed as "taxpayer" and not as "spouse" could take advantage of the "innocent spouse" relief provisions of section 6015 if that situation arouse. Is the person listed as "taxpayer" on the return a "spouse" for purposes of the "innocent spouse" relief rules? My quick research indicates that the answer is yes. The regulations under section 6015 make the relief available to either spouse if that spouse meets the requirements for relief.

The problem with the switch on Form 1040 from "husband and wife" to "taxpayer and spouse" is that it labels one spouse as a taxpayer and the other one implicitly as not a taxpayer. Here's the law: by filing a joint return, BOTH SPOUSES ARE TAXPAYERS. Once again, the mis-use of words, in an attempt to avoid the politically incorrect "husband and wife," generates technically incorrect language. How about "taxpayer_1 and taxpayer_2"? That won't work because it suggests that any two taxpayers could file a joint return, weakening the government's position that domestic partners and live-together couples cannot file joint returns if they are not married.

Would returning to the use of "husband and wife" but putting the spaces for the names side-by-side rather than top and bottom eliminate the implicit domination-submission allegedly inherent in having a space for name of husband above the space for name of wife? Maybe. But perhaps there is something inherently wrong in having one name to the left and another to the right. Another problem lurks that triggers concerns of political correctness. Taxpayers whose origins are rooted in cultures where people read from left to right might think the name on the left is being given some sort of special position and those whose origins are rooted in cultures where people read from right to left might think the name on the right is being given some sort of special position. And for all I know, there may be some deep theological significance to how names are placed.

Perhaps this is one more reason to eliminate the joint return. Surely it is not the strongest, but perhaps tossing it onto the list of advantages to elimination of the joint return couldn't hurt. Alternatively, to the extent my long-standing proposal to let any two taxpayers file a joint return, whether they be married, domestic partners, live-in couples, two spinsters, or parent and child, removal of "taxpayer and spouse" would be necessary and would make this particular problem take on a different tone. Because people could switch "tax return partners" each year, the IRS would be compelled to do what it presently does not do, namely, tag and track returns under BOTH SSNs rather than the one attached to the first-listed name.

I suppose on the list of "important things that need to be done," this question isn't at the top. Of course, tying it into the issues of whether joint returns should exist, and if they exist whether they should be limited to spouses, lets this question get piggy-backed to a position higher than it otherwise would have. Hmm. I wonder if that would be offensive to the questions that it skips by on its way up the "important things to do" ladder?

I love the Internet. I heard a story Monday yesterday on Philadelphia's radio news station, KYW but could not find the story on its web site. I told the story to my tax class on Monday to make a point, so finding it became essential lest I convince myself I had experience a delusion. After 20 minutes of using all sorts of search term combinations, I found it on a web site in Germany. One of the search terms I had used was "dollar" when it should have been "euro."

It turns out I had heard what I thought I had, currency denomination confusion nothwithstanding. What I had heard was a small portion of a bigger tale, on DW-World, that examined the impact of Germany's repeal of fixed dates for semi-annual clearance sales.

Headlined "How do you keep Germans from using their brains? A screaming red sales sign is a good start," the account begins with a bit of law news that had not previously past my eyes. I suppose that's one adverse consequence of not paying enough attention to comparative law. It seems that for almost 100 years, German law restricted clearance sales to the end of January and the end of July. In 2004, this regulation was repealed. Technically, it was an enactment of a law against unfair competition, which permits stores to pick their sales dates.

Enter the psychologists. According to the article, while some people looked forward to the possibility of sales throughout the year, others continued to shop at the end of January and the end of July. Apparently there are folks who delight in being able to praise themselves for having acquired something for a price less than that paid by some other person. Taking advantage of sales is some sort of badge of honor.

Enter the academics. A fellow named Christian Elger from the Clinic for Epileptology at the University of Bonn conducted a study. Preliminary results, deemed non-conclusive, suggest that the human brain " is much more active during regular shopping than it is during clearance sales." See a "sales" sign? The brain slows down. Hmm. I can list a few other things the sight of which causes the brain to slow down, but I'd best not start listing them.

Enter the news media. So some television journalists set up a test. Get some T-shirts. Price them at 1.60 euros. Put up a "huge sales sign" announcing a discounted price of 3 for 5 euros. Most of the people who bought shirts went for the three-for-five-euros deal. Of course, a moment of arithmetic tells us that the three-pack is MORE expensive than three individual shirts. OK, maybe the sales sign was deceptive and thus illegal? I don't know. I'm a novice at German law.

Enter my questions. What is it that makes simple arithmetic so difficult that the least bit of distraction leaves so many people vulnerable to being conned? Are the brain cells that do computations also the brain cells that go to work when visual distractions pop up? Is it easier to multi-task doing arithmetic and cooking rather than doing arithmetic and shopping? What impaired the ability of these shoppers' brains to conceptualize the meaning of a number? The color red? The word sales? The thrill of a seeming bargain fest? The t-shirts themselves?

How long will it take the con artists to put this discovery to work? Or perhaps, is academia discovering something that the street has known all along? Is there a lesson here for the tax world? Should we not do tax returns while visually distracted? Should tax return preparers avoid wearing red ties or having red decor in their offices?

Aha. Eureka! Perhaps now we know why accountants wear eyeshades!!!

Oh, and what was distracting me while I was hearing the story so that I ended up thinking dollars when I heard euros? Could it be that the reporter reading the story on KYW had said dollars? I wish I could find the answer to that question, but alas, I cannot.

The debate about disclosure of tax return information by preparers rumbles onward. I expressed my dismay at the prospect of preparers selling client tax data, followed up shortly thereafter, and then simply asked, "So Why Not Just Come Right Out and Say, 'Do Not Sell Tax Return Data'?". In one of his commentaries on the question, Joe Kristan expresses the view that tax return preparers can sell taxpayer data under the existing regulations, and that the proposed amendments therefore do not add something that cannot already be done, thus leaving him a bit perplexed as to why I am so "irate." I'm not irate. I'm concerned, disappointed, dismayed, and disgusted. With all of that, there's no energy left to fuel "irate." Tax law and its absurdities rarely, if ever, deserve or get that sort of attention.

Joe points to current regulations that state: "If a tax return preparer has obtained from a taxpayer a consent described in paragraph (b) of this section, he may disclose the tax return information of such taxpayer to such third persons as the taxpayer may direct." Even the IRS is trying to defuse objections by claiming that the proposals don't change existing law, as Jeff Gelles explains in this morning's Philadelphia Inquirer Consumer Watch column, in what I consider to be a marvelous example of Washington bureaucracy engaging in damage control and spin artistry.

The simple fact of the matter is that the proposed language simply says "a tax return preparer may not disclose or use a taxpayer's tax return information prior to obtaining a consent from the taxpayer." No longer must the disclosure be "AS THE TAXPAYER MAY DIRECT." What is currently a two-prong test, requiring both taxpayer direction and consent, becomes a one-prong test satisfied by getting the taxpayer's signature on a document prepared by the preparer and not originating with the taxpayer.

The examples in the existing regulations illustrate this difference. The examples involve preparers who operate not only a tax return preparation business but also another enterprise, such as selling insurance or mutual fund shares or making loans. In each of the examples, the preparer wants to use the tax return information to process an application or proposal on behalf of the taxpayer and makes that desire known to the taxpayer. If the taxpayer provides, in writing, "the consent described in paragraph (b)" the preparer can use the tax information in its other enterprise. Nowhere is there any discussion of the taxpayer signing a blanket disclosure consent and the tax data being shipped off to data miners, identity thieves, or other nefarious groups.

It is too easy, under the proposed regulations, for an unethical preparer to slip a consent into the papers that the taxpayer is asked to sign. Removal of "as the taxpayer may direct" creates a huge risk that has no social value other than lining the pockets of preparers. Joe's opening example demonstrates the risk and the danger:

If you were shopping for a car, how would you feel if your friendly salesman went to the back room and came out saying, "You know, at your adjusted gross income level you could really afford this car with the LX option package and whitewalls. Oh, and I'm sure you have some borrowing capacity on your home equity line, so financing will be no problem!"

It is true that a preparer might "suggest" to the taxpayer that the taxpayer "direct" the preparer to sell the information. At this point, only the foolish or squeezed would do so. Why would anyone make their tax information available to unknown buyers or to the world generally? As Joe points out, politicians sometimes are "squeezed" into revealing tax and financial information that almost all of the people demanding such disclosures would determinedly refuse to do themselves.

Although, as Joe points out, there is nothing to stop a person from putting his or her tax return on the web, no one whose neurons are firing in proper sequence would do so barring some totally bizarre set of facts that would make for a wonderful but goofy law school hypothetical. Yes, I know people put all sorts of private information on the web -- read any web diaries lately? -- but even those folks pretty much stay anonymous. Joe asks if it is a big step from putting one's tax data on the web to letting the preparer market it? No, the big step is putting it on the web, something few, if any, would do, thus leaving sale of the data as a similar step that few, if any, would want their tax return preparers to do.

When Joe asks if the IRS should prevent consenting adults from posting their tax returns or letting their preparers sell their tax data, the answer is that the IRS should not enable PREPARERS to do so without the express direction of the taxpayer. The idea of preparers discounting their fee in exchange for a standard waiver of confidentiality is abhorrent if it is something sanctioned by Treasury regulations. The government ought not be enabling adhestion contracts.

Joe agrees with me that "collecting and selling 1040 information, even with consent, is sleazy" and then points out that "lots of sleazy things are legal." Sleazy is one thing. Surreptitious is an entirely different matter. Joe then reaches the same conclusion as I do: "I would like to see them keep preparers from selling information; the trick is to do so without keeping preparers from doing useful things like providing copies of returns to lenders."

Joe suggested that perhaps imposing "a 200% excise tax on proceeds of selling tax information by preparers would solve the problem nicely." Yes and no. These sorts of excise taxes are used in the tax-exempt organization and retirement plan areas. But they don't stand alone. They are used to backstop prohibitions. Joe has convinced me, though, to amend my proposal by adding a sentence at the end which will require Congressional action. My proposed language now reads:

No tax return preparer shall transfer or otherwise make available to any other person, other than the taxpayer, in any manner whatsoever, a taxpayer's tax information in exchange for money or other consideration whether or not measurable in money or money's worth. Any tax return preparer who does transfer or otherwise make available to any other person, other than the taxpayer, in any manner whatsoever, a taxpayer's tax information in exchange for money or other consideration whether or not measurable in money or money's worth, shall be liable for a tax equal to 200% of the proceeds of such a transfer.

Now let the advocates of tax preparer sales of customer tax data step to the plate and explain why the law should PERMIT such behavior. And if it already does, a proposition with which I totally disagree, that in and of itself is not justification; it simply means someone was asleep at the switch, or worse, last time around.

Two recently-issued reports cast doubt on the overall quality of tax return preparation. Although most tax return preparers are honest, diligent, and capable, there are more than enough incompetent, dishonest, and/or lazy preparers conducting business to give the tax return preparation industry a bad name. It is unfortunate that in every profession the bad work of a few brings about regulation of the competent and honest many. As much as I dislike regulation, paperwork, and red tape, I must admit that the ideal world of minimum regulation can be achieved only if those existing in that word are themselves ideal. It's never been that way. It probably never will be. If it can be illegal to perform surgery without a license, should it be illegal to prepare tax returns without a license?

Consider the first report, issued by the General Accountability Office (GAO), and carrying the marvelous title of "PAID TAX RETURN PREPARERS: In a Limited Study, Chain Preparers Made Serious Errors." One wonders what an extensive study would find. The report's findings ought not come as a surprise, at least not to those familiar with the tax world. Consider the report's highlighted conclusions:

• not reporting business income in 10 of 19 cases;
• not asking about where a child lived or ignoring GAO’s answer to the question and, therefore, claiming an ineligible child for the EIC in 5 out of the 10 applicable cases;
• failing to take the most advantageous postsecondary education tax benefit in 3 out of the 9 applicable cases; and
• failing to itemize deductions at all or failing to claim all available deductions in 7 out of the 9 applicable cases.

What is particularly alarming is that aside from the third item, these shortcomings do not arise from the complexity or murkiness of the tax law. They arise from carelessness, deliberate attempts to curry favor with the customer, and perhaps simple ignorance. The GAO report explains that every preparer that its investigators visited made mistakes. Wow.

The GAO report presents a good explanation of how tax return preparers currently are regulated. Some are, some aren't. Those that are regulated are subject to different rules depending on whether they are lawyers, CPAs, enrolled agents, or just some person who decides to set up shop in the neighborhood.

On the heels of the GAO report comes another one, from the Treasury Department's Inspector General for Tax Administration. The report, which is not yet published on the Department's web site [edit: it now has been published on the Treasury web site], explains that approximately 22,500 licensed tax practitioners have not properly filed their own tax returns and/or have not paid their own taxes. Some who have been convicted of crimes or suspended by state bar or CPA regulators continue to represent clients in front of the IRS. Some who have not complied with the tax law in respect of their own returns also continue to represent clients in front of the IRS.

The recently-retired director of the IRS Office of Professional Responsibility claims that the Inspector General's report fails to give the IRS credit for changes implemented since the years from which the report draws its statistics. But unless the IRS comes up with information showing that these criminals, suspended lawyers and CPAs, tax cheats, and tax incompetents have been stripped of their license to practice before the IRS, there's no reason to get excited about changes in procedures or staff operating manuals.

Subjecting all tax return preparers to a uniform set of licensing and disciplinary rules adds another layer of government regulation and bureaucracy to the professional lives of many individuals. That's what happens when a few ruin what otherwise would be a self-regulated profession that would and could operated appropriately. It has happened in most other industries and professions, and it should and will happen to the tax return preparation business. What happens if it doesn't? The maxim that "one bad apple can spoil the barrel" will find another place to illustrate its meaning. The "success" of noncompliant, badly educated, and negligent preparers will tempt others to do likewise, perhaps for reasons of competitive edge. Preparers who can keep their fees lower because they don't spend money on continuing education have a market advantage that other preparers might consider deserving of imitation. When major league baseball did nothing about one steroid user, it eventually found itself in a situation where there were many steroid users, casting a dark shadow over the game. If the IRS or Congress fails to act now, an even darker shadow will fall over an industry whose quality, or lack thereof, has a direct impact on the raising of revenue by the government.

The tax return preparation industry has had years to get its act together. It hasn't done so. Time's up.

Ian Best, a third-year law student at Moritz College of Law (Ohio State University), has published his Taxonomy of Law Blogs. Ian waded into the thicket of law blogs and the task of classifying them as part of a for-credit independent study law school project. What he produced is unique, useful, and most impressive. It is nice to see a seemingly simple concept evolve into a very useful resource.

Ian's Taxonomy must be a delight for e-librarians charged with cataloging blogs! Do we call that catablogging? Rather than force a blog into one category, Ian includes it in as many places as is appropriate. For example, MauledAgain "is in the following categories: General Legal Blogs, Tax Law and Law Professor Blogs." Ian shared the outline of his categorization, and to whet your appetite and encourage your visit to his Taxonomy pages, I've reproduced it below.

This much blog cataloging having been done, it should be easier for what all of us will be wanting: updates. Blogs arrive, blogs disappear. There are more of the former, so I expect the Taxonomy to grow. And grow. And grow. Ian could be sitting on the bring of a huge entrepreneurial success. He reports on his blog that he's already received an unsolicited invitation to a job interview because of his blogging. Effort is rewarded. I like that. I hope his employment leaves him time to keep the Taxonomy up to date.

Here is Ian's "main taxonomy page:"

A Taxonomy of Legal Blogs
I. General Blogs
Advice for Lawyers and Law Firms
General Legal Blogs
General Blogs – Law and Culture, Economics, Politics, etc.

II. Blogs Categorized by Legal Specialty
Specialty Blogs

III. Blogs Categorized by Law or Legal Event
Case Blogs
Statute Blogs
Trial Blogs

IV. Blogs Categorized by Jurisdictional Scope
State Blogs

Federal Circuit Blogs
U.S. Supreme Court Blogs

V. Blogs Categorized by Author/Publisher
Anonymous Blogs
Association Blogs
Blogs by Judges
Book Supplement Blogs
Class and Student Group Blogs
Institute Blogs
Law Firm Blogs – Listed by Blog
Law Firm Blogs – Listed by Firm
Law Journal Blogs
Law Library and Librarian Blogs
Law Professor Blogs
Lawyer Webjournals
Newspaper Blogs

VI. Blogs Categorized by Number of Contributors
Group Blogs

VII. Miscellaneous Blogs Categorized by Topic
Blogs about Judges
Event Blogs
Fictional Blogs
Humor Blogs

VIII. Collections of Legal Blogs
Blog Post Collections
Legal Blog Collections
Legal Blog Networks

Take a look. Browse. Discover the wide wide wonderful world of law and law related blogs waiting for your visit.

The IRS has issued a press release in defense of its proposed changes to the regulations dealing with disclosure of taxpayer information. I tackled this issue several weeks ago, and then clarified my position in a follow-up last week. Yesterday the IRS held hearings on its proposed changes, getting criticism not only from consumer groups and privacy advocates but also from preparers who think the proposals are too restrictive.

In my earlier posts I straddled the fence between labelling the proposal the product of mere ignorance and negligence and characterizing it as a deliberate effort to accomplish something. What that something is, remains to be seen, although a few ideas were shared with me as explained in the follow-up post.

But after reading the IRS press release, I am beginning to succumb to the temptation of painting this episode darkly. What follows are the points made in the IRS press release, verbatim, interrupted by my responses.

IRS: "Federal law prohibits tax return preparers from disclosing information given to them by their customers except in limited circumstances. This rule (set forth in section 7216 of the Internal Revenue Code) applies to private return preparers and is in addition to the strong protection provided by section 6103 against disclosure of return information by the government."

JEM: This is true but doesn't address the question.

IRS: "Current regulations under section 7216, largely unchanged since 1974, permit return preparers to disclose their customers’ tax return information to third parties if the customer gives consent. The current regulations also set forth, in summary terms, the form of the consent the customer must give."

JEM: This is misleading. It leaves the typical taxpayer thinking that nothing has changed. Quite to the contrary, as I pointed out in my follow-up post last week:

The current regulations permit disclosure "to such third parties as the taxpayer may direct." That describes something originating with the taxpayer, or, if originating with the preparer, explained to the taxpayer so that the taxpayer may direct it. The proposed regulations simply says "a tax return preparer may not disclose or use a taxpayer's tax return information prior to obtaining a consent from the taxpayer." There is nothing about the process originating with the taxpayer or, if originating with the [preparer], being explained to the taxpayer so that the taxpayer may direct it. In other words, it's being turned into a blanket exemption.

The significance of the change in origination, moving from a situation in which the taxpayer requests disclosure for a limited purpose, such as a mortgage application or in which a preparer suggests a specific disclosure explained to the taxpayer, to a situation in which preparers can wholesale disclose batches of data, is simply too important to be marginalized as the IRS press release does.

IRS: "Since 1974, the manner in which tax returns are prepared has changed dramatically and the rules governing customer consent are in dire need of updating. For example, internet-based return preparation was non-existent in 1974, so an updated rule needs to be published to address customer consent in that context."

JEM: The dispute about disclosure is not limited to, and exists beyond the world of, electronic tax return filing. Don't change the subject.

IRS: "In December 2005, the Treasury Department and the IRS issued proposed rules to update the 1974 regulations."

JEM: True. Yet there was such an inadequate description of the proposal that the major change, namely, the shift to preparer-originated disclosures, was not noticed until consumer groups took a close look.

IRS: "Contrary to some recent press reports, the proposed rules significantly tighten existing requirements regarding the customer consent a return preparer must obtain to disclose the customer’s tax return information to third parties. Under the proposed rules, if a return preparer wants to obtain consent, it must give the customer a strong warning. The mandated language for the warning is attached. Existing rules contain no such warning."

JEM: Existing rules contain no such warning because existing rules don't permit the activity that the proposed regulations would permit. The warning is a red herring. People are given warnings so often that if they ever had much effect it's been lost. There are warnings on cigarette packages. These don't stop people from smoking or from being hoodwinked into taking up the habit. There are warnings on prescription medicines. How many people read them? How many of those who read them understand them? And how many remember them?

IRS: "The proposed rules add a number of limitations on the customer’s consent, including limiting the time period over which the customer’s consent is valid, and mandate that the provision of return preparation services cannot be conditioned on giving a consent. These limitations do not exist under the current rules."

JEM: This isn't much more than window-dressing. It simply means that the preparer, unscrupulous or not, needs to slip a disclosure form into the stack of papers that the taxpayer is given. The not uncommon practice of one party opening the stack to a page, directing a signature, turning to another page, requesting another signature, and so on, is not something unseen in the tax return preparation world. Taxpayers depend on their tax return preparers the way most automobile owners depend on their mechanics and most people depend on their medical professionals.

IRS: "The proposed rules have a separate customer consent provision that applies to return preparers who outsource their work overseas."

JEM: Yes, this is nice, but it doesn't address the question. It's another distraction in the form of "I cleaned my room last week so why are you upset about the new scratches on the car?" routine.

I now repeat what I note in my initial post:

Can someone explain to me why a tax return preparer needs to sell, or give away, customer tax data? What other incentive or purpose could there be other than money? Note that where there is a legitimate purpose for disclosure, the regulations permit the disclosure, but these are limited instances for which there is a logical explanation. These sorts of disclosures, such as sharing the data with another preparer who assists in doing the return, make sense. Sale of the tax information does not. At least not to me, to a few people who emailed me asking me to comment (which I already had planned to do), and to a few people quoted in the story.

And thus I propose the following language to be added to the regulations:

No tax return preparer shall transfer or otherwise make available to any other person, other than the taxpayer, in any manner whatsoever, a taxpayer's tax information in exchange for money or other consideration whether or not measurable in money or money's worth.

In other words, tax return preparers are not permitted to sell tax return information. Period. Why? No one has demonstrated that there is any need for them to do so other than lining their pockets nor has anyone demonstrated that there is societal value in permitting them to do so.

Is there anyone who thinks the tax law is not complex? Chris Edwards, director of tax policy studies for the Cato Institute has published updated information on our "terribly complex and inefficient" tax law. In case anyone remains unconvinced, consider these highlights:

* total pages of Code, regulations and IRS rulings in 1995: 40,500; in 2006: 66,498

* number of income tax breaks for education in 1995: 7; in 2006, 16

* number of income tax breaks for energy in 1995: 11; in 2006, 26

* number of IRS tax forms in 1995: 475; in 2006, 582

* pages in Form 1040 instruction book in 1995: 84, in 2006, 142

* percent of tax filers using paid tax return preparers in 1995; 50%; in 2006: 61% [and I'd guess most of the others use tax return preparation software]

* cost of complying with the federal income tax in 1995: $112 billion; in 2006: $265 billion [I can only imagine what the total is if all federal, state, and local tax compliance costs were considered]

* hours Americans spend on tax compliance in 1995 5.3 billion; in 2005, 6.4 billion

The issue, it seems to me, isn't whether the tax law is complex. It is. That's one of the easiest definitive statements a person can make about anything. When one considers the latest GAO Report, PAID TAX RETURN PREPARERS: In a Limited Study, Chain Preparers Made Serious Errors, it should be impossible to deny that complexity exists and that it causes too many errors. Not that preparer ignorance, negligence, laziness, and greed aren't factors, but simplicity reduces the opportunities for those factors to have effect.

The bigger issue is deciding if complexity is good, a necessary evil, or something that can and should be reduced. I've rarely seen arguments that complexity is good, though I do observe people create complexity for the sole purpose of masking true intentions and accomplishing nefarious objectives, something which I do not consider proof that complexity is good. I've seen and heard the commentary of those resigned to the infection of the tax law by complexity. Most professionals, though, think that complexity should be reduced. Some think it is possible. A few even think it can be eliminated.

The tough questions arise when it is time to propose ways of reducing complexity. As I pointed out last week, one popular approach is to blame others. The chair of the House Ways and Means Committee prefers to blame lobbyists rather than the lack of discipline among members of Congress. Another is to create superficial simplicity that masks the complexity. Yet another is to target for elimination the provisions inserted by one's political adversaries while clinging desperately to a defense of one's own pet projects.

In his Cato Institute report, Chris Edwards proposes the following solutions:

* "[T]ax rules that treat different industries and business structures unequally should be ended."

* "All types of investment should face the same low marginal tax rate."

* "[E]nd.. the tax code’s bias against saving and investment."

* "[R]eplace business depreciation with immediate deduction of capital purchases."

* "[C]ut .. marginal income tax rates."

How can anyone disagree with the first suggestion? At least until the second and third suggestions are considered. Either income is income and is subject to tax using one set of rates, or investment income deserves lower rates of taxation than does salary and other earned income, which requires treating different industries (working and living off investments) in different ways.

The tax law already is part-way to a full write-off for capital purchases, so the proposal would benefit those large businesses that cannot take advantage of section 179 and similar provisions under current law. A good idea? It depends on how one perceives the meaning of income, and whether one has a bias in favor of a consumption tax or a wealth-increase tax. Why a deduction when a dollar of cash is converted into a dollar of investment? The idea of permitting a taxpayer to deduct the cost of a building that proceeds to increase in value is inconsistent with most notions of what an income tax should be.

Lastly, cutting tax rates does nothing to reduce the complexity. Supposedly, low rates would reduce or remove taxpayer incentives to game the system, and thus reduce or remove the complexity attributable to defensive maneuvers to protect the system.

Unfortunately, most complexity in the tax law arises from two principal features:

* Applying different rate structures to different types of income requires rules to distinguish one type of income from another, something that accounts for at least one-third and perhaps as much as 40 percent of the tax law.

* Using the tax law to get the IRS to do the work other federal agencies cannot or will not do, such as improving education, developing new sources of energy, conserving energy, preserving farmland and open space, protecting retirement benefits, and the like, has made the tax law and tax practice an adventure into every imaginable type of transaction and law that can exist.

The way to reduce complexity is to identify each provision that contributes to its existence and then to ask how it came to be. This is not to identify those persons who are responsible, though there is a temptation to do so. It is to identify the attitudes and processes that spawn these provisions so that they can be eliminated, redirected, or disempowered. In other words, until the political climate changes, there will not be tax reform. It will simply get worse. Wow, what a safe prediction.

A summary opinion decision issued by the Tax Court near the end of February, Berge v. Comr., has been sitting in my "to blog" digital pile for five weeks since Paul Caron first brought it to my attention on TaxProf Blog. Now is a good time to share some comments on the sort of case that is fun to put in front of first-time tax students to illustrate why tax law practice is best accomplished by those with, or the ability to acquire, a global perspective of life. I dare not use the term "renaissance person" but a natural curiosity about everything is a useful quality to bring to the tax law.

The case involves a lawyer who also is a CPA, and who resided in Los Angeles. Berge not only was employed full-time as a consultant by Arthur Andersen, he also was self-employed as both an attorney and an accountant. Of the almost 14,000 business miles that he drove during the year in question, he racked up roughly 4,300 miles traveling to the law library at Chapman University Law school in Orange County. Each round-trip to that library involved roughly 70 miles of driving. Berge, a graduate of Southwestern University School of Law, lived about 5 miles from that school's library, and his office at Arthur Andersen was roughly the same distance from Southwestern.

Berge claimed a $5,216 business deduction for his business mileage. The IRS audited Berge's return and disallowed $2,710 of the deduction. At trial, Berge conceded that because of a math error he should have claimed a deduction of only $4,544, thus conceding $672 of the disputed deduction and leaving $2,038 at issue. The IRS argued that the $2,038 represented the cost of mileage driven by Berge to visit his family in Orange County, which would make it non-deductible under section 262 as a personal expense.

There was no question that Berge had relatives living in Orange County. He testified that roughly 4,300 of the miles he drove were on account of his visits to the Chapman Law School library. He conceded that there were law school libraries closer to his home and office than the one at Chapman, including the one at Southwestern. Berge testified that he "found the Chapman Law School Library was superior to the libraries that were closer to his residence."

The Court explained that a business deduction is allowable if an expense is paid or incurred during the taxable year in carrying on any trade or business, and that for an expense to be “ordinary” the transaction generating the expense must be of a common or frequent occurrence in the type of business involved. This principle was set forth by the Supreme Court in Deputy v. du Pont, 308 U.S. 488, 495 (1940). The Court also explained that to be “necessary” an expense must be “appropriate and helpful” to the taxpayer’s business, referring to a principle enunciated by the Supreme Court in Welch v. Helvering, 290 U.S. 111, 115 (1933). Ultimately, the “determination of whether an expenditure satisfies the requirements of section 162 is a question of fact,” an observation made in Shea v. Commissioner, 112 T.C. 183, 186 (1999) and many other cases.

The court then stated:

Upon the basis of the record in this case, we find that the primary purpose for petitioner’s trips to Chapman Law School Library was to conduct legal research for his business clients, and, therefore, said travel is directly connected to petitioner’s business. Petitioner’s visits to his family, if such visits occurred, were a secondary consideration. We hold for petitioner on this issue, as modified by petitioner’s concession at trial.

Implicit in the court's decision is the notion that the travel expense deduction of an attorney, or any other professional needing to use a law library, is not limited to the cost of visiting the closest such library but can include the cost of visiting a more distant one if the professional determines that doing so is necessary to the conduct of his or her business activities.

Imagine if, instead, the outcome of the case enabled a test that permitted a deduction for traveling to a more distant library only if it were proven objectively that the more distant library was, in fact, superior. Tax law litigators then would need to embark on an analysis of the advantages and disadvantages of law libraries. Perhaps U.S. News and World Reports would have reason to publish yet another "rankings" issue. Courtrooms would fill with "experts" testifying about the superiority or inferiority of law libraries. Would the number of volumes matter? Would the scope of the collection be relevant? Would the adequacy of the heating and, more importantly in southern California, the air conditioning system be admissible? If you don't think the last concern matters, just stop by when the HVAC system supplying the law library a mere 1/20 of a mile from my office decides to take a vacation.

If I'm giving the impression that I'm pleased with the court's decision because it frees the tax practice world of another matter for which non-tax expertise must be developed, I should explain another impression that struck me when I read the case. In an age of on-line research, why does anyone need to go to a library to do tax research? I have a fine friend who is an elementary school librarian, and so I must write carefully lest I give the impression that libraries have been obsoleted by digital technology. They have not. Look, I like libraries. I enjoy books. I've been told I have the mind of a librarian. This isn't an obituary for libraries. Quite the opposite. There are many important reasons to go to libraries. They are places of quiet conducive to reading and study, places where one can learn to do research, places that are fascinating to browse, places where interesting book and print exhibitions are held, places where fun activities are undertaken, and places where one can have conversations with librarians who can open wide vistas of adventure and excitement conveyed through a variety of media including but extending beyond books.

But for a busy tax professional, does it make good business sense to drive 70 miles round-trip in southern California traffic to access tax and legal materials that most likely are available on-line? I wonder if Berge charged his clients for the time invested in his library trips. Fifteen years ago, I was in our school's library at least once a day, and sometimes I spent an hour or two or three doing research in the stacks. Today, I rarely enter our school's library, and when I do so it's almost always to interact with the computer technology specialists who are housed there or to provide the library with its traditional copy of something that I have published. I haven't been in the stacks for years. Of course, were I a first-year student, I'd be in the library for hours, as I once was and as our students now are, not only to study but to learn how to do the research I would be needing to do. And if I were in an elementary school, I'd be in the library, perhaps every day, but I cannot say "as I once was" because my elementary school did not have a library. Well, it had one, but it housed the pastor's books, which I had the privilege of cataloging (to get me out of the classroom which had nothing more to offer and I was at risk of becoming - or had become - a distraction and a challenge) and which opened a world of theology, church history, and liturgy (and other things) to a wide-eyed 12-year old. But I digress.

Although the Berge decision is reported in a summary opinion, carrying no precedential effect, it does address an issue that extends beyond the deductibility of miles driven to law libraries. It suggests an answer to a question I posed years ago when brain-storming the impact of digital technology on legal issues with a group of law professors and law students fascinated by the implications of developments that most of the world had yet to meet and appreciate. For example, does the availability of video-conferencing make deductions for most business travel impermissible? Does the availability of on-line CLE and CPE make the cost of traveling to some resort area for update courses non-deductible? Will the resolution simply be one that leaves the decision to businesses that are presumed to have incentives to cut cost, and thus if a business decision is made to go to a meeting rather than video-conference or to go to a distant place for CLE rather than sit in front of an on-line presentation, that should make the expense deductible? If the clients and customers are willing to pay for the travel, perhaps that should be given weight in the analysis. I don't know the answer, and I think we will see more cases dealing with these sorts of questions.

Two last comments in the nature of footnotes. First, the 4,300 law library miles reflected $1,397 of the disallowed deduction. A disallowance of the 3,700 miles of difference between driving to Southwestern and driving to Chapman amounts to a $1,202 disallowance. I have no clue as to what the other $641 (or $836) involved. Second, imagine the joy at Southwestern when the folks there learned that one of their graduates had tacked another 3,700 Southern California driving miles onto his vehicle usage and had chopped 60 to 80 hours from his annual time in order to bypass its library so that he could use that of another school, explaining that he considered the other school to have a superior facility. Ouch.

According to several reports, some unpublished, but this one published, Representative Bill Thomas, Chair of the House Ways and Means committee, criticized American businesses for putting lobbyists to work trying to preserve "narrow tax breaks." He informed a group of executives at a Tax Executives Institute meeting that they probably had lost the chance for genuine tax reform of the corporate income tax.

Thomas "complained" that lobbyists and the people who hire them "pay only 'lip service' to the notion of lower corporate tax rates, "focusing instead on advocating special tax provisions with narrow application. Giving the research and development credit as an example, Thomas pointed out that these sorts of provisions also contribute to the tax law's complexity.

I'm confused. If Thomas and his legislative colleagues want to reform the corporate income tax, or the tax law generally, no one is stopping them from doing so. It's one thing for someone not in the Congress to criticize lobbyists and for putting their clients' interests ahead of those of the nation, but that's what lobbyists are paid to do. Special interest groups have a right to petition members of Congress, to argue for their pet tax breaks, and to hire lobbyists to do that work for them. Of course, when lobbyists move from trying to persuade legislators to trying to purchase legislators, that's an unacceptable boundary crossing.

Yet there is no requirement that Congress do or not do something because lobbyists are pushing for their favorite proposal. Members of Congress can say to lobbyists, "Thank you for the information, you argue well, but the needs of the nation surpass those of your client. Sometimes the good of the whole must transcend the desired privileges of the few." Congress can then reform the tax law. So for Bill Thomas to criticize the lobbyists as he has is to give them too much credit and too much responsibility. The ultimate responsibility for what gets enacted rests with 535 members of Congress, not with lobbyists.

Yes, lobbyists in effect do control Congress to some extent, for example, by drafting legislation and having it moved through the legislative process. But this situation exists because members of Congress have abdicated their responsibilities. Perhaps, as some argue, they do so in order to be elected and re-elected. If that is the case, it's up to voters to make it clear that they want members of Congress to act in the best interest of the nation and not in the best interest of the lowly-taxed individuals and businesses whose influence over elections has been shifting power from the electorate to those with sufficient wealth to make the rules.

My post last week about the proposed IRS regulations that would permit tax return preparers to sell taxpayer data to third parties so long as they obtain consent was just one of hundreds of articles appearing in traditional print press and on blogs and websites throughout the country and beyond. My comments brought this inquiry from Drew Edmundson, a CPA in Cary, North Carolina. Drew wrote:

I just read your article "Your Confidential Tax and Financial Information for Sale?" Wouldn't just including the contents of Notice 2005-93 in the regulations pretty much take care of the concerns?

The notice and the Proposed Regulations together seem very similar to the current requirements. If this really is a problem then hasn't existed for decades? Perhaps the media is a bit late to notice the issue. See for example current 301.7216-3(a)(2) which allows disclosure to third parties as the taxpayer directs as long as the signed consent meets the requirements of 301.7216-3(b). Why couldn't a tax preparer fit his disclosure into those rules and make the purpose to be to sell the return information to the named third party?

I'm glad Drew asked the question, because it inspired me to look more closely at the language. I responded:

I think the difference is in the language. The current regulations permit disclosure "to such third parties as the taxpayer may direct." That describes something originating with the taxpayer, or, if originating with the preparer, explained to the taxpayer so that the taxpayer may direct it. The proposed regulations simply says "a tax return preparer may not disclose or use a taxpayer's tax return information prior to obtaining a consent from the taxpayer." There is nothing about the process originating with the taxpayer or, if originating with the [preparer], being explained to the taxpayer so that the taxpayer may direct it. In other words, it's being turned into a blanket exemption.

I still don't understand why preparers need this ability. Why should or would they sell or disclose except for specific purposes outlined in other parts of the regulations?

Drew's reply in turn was informative, because it provided an example of when it would make sense for a taxpayer-initiated disclosure to occur:

Thanks for the reply. I agree that the "as directed by the taxpayer" language could be a difference. I just believe that an unscrupulous tax preparer bent upon selling the data would just put that as the purpose for the disclosure. So the tax preparer would just word the reason for disclosure similar to: "The purpose of disclosure is to provide tax return information for marketing financial products (mortgages, or whatever) to the taxpayer by XYZ company."

Is protection needed? It shouldn't be because we should all read things before we agree to them. Especially when a signature is required. But who hasn't just signed something after a brief explanation? I personally must have clicked on the agree button for software licenses hundreds of times without reading the agreement. So some protection is needed.

In practice signed consent under 301.7216-3 has allowed me to fax tax returns to lenders. It has also allowed me to explain the numbers to those same lenders. I have also used the consent to discuss a tax return with a prospective buyer of a business. I believe if 301.7216-3 is eliminated then I will have some unhappy clients. There needs to be some way for the client to allow the preparer to be able to discuss the returns with other service providers when requested by the taxpayer.

I then closed this particular dialogue as follows:

I think you're right: the unscrupulous will find a way to deceive their customers. But for what ethical folks such as yourself are doing, the old language should be sufficient.

I have no problems with tax return preparers disclosing tax return information on behalf of clients when clients request the disclosure. Perhaps there is a reason that the client cannot make a photocopy of the client's copy of the tax return to provide to a lender or a prospective buyer of a business. That's a far cry, though, from getting an advance "anything goes" waiver from a client, who probably isn't reading the fine print. Like Drew, I've not read many of the "fine print" software licenses and if something new and different is slipped into it by a developer I might end up regretting how I've set my time priorities. As for the unscrupulous preparers, all the regulations in the world won't make a difference. Only investigation, prosecution, and punishment will put a dent in those blemishes on the tax return preparation profession.

Another reader, who asked not to be identified, suggested another explanation:

I think the proposed regs are an end run around 6103 because the IRS (or other agencies) would then be able to purchase the data on the open market and thus it would not be "return information filed with or furnished to the Secretary by or on behalf of the taxpayer" under 6103(b)(3). The IRS (or Homeland Security) could then datamine it. Or, if taxpayers don't take to selling their data, the Service will probably have succeeded in cutting off several lines of business for tax return preparers. Either way it works out for the Service.

Something else that has not caught anyone's attention is the corresponding proposed change to Circular 230 § 10.51 that makes the improper disclosure or use of tax return information a sanctionable offense under Circular 230 to which the new monetary penalties can apply. This gives OPR incredible leverage to regulate practitioner relationships.

I'm embarrassed that I didn't live up to my alleged "see conspiracies everywhere" reputation and see these angles. Of course, everyone involved in generating the regulations would deny that any such purposes existed. Who knows?

It has also been pointed out that tax return preparers subject to separate regulation, such as attorneys and certified public accountants, would be barred from selling taxpayer information regardless of what the IRS regulations permit. The worry, though, isn't so much about attorneys and CPAs, but about the unregulated preparers. The scope of bad tax advice and counseling of fraud that has been reported with respect to some unregulated preparers not only has generated calls for some sort of national regulation of all tax return preparers but also leaves me wondering whether these preparers could pass up an opportunity to put a few more dollars in their pocket at the expense of clients whose best interests they've already shown have no meaning for them.

Yet another correspondent criticized recent proposals that would require listed companies to disclose their tax returns. The proposals were described as "disturbing."

I disagree. Unlike individuals, listed companies should not expect a level of privacy concomitant with that accorded a natural person. Corporations and LLCs are creations of the law, artificial persons that owe their existence to the willingness of natural persons to accept them. Listed companies already disclose financial data under SEC and other regulations. Thus, the tax returns of public companies should be available to shareholders, and thus to any member of the public who purchases a share. Requiring disclosure of their financial and financial positions is a reasonable price to ask them to pay for the privilege of existing.

The way I see it, the only reason a corporation would want to hide its tax information is if the tax return discloses some inconsistency with the financial information available to the public that suggests something on the tax return or in the financial reports is not quite right, or if the tax return demonstrates some fraud. Under existing tax law, financial accounting, and SEC regulations, there sometimes can be as many as three different ways to report a transaction. Perhaps corporations are unhappy about the prospect of explaining to the public why the tax return differs from the SEC reports and financial statements. The long-term solution, of course, is to harmonize all three so that disparities in treatment are removed. If it's not an expense for SEC or financial reporting purposes, it ought not be a tax deduction. That idea is destined for nowhere.

These issues are not going to go away. Every day brings more reports of corporate book cooking, officer mismanagement, improper spending by private foundations, bribery, corruption, padded expense accounts, and a long list of other abuses. Public acceptance of the status quo is beginning to morph into public indignation. The idea that those in power can be trusted has been killed by the inability of those in power to act in trustworthy ways. The ordinary taxpayer must stay alert to the introduction of even more inappropriate behaviors masked as actions taken for the betterment of the citizenry.

Michael Livingston, who teaches tax across the river at Rutgers-Camden, has shared a friend's his explanationfor why law professors are unhappy. His comments pre-suppose that law professors are unhappy, or at least as a group are less happy than are other professionals, and other practices within the legal profession.

A quick check into the question of whether law faculty are happy or unhappy generated this interesting survey result:

One of the other markers of satisfaction can be found in responses to the question whether a particular faculty member would choose an academic career again. Among full-time faculty, just over 94 percent of historians-second only to law faculty-said they would choose the same academic career path again; this assessment was consistent among history faculty at every rank except the instructor level.

So where's the evidence that law professors are unhappy? To be fair, Michael Livingston uses the phrase "persistently uneasy" rather than unhappy. No matter. Either term suggests dissatisfaction. That's not an attitude that I sense among law faculty generally, and aside from temporary periods of distress when relations with law school or university adminstration management get edgy and cast a pall of distress over a school's faculty, I've not seen or heard reports of long-term faculty malaise.

I'm not alone in my disbelief. Dave Hoffman disagrees with Livingston, suggesting that perhaps law professors are no more unhappy than "doctors, accountants, GM workers, or real lawyers." Suggesting that law professors are not real lawyers lumps the practice-focused faculty with the philosophically inclined, and perhaps provides a hint of why, if indeed law professors are somehow unhappy, there may be some unhappy law professors. Could it be the frustration of being practice-focused but pressured to teach and write in a philosophical way? Could it be the pressure of teaching and writing in a theoretical way and not getting much in the way of accolades beyond a defined segment of legal academia?

Livingston describes the unease as obsessive worry about "standing in the pecking order." He claims:

[T]hey behave in this manner because they are doomed to compete, without anyone else to share the responsbility, in an activity in which they can never know whether they have succeeded or even what succeeding might mean. Like musicians singing to an empty hall, or athletes playing in an abandoned stadium, they have only themselves and a few ephemeral signposts--a good law review cover, a visit at a nominally "prestige" law school, what have you--to signal that they are advancing in their quest. It is a bitter fate indeed, although presumably someone has to do it.

There's something peversely misdirected in the notion that happiness and freedom from worry requires an audience or a pat on the back. Applause is nice, but genuine satisfaction must come from within. Perhaps that's part of the problem, namely, the need for attention that permeates post-modern culture.

Livingston's friend attributes this assumed unease or unhappiness to a rare constellation of occupational factors. Being a member of a law faculty is an activity that is very competitive, individualistic rather than cooperative, and "almost entirely devoid of objective standards" for measuring success or failure. Allegedly, the law professoriate is competitive because law faculty are competitive individuals and must face issues of promotions, tenure, attempts to move to more highly ranked schools, and getting published. It's individualistic because law teaching and writing is almost always a solitary activity. It lacks objective evaluative standards because the quality of writing and teaching is not easily measured in an objective manner.

Yet being a member of a law faculty is not particularly competitive. As someone commented on Livingston's blog, it's tough to fire law faculty, and that what law faculty seek is confirmation that their work is valuable. So I'm not alone in seeing the issue as one that suggests deep-seated insecurity. I wonder whether some carefully designed study would demonstrate a greater need for this affirmation among those less connected with the practice world than among those more in tune with it.

Law teaching and legal writing need not be individualistic. There is something to be gained from team teaching courses and co-authoring articles. I've done both. All those involved benefit from bouncing ideas one off another, and from being willing to grow past the ruts into which many law faculty fall. It is true, though, that there is quite a bit of individual activity among law faculty, for reasons that I don't quite understand.

Whether there ever can be worthwhile objective measurements for subjective activities such as teaching and writing is debatable. As another person commented on Livingston's blog, the role of a law professor is to make other people's lives better. I agree. We do that by teaching students to go into a world that needs their ability to bring justice. We can write articles that help practitioners do their best assisting their clients and that help courts resolve tough questions faced by those practitioners who are compelled to litigate on behalf of their clients or to spur legislatures into taking action on matters needing resolution.

When Livingston suggests that the solution to this alleged persistent unease among law faculty is tenure as a countermeasure "to prevent the suffering from becoming still more pronounced," numerical rankings, and higher salaries, I must dissent. Money does not buy happiness. Tenure ought not buy happiness. Numerical rankings are about as useful as the seedings in the NCAA basketball tournament, very unpredictive of ultimate success.

Ultimately, all this talk about unhappy law professors escapes me. Most of my writing is directed to practitioners, although some of that scholarship has been cited and quoted by courts, perhaps to the surprise of those who think their definition of scholarship should rule the day. I teach for the future clients of my students. The only genuine measure of my success or failure in that regard is a difficult one to compute, for it requires tracking the professional careers of thousands of law school graduates who have sat in my classes. Indeed, the law practice world has given me sufficient accolades, and though I'd be no less satisfied without them, those awards and commendations, made publicly or delivered to me privately, surely are gratifying. The stuff that causes occasional annoyance, like colleagues who play politics, the occasional inept staffer, the now and then rude student, and the few dishonest students, is sufficiently outweighed by positive aspects of being a law professor.

Yes, basically, I'm happy. I wish that for everyone in their professions and careers. If my students and my readers can get something out of what I teach and write that helps them bring their clients closer to just results, then I suppose I've done something to contribute to someone else's happiness.