MauledAgain

Life presents a constant stream of decisions that people need to make. Sometimes the decision ultimately doesn’t matter, as when a person chooses between wearing a green tie or a purple tie, but often the decision does matter, as when a person decides to commit a crime rather than refraining from breaking the law. For as long as history records, and probably even before writing was invented, people have faced the question not only of how to make the right decision but how to encourage or coerce another person into making the correct decision.

For the past many decades, legislators at both the federal and state level have been persuaded to use the tax law to encourage people into making decisions that the legislators think are decisions that ought to be made. In the federal tax law, there are credits for adopting children, going to school, saving for retirement, purchasing energy efficient property, placing in service low income housing, making expenditures to provide access to disabled individuals, producing electricity from specified renewable resources, making expenditures to maintain railroad tracks, producing oil and gas from marginal wells, training mine rescue teams, and sequestering carbon oxide, to name but a few examples. Similarly, in the federal tax law there are deductions for making charitable contributions, saving for retirement, and setting aside funds for health care, again to name but a few examples. In state tax laws there are similar credits and deductions and long lists of other activities or expenditures for which the taxpayer is allowed to claim a credit or deduction.

The theory behind these tax breaks is that people will do something for money, in the form of tax liability reduction and in some instances a refundable credit, that they otherwise would not do. There are many examples of when people do something for money that they otherwise would not do. A person who mows lawns isn’t going to mow a lawn unless paid, aside from taking care of a friend or family member. That sort of situation doesn’t bother anyone. In contrast, there are individuals who do something they ought not to do because they are paid to do so. These sorts of situations often fall into the category of criminal behavior, on the part of both the actor and the payor. And then there are the situations where someone should do something whether or not they are paid, but because they fail to do what they should do, they are tempted or encouraged or “bribed” with a tax credit.

So now we are seeing proposals for additional tax credits to “induce” people to do something that they ought to do without being paid to do so. Kimberly Wehle, a law professor at the University of Baltimore School of Law has suggested a tax credit for voting. Margaret Ryznar, a professor of law at Indiana University McKinney School of Law, has proposed a tax credit for writing a will. The U.S. Travel Association wants a tax credit for taking a vacation. Renu Zaretsky of the Tax Policy Center asks if there should be a tax credit for getting the Covid vaccine.

Brushing and flossing one’s teeth reduces future dental care costs, so perhaps there should be a tax credit for brushing and flossing one’s teeth? How about a tax credit for putting a neighbor’s newspaper on the porch when it is raining because that is a good deed deserving of reward? How about a tax credit for eating nutritious food instead of junk food, which would reduce health care costs? How about a tax credit for folding laundry, or vacuuming the carpet? How about a tax credit for not driving while drunk, or for turning off the cell phone when driving? Where should the line be drawn?

How about a tax credit for stopping at stop signs and red lights? The current system of imposing a fine or revocation of a driving license doesn’t seem to be working all that well. The argument whether rewarding good behavior is a better approach to affecting behavior than is punishing bad behavior has been debated for centuries. Should a child be given money, extra dessert, or other privileges for cleaning their room, or should they be deprived of video game time, or some other fun activity if they fail to clean the room? I wonder whether the increasing numbers of children who are rewarded for behaving properly is creating a society that will behave properly only if rewarded and cannot comprehend, adjust to, or alter behavior to fit with punishment for behaving badly.

I wonder if the people who proposed adding even more credits and deductions to federal and state tax laws are among the almost unanimous group of people who complain that the tax law is too complicated. To the extent that incentives are needed to get people to do what they should be doing in any event, sad as that is, those incentives should be separate and apart from the tax law. Whether giving people cash or lottery tickets to get vaccinated, or money when they vote, or free items when they execute a will present a different set of questions beyond the scope of this commentary. Others have addressed those arguments, and those discussions are easy enough to find for those who are interested.

The answer to my question is clear. Tax credits and deductions are not the answer to every problem. They aren’t even the answer to most problems. They are the answer to few, if any, problems. The IRS and state revenue departments should not be in the business of determining if someone voted, or executed a will, or went on vacation, or got a vaccine, or brushed their teeth, turned off their cell phone while driving, adopted a child, saved for retirement, or fixed railroad tracks. Relieving the IRS and state revenue departments of these types of tasks might just cause people who see the IRS and state revenue departments as monsters to realize that much of what they do that causes the fear and dislike are tasks best assigned to other agencies.

According to this story, Earl Blumenauer, a member of Congress from Oregon has proposed a tax on space tourists. He observed that the space tourism business planned by several private companies owned by multi-billionaires will generate significant revenue and that what space tourists pay for tickets should be taxed. However, he did not suggest any rate nor identify how the revenue raised from the tax would be spent. He asked, "Why should a family that is taking kids to Legoland pay a 9.5% ticket tax and other charges on their airline tickets and space tourists who spend a gazillion dollars have tax free tourism?"

His question raised one of my own. Did the individuals who purchased 600 tickets from Virgin Galactic or the unidentified number who purchased tickets from Blue Origin pay any sales tax on those purchases? If they are, as I suspect at least most of them are, residents of states with sales and use taxes, then they should have paid either a sales tax collected by the space tourism companies or a use tax if the company did not collect the sales tax. They are being treated in the same manner as someone who purchases a ticket to visit Legoland. If they are not paying the tax, then the question is whether the states to which the sales or use tax is owed have stepped in, are stepping in, or will step in to collect it.

Blumenauer is correct that there is significant revenue flowing into the coffers of the space tourism companies. Blue Origin has already booked almost $100 million in ticket sales. Virgin Galactic has sold 600 tickets for up to $250,000 each. Plans are in the works for orbital flights and lunar fly-bys, with ticket prices believed to be the millions. So it is true, as Blumenauer notes, that "We're talking about something that is not a huge burdensome tax. These are people can afford to pay whatever the tax will be." But that alone does not justify a federal ticket tax, especially if it is aimed at one specific type of ticket and not others. The purchase of tens of millions of dollars of tickets by the wealthy means that state sales and use tax collections will increase significantly, though it would not surprise me if there are some arrangements in place, to put it nicely, to shield those purchases from state sales and use taxes.

Blumenauer comes closer to justifying federal revenue collection from space tourism when he notes that the space tourism vehicles contribute to pollution of various types, whether carbon emissions or water vapor that can damage the ozone layer. He also notes that the space tourism business has benefitted from taxpayer-funded federal space programs. So instead of calling his proposal the Securing Protections Against Carbon Emissions Tax Act, he should call it the Securing Protections Against Contaminating Emissions Fee, which not only is more accurate in terms of its purpose, sets it apart from sales and use taxes, and properly designates it as a fee, but also preserves the catchy acronym someone developed for the name of the proposed legislation.

The proposed bill would not impose any tax or fee on spaceflights for scientific research purposes. On the other hand, as Blumenauer puts it, “However, things that are done purely for tourism or entertainment, and that don't have a scientific purpose, should in turn support the public good."

Blumenauer admits that his bill is “meant to be a starting point of a conversation that's important to get ahead of.” He shared his concern by noting, “Perhaps we're already behind." That is a good idea. Conversations about the proposal are helpful, especially in refining the details. He started the conversation, I have continued it, and presumably as days go by others will share their reactions. Where things end up remains to be seen.

A little more than three months ago, in Has Congress Learned the IRS Funding Lesson, or Will It Fail Again?, I reviewed my previous commentary on the adverse impact of reduced IRS funding on the collection of taxes from taxpayers who flouted the tax law. The causal connection between underfunding the IRS and reduced revenue collection is readily apparent to anyone who examines the empirical evidence. I wrote about this issue in posts such as Another Way to Cut Taxes: Hamstring the IRS and Tax Noncompliance: Greed on Steroids. In Taxing High-Income Individuals, I explained that the federal deficit could be reduced without raising tax rates if the Congress would “increase funding for the IRS so that it can track down and deal with tax shelter promoters, offshore schemes, fraudulent returns, and other gimmicks used to make a person with high income pay taxes at rates lower than those imposed on the middle and lower income echelons.” In Another Way to Cut Taxes: Hamstring the IRS, I explained that Congress is unlikely to act responsibly in dealing with the problem because too much “of It is controlled by the anti-tax, anti-government crowd.”

Recently, a glimmer of hope appeared when, according to various reports, including this one, the current Administration proposed a 10 percent, or $1.2 billion, increase in IRS funding, with most of it dedicated to “increasing resources for oversight of corporate and wealthy Americans' tax returns and ensure compliance.” The funding would help the IRS replace the 21,000 employees lost since 2010, which hampered its ability to deal with tax evasion by the wealthy, who now fail to report more than one-fifth of their income according to a recent National Bureau of Economic Research study. The glimmer became brighter when news broke that a bipartisan agreement had been reached on an infrastructure package that included $40 billion in funding for the IRS so that it could collect taxes that aren’t being paid. Though some might ask why IRS funding would be included in the infrastructure legislation, the answer is that a good bit of infrastructure can be built and repaired with the funding provided by collecting the unpaid taxes.

But now the glimmering light has been plunged into the darkness. Several days ago, as reported in this Politico story, among others, the Republicans have backed out of the agreement. They refuse to increase IRS funding to pay for infrastructure. Why? They gave several reasons. One was the concern that the same anticipated revenue would be included in budget reconciliation that can be passed without Republican support. Another was that Republicans “just didn’t want to give more money to the IRS,” explaining that they “did have pushback.” From whom? Who objects to funding the IRS with $40 billion so that multiple times that amount in revenue can be collected? Law-abiding taxpayers? Hardly. As this Slate headline aptly puts it, “America’s tax cheats continue to have no greater ally than the Republican Party,” also pointing out that “Republicans have showed their core philosophy when it comes to taxes. The party doesn’t just believe taxes should be low. They believe paying them should be optional.”

So why did that “pushback” succeed? The anti-tax crowd used a typical scare tactic, claiming that the increased IRS funding would simply bring flood of auditors into small businesses. That is, of course, hogwash. The auditors would be cracking down on wealthy individuals and large corporations who, as recent reports demonstrate, account for much of the tax gap. Inconveniencing small businesses with tax audits won’t raise the revenue because truly small businesses, in terms of revenue, don’t generate enough income to provide opportunities to avoid or evade substantial amounts of taxes. Of course, businesses that are small in terms of number of owners but that are huge in terms of revenue and unpaid taxes, yes, they also should be audited and they ought not be hiding behind the misleading claim of being “small” and inappropriate targets for IRS crackdowns.

So without the collection of unpaid taxes, how will infrastructure be funded? The Republicans and Democrats alike, once IRS funding increases are off the table, are offering what some are calling “pixie dust,” as reported in stories such as this Business Insider report. There are proposals to shift stimulus money, sell oil from the Strategic Petroleum Reserve, cut payments to Medicare providers, and use funds from the 5G spectrum sale. But as independent experts note, these measures do not provide anywhere near the necessary funding, and attempts to pay for infrastructure without raising taxes, cutting other spending, or collecting unpaid taxes will not work.

Back in 2011, when a previous Administration was trying to increase IRS funding to chase down unpaid taxes, I asked, in Another Way to Cut Taxes: Hamstring the IRS, I explained that every dollar put into IRS funding brings back somewhere on the order of ten dollars, noted that few, if any, free market advocates would walk away from that sort of deal, and that the private sector wouldn’t toss that opportunity aside. I declared that the fiduciaries of the public trust should also refrain from ignoring the benefits of funding the IRS because “America deserves no less.” In Has Congress Learned the IRS Funding Lesson, or Will It Fail Again?, I noted, “It remains to be seen whether the current Congress is better at investing that the Congresses of the past decade.” We now have an answer. Congress has again failed. It has failed the nation, it has failed the people, and it has failed the test of its members fulfilling their fiduciary duties.

It is true, I have written more than a few times about tax return preparers who engage in fraud. It is important for taxpayers to understand that they need to do sufficient research to find a tax return preparer who complies with the tax law. Using a tax return preparer who does not have the best of intentions damages the taxpayer, as well as taxpayers generally. My commentaries include posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for the IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, and Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?

Though tax return preparer tax fraud often exists in something as simple as failing to report income or overstating deductions and credits, it also can be part of a more complicated scheme. Last week, in this press release, the Department of Justice not only explained that two Philadelphia individuals, Yolonda Thompson and Albert Upshur, had been convicted of tax fraud, but explained the larger plan of which it was a part. Between 2010 and 2013, the two prepares set up a fraudulent debt-relief scheme, which they marketed as the Debt Payoff Program. They formed the Yolonda Denise Thompson Living Trust. Participants in the Debt Payoff Program were told that if they paid money to Upshur, let Thompson prepare their tax returns, and filed those tax returns, the trust would provide funds that they could use to pay off mortgages and other debts. Thompson prepared those tax returns and the participants filed them, but they fraudulently claimed income tax refunds to which the participants were not entitled. Collectively, the returns filed by the participants claimed improper refunds of more than $300 million. Worse, when the IRS began to investigate the Debt Payoff Program, “Thompson and Upshur attempted to obtain money from the IRS by other fraudulent means, including using checks drawn on closed bank accounts and fake financial instruments.” After the IRS notified the two preparers that they were under criminal investigation, and assessed civil penalties against them, they continued to file false tax returns and other false tax documents for themselves and others. They face prison sentences of five years for a conspiracy count and three years for each false return count.

It boggles the mind that someone who is told that they are under criminal investigation continues to engage in the activities that are the subject of the investigation. Is it simply a matter of the person thinking that it is not a crime and therefore there is no reason to stop? Is it simply a matter of someone trying to be defiant even though they know the behavior is a crime? Or is it, as I think perhaps it is, an inability to turn away from bad behavior because the person is addicted to that behavior? In other words, is it a case of someone knowing what they are doing is wrong and being unable to stop, especially when the consequences of continuing continue to grow in severity? And if so, what is the solution? I leave that question to those with expertise in criminal law, sentencing, post-conviction rehabilitation programs, and recidivism studies. Perhaps someone has done research to determine to what extent tax return preparers convicted of preparing fraudulent returns return to the same behavior or some other fraudulent financial activity after completing the terms of their sentencing.

According to two reports, one from a Philadelphia television station and the other out of one in Pittsburgh, the Transportation Revenue Options Committee is considering imposing a “package tax” on packages delivered by Amazon, Fed Ex, and UPS. The tax might also be applied to deliveries by local grocery stores and restaurants. The Pittsburgh story states that “This package tax/fee would be a first of its kind in the country, but New York and Colorado are also considering the idea,” but as I discussed in The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, a similar proposal, though using a percentage and not a flat fee, is percolating in Maryland.

The proposed tax in Pennsylvania isn’t a tax, but a fee. It has the fancy name of “E-commerce convenience fee,” and would be a flat fee imposed on the buyer who is receiving a shipment. So eventually someone will need to decide if the proposal is for a tax or a fee. As structured, it is a fee but proponents and others are also calling it a tax. Whatever it is and whatever it is called, it’s a bad idea.

What’s the purpose of the proposed fee? To close an $8 billion funding deficit facing the Department of Transportation. The impetus for the proposing that the revenue be derived from package shipment appears to be the increase in parcels shipped into or within the state. There were roughly 554.8 million shipments in 2019, and roughly 731.5 million in 2020. With the proposed fee being 25 cents per package, the estimated revenue of $182 million is a drop in an $8 billion shortfall bucket. So it’s puzzling that one story characterizes the proposed revenue as “big bucks for our roads.” A Pittsburgh Post-Gazette story reports that the fee would be $1, but even the roughly $750 million raised by such a fee isn’t much more than several drops in that $8 billion shortfall bucket.

There are suggestions that some shipments would be exempt from the fee, though the only example provided as possibly qualifying for exemption is prescription medications. If prescriptions are exempt, what about medical devices such as hearing aids or walkers? What happens if a package contains both exempt and non-exempt items?

There are fairness issues. Clearly the fee would be passed by the companies to the customers. That would impose a burden on people who are homebound or otherwise unable to get out to do shopping that would not be imposed on those who can run errands rather than rely on delivery. One opponent of the proposal suggested that the revenue should come from increases in the tobacco, alcohol, and cannabis taxes because those items are things “people utilize by choice” whereas those who are homebound use delivery services by necessity. The Secretary of Transportation has argued that those who use deliver services, or ridesharing, “are beneficiaries of the national highway system even if they never get behind the wheel of a car.” The flaw in this argument is the fact that the operator of the delivery vehicle or the ride-share automobile already is paying a fuel tax and is passing that cost on to the customer.

Aside from fairness, there are technical issues. What happens if a package is misdelivered to the wrong address and the delivery company must pick it up and relocate it to the correct address? Does the proposed fee apply a second time? What happens if the seller sent the wrong item, or for some other reason the customer needs to send the package back and have the seller send the correct item? Will there be a fee on the return delivery and yet another fee on the second, correct, delivery? What happens if the package ships through multiple companies – and, yes, that happens – or through multiple modes such as train, truck, and airplane? Are multiple fees imposed? Or is the fee somehow allocated among the shippers? If the fee is allocated, which of the companies is expected to do the computation?

And, of course, this proposal leaves hanging the question of how the remaining $7.818 billion in transportation funding shortfall would be handled. Those who read this blog know my answer to the entire funding problem. I’ve written about it many times, and yet rather than getting up to twenty-first-century speed the legislature and others continue to live in the past, when the equitable, efficient, and sensible thing to do is to tie the revenue directly to the needs with the mileage-based road fee. On at least four dozen times I have written about the need to shift to a mileage-based road fee to fund the repair and maintenance of the nation’s highways, bridges, and tunnels. I have done so in posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , and The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”. I invite legislators and others involved in transportation infrastructure policy discussions to read these posts to learn why it doesn’t make sense to be playing around with inefficient and inequitable funding proposals that don’t even purport to raise the necessary revenue..

The Pittsburgh Post-Gazette story reports that the proposal also includes “a tax of 8.1 cents a mile for each mile a vehicle is driven.” But that proposal would not go into effect any earlier than 2026 and, of course, would require enactment by the legislature. That “tax,” which should be called a fee because it is the payment of money for the use of a specific benefit, would wipe out the $8 billion deficit. However, because the same story reports that the gasoline tax would be repealed, the 8.1 cents a mile fee, though wiping out the existing deficit, would not make up the revenue lost by eliminating the gasoline tax. The proposal suggests that the per-mile fee be implemented at the outset for electric vehicles. Also suggested are increases in state rental car taxes, passenger vehicle registration fees, and the sales tax on vehicle purchases. If the mileage-based road fee were to be implemented at an appropriate rate that reflects the costs imposed on transportation infrastructure by vehicles, there would be no need to afflict people with difficult-to-administer nuisance taxes and fees such as the package delivery fee and increases in sales taxes.

The Transportation Revenue Options Committee has not released its report. The information that is being publicized isn’t necessarily what will be in the report. And once the report is released, there is no telling what the legislature will do. It is not beyond the realm of possibilities that the legislature does nothing. And if it does nothing, it would not be the first time it responded to a major issue in that manner.

I return to the study conducted by Kathryne M. Young, an Assistant Professor in the Department of Sociology at the University of Massachusetts, Amherst, and an Access to Justice Faculty Scholar at the American Bar Foundation, which I first mentioned in Saying Goodbye to Law School Grading Curves?. Young published the results, along with her methodology and examples of the interviews underlying the study, in Understanding the Social and Cognitive Processes in Law School That Create Unhealthy Lawyers, 89 Fordham L. Rev. 2575 (2021). The study was undertaken to understand the effect that law school education practices contribute to the higher-than-average rates of depression, anxiety, substance abuse, and other mental health problems that afflict lawyers. The study concluded that several aspects of how law is taught contribute to the problem. Two of those aspects pose challenges that I addressed early in my law teaching career. The other day I described grading curves. I now turn to “cold calling.”

Cold calling is not unique to law schools. Any time that a teacher calls on a student who has not asked to be questioned, the student is encountering cold calling. In any environment, whether fifth grade, an undergraduate history course, or a law school course, being called on and thus asked to respond in front of one’s classmates and the teacher can be intimidating. For someone who is prepared, there can be doubt about how the response will be received and there can be a general anxiety about speaking in front of others, especially in a classroom setting. For those who are not prepared, it can be excruciating, and downright awful. So it’s no surprise that cold calling contributes to anxiety and worse.

For me, cold calling generates a mixed reaction. I can think of reasons it is inefficient and perhaps ineffective, as well as being harmful. Yet I also can think of reasons it is helpful and sensible. I will explain.

When I started teaching law school, I engaged in cold calling. That’s what most of my law school professors did, though I was keenly aware of its adverse impact. So I permitted students, as have and as do other faculty, to respond with “not prepared” or “pass” and then proceed to someone else. But often, rather than admitting a lack of preparation, or even avoiding responding when prepared, a student would answer in a way that indicated the student was not prepared. Though some faculty, especially years ago, would “stick with” that student through a frustrating exchange of “Socratic method” questioning, I was among those who tried to determine if the student was prepared and needed help refining the nuances of the response or was trying to wing it. I would stick with the former but move on from the latter. Of course, all of this took time, and ultimately reduced the coverage of the course. Thus my reaction that cold calling is inefficient, and in some instances ineffective.

It was during this first year of teaching law school that a student approached me and asked that I not ever call on them. This wasn’t the typical just-before-class-request to spare a student that day because of something awful that had happened to the student or the student’s family or friend. This was a request to be exempted permanently from cold calling. I asked why. The answer was along the lines of “I am terrified speaking in front of more than one person.” I asked, “What will you do when you are in a courtroom, or a deposition, or at a meeting with several senior partners and associates in the firm?” The answer, “I won’t be doing litigation nor working for a law firm.” “What will you be doing?” “Something else.” So we talked about lawyering in corporate counsel offices, in government positions, as a judge’s law clerk, but the student thought that there was some place that a lawyer could simply read cases and write memos without interacting or speaking with more than one person. I decided to accommodate the student, even though I was confident that the student, like any lawyer, would encounter the equivalent of cold calling in the future. Judges ask questions. Senior partners come into offices, or call, or show up on Zoom, and ask questions.

So I ended up relying on volunteers. I always welcome questions and responses from volunteers, though admittedly that leads to some students actively participating and others remaining silent and passive. There is the danger that one or two or a handful of students will dominate any discussion, so special care must be taken to go first to the student whose hand is raised for the first time ever or for the first time in a while.

Some faculty try to reach a middle ground by telling a small group within the class that they will be “up” for the next class or the next two classes or the next week. Though this lets the rest of the class breath a sigh of relief, and perhaps even put aside concerns about doing the required reading before class, it still puts those within the group on the “hot seat,” and that is no less stressful. In other words, whether or not a student knows that the cold call is coming, the anxiety exists. The anxiety isn’t only “will I be called on?” but also “what will the question be?” and “will I answer well enough to avoid embarrassment, ridicule, or some other adverse impact?”

I found what I think is the solution, or I should say that what I think is the solution was presented to me by now Dean Paul Caron, he of the TaxProf blog. Many years ago, he introduced me to what were then called “clickers” and what has evolved into what are student response systems. Yes, the technology has taken us from hand-held devices pointed at infrared receivers mounted on the wall – a story for another day – to students using digital devices to respond over the internet. By using student response systems, I can ask the same question simultaneously of all students, not just one. Students can respond without revealing their identity or their answers to other students. The responses tell me whether I need to invest more time in the issues raised by the question or can move along to the next set of issues. Sometimes I am surprised, and learn that what I thought students understood wasn’t, or that what I thought was stumping the students generated correct responses from all students. Most students enjoy seeing the results, whether to find out how everyone fared or to learn the answers to warm-up questions such as “Do you have a will?” or, in years past, “Have you prepared your own tax returns?” And, of course, the array of answers permits me then to invite students to explain why they selected that answer.

Granted, when lawyers appear before a judge, whether in person or remotely, they won’t be using these response systems. The same can be said of the other situations in which lawyers find themselves. But what I think happens is that as students use the response system and realize that, yes, they DO know the answer and they DO understand the material, their confidence builds. As confidence builds, anxiety decreases. The goal of education, in any field, is not only to help students acquire knowledge and understanding, but also to help them build confidence. The use of student response systems, a component of a broader formative assessment approach that I started using despite opposition and long before it became all the rage in segments of legal education, might not guarantee confidence growth in all students, but it helps and surely is an improvement over what once was and in some instances still is.

Sometimes studies tell us what some people already know. A good example is the collection of results from a study conducted by Kathryne M. Young, an Assistant Professor in the Department of Sociology at the University of Massachusetts, Amherst, and an Access to Justice Faculty Scholar at the American Bar Foundation. She published the results, along with her methodology and examples of the interviews underlying the study, in Understanding the Social and Cognitive Processes in Law School That Create Unhealthy Lawyers, 89 Fordham L. Rev. 2575 (2021). The study was undertaken to understand the effect that law school education practices contribute to the higher-than-average rates of depression, anxiety, substance abuse, and other mental health problems that afflict lawyers. The study concluded that several aspects of how law is taught contribute to the problem. Two of those aspects pose challenges that I addressed early in my law teaching career.

One contributing factor to law student anxiety and discontent is the use of a curve for grading. I have never used a curve, even though a variety of complex academic rules mandating curves but allowing for exceptions were in place. Whenever challenged, I managed to explain why what I was doing did not technically violate the curve rules. How do I grade? I grade against a standard. I learned that from several sources, including several of the law school faculty who taught me, and from teachers both in the family and among friends. Grades are designed to send a message to whomever needs to know about the student, that is, the extent to which a student understands and perhaps even masters the material. There are benchmarks and I share those with students. For example, if a student can earn at least 20 percent of the points that I would earn on the graded exercises and examination in a course, then the student has at least learned something and deserves to pass, albeit with a very low grade. In contrast, a student who can earn roughly 80 percent of the points I would earn has earned an A. I use the word “roughly” because I also try not to put a letter grade cut where there is no gap in the raw scores.

Proponents of the curve argue that students need to be ranked in some way that limits the number of students earning the high letter grades. Why? It is difficult to find plausible arguments in favor of grading curves, and many arguments against using them. At least with respect to law school, the notion that it is necessary to identify the “top ten percent” supports the use of a curve, because a curve that limits the “A” grade to the top ten percent will generate a “top ten percent” for all students taking into account all grades. One historical reason for this approach was the invitation to Law Review membership, a prestigious position, that was limited to the “top ten percent.” But during the last several decades, the admission of students to Law Review membership based on “open writing” competitions has demonstrated that being in the “top ten percent” does not necessarily mean that someone has what is needed to write and edit well, and that not making the “top ten percent” does not necessarily mean that the student lacks those skills. Another reason for this “top ten percent” approach is to assist big law firms, who traditionally would limit interviews to those in the “top ten percent,” though in recent years that tradition also has eroded. Of course, without a grading curve, it is theoretically possible that all students would end up with grade point averages that are, for all intents and purposes, the same. So what? Well, the “so what” is that the grading needs to be based on an articulated standard. And that doesn’t always happen. The “throw the exams down the stairs and see where they land” joke is pretty much just that, a joke, but as an undergraduate student I encountered faculty who were unable to explain how they arrived at the grade that they assigned.

Interestingly, most grading curve mandates allow exceptions that reflect to some extent the arguments that can be made against grading curves generally. For example, very few grading curve rules apply to small classes, the definition of which varies from enrollments of 10 to enrollments of 30 or 40. So how can a faculty justify to students that if one or two students add a course during drop-add that the grading system will change from application of a standard or benchmark to a curve?

Though students consider grading curves to be unfair because they think curves lower their grades, and that often happens to some students, there are other problems. The fact that the curve “pushes down ” some students’ letter grades caused many schools to add grades so that a student who missed the A grade would get an A-minus or B-plus rather than a B. This, in turn, has contributed to “grade inflation” because what would have been a B grade becomes a B-plus or A-minus. The almost complete disappearance of the C-minus, D, and F grades is a related, but different, issue. Another problem with the curve is that it can send a false message by assigning the A grade to the top ten percent of the raw scores even if those raw scores are far from excellent. Though most grade curve rules allow for adjustments, it doesn’t always work that way.

Some years ago, a colleague long gone said to me, “It’s easy. The best paper gets an A, the rest don’t.” I asked, “Even if there is another paper just about as good?” The answer was, “Yes.” I asked, “And what if the best paper is mediocre?” The answer was to the effect that someone always wins the gold medal. But education isn’t a competition. Well, it often is but it ought not be. Lawyers are perceived as combative competitors, and surely there are some who exhibit that trait, but lawyers also engage in cooperative endeavors, and the notion that students are competing in a course for “the A” or for “one of the eight A grades in a class of 80” is counterproductive. Professor Young’s article explains why.

Nothing that I am writing is something that I am expressing for the first time. I have written about grading curves in posts such as Once Again, Grades are "Coming Out", Yet More Reasons to Dislike Grading Curves, The Artificiality of Mandatory Grading Curves, and Some Thoughts on Teaching Law: Part XX: The Art or Science of Grading. And even before I blogged about the issue, I shared these thoughts with colleagues and administrators, both in faculty meetings and outside of faculty meetings. There probably are memos written by me somewhere in my school office, but I will refrain from digging them out, for a variety of reasons, not only to avoid needing to redact names but also because the points I made are repeated in the commentaries cited in this pararaph. Of course, faculty who arrived since I retired five years ago were spared, for better or for worse, from listening to or reading my memos about grading, though perhaps one or more of those famous memos might still be circulating. And perhaps some of them read this blog and have seen those earlier commentaries.

It is refreshing to see others call for the elimination of grading curves. Perhaps they will disappear, as law school education evolves. Why do I think this might happen? In the 1980s when I started administering during-semester graded exercises, I encountered much resistance and barely obtained permission to do so. Now, formative assessment in law schools is all the rage. So change is possible, and it happens. Whether curves disappear formally, and not just informally, during what’s left of my time teaching law school – which could end tomorrow or next year or three years from now but it will end, someday – is a question with only a guess as an answer. We’ll see.

Another contributing factor to law student anxiety and discontent is “cold calling.” I’ll write about that in my next post.

Many people in the anti-tax crowd also belong to the anti-regulation crowd. To most, tax is simply another form of regulation. Regulations and taxes are seen as constraints on the infinite freedom that the anti-regulation crowd uses as rhetoric to defend a self-focused, no-empathy-for-others approach that they carry into adulthood from their adolescent years.

In the economic facet of society and culture, the anti-tax and anti-regulation crowds worship the so-called “free market.” Of course, as I’ve pointed out many times, in posts such as Do Tax Credits Deserve Credit? (“People now understand that the free market isn't free, except to the extent some people thought it meant they were free to abuse, manipulate, distort, and undermine the market.”), and Can Tax Law Save Capitalism from Itself? (“Advocates of minimizing or reducing taxation and government regulation claim that the economy prospers when the marketplace is left alone to fend for itself. Of course, centuries of experience teach that the free market is not free, and that an unregulated market leads to fraud, deception, defective goods, shoddy services, and economic difficulties.”), that there is no such thing as a free market.

Yet when something close to a free market generates an outcome that is disliked by advocates of free markets, they are quick to seek regulation of the market. The latest example of this hypocrisy is the lawsuit filed by the de facto head of the political party that rests its approach on “freedom” and “free markets” while not hesitating to advocate regulation of what it dislikes. Last Wednesday, Donald J. Trump filed lawsuits against Facebook, Google, Twitter, and their chief executive officers, because he is unhappy that those companies suspended his accounts on their platforms. Leaving others to describe why they think the lawsuits were filed in the wrong forum, fail to describe the class he claims to represent, might be frivolous, and do not fit within the legal theories on which they appear to rest, as shared in reports such as this Vox analysis and this Law and Crime explanation, I focus on the absurdity of asking a government instrumentality, specifically, a court, to regulate a private company operating in a free market.

Defenders of this latest publicity stunt argue that Facebook, Google, and Twitter are monopolies and that government intervention is necessary. First, these companies are not monopolies. They are, at best, near monopolies but even that characterization is too broad. Facebook has more than a few competitors, and has been losing members who are shifting their social media lives to other platforms. The same can be said of Twitter, and the existence of Bing, Yahoo, and other search engines belies the claim that the only access to social media is through these three companies. Second, when anyone attempts to curtail the market power of other near monopolies, the beneficiaries of their campaign contributions and political lobbying are quick to jump into the fray by tossing out the “free market” buzz phrase and denouncing any government interference in the actions of companies such as Amazon, Walmart, or Microsoft, to name just three of the many monopolies and near monopolies dominating the economy. The hypocrisy is astounding, and this is far from the only example. The situation is not unlike what happens when lawmakers who rail against loopholes suddenly make a u-turn when it’s one of their supporters’ favorite loopholes that is being led to the chopping block.

Of course, as reported in this story, the lawsuits quickly became a tool for fund raising, and it is a good guess that the monies collected on the pretext that the lawsuits are designed to protect the “rights” of the anti-tax, anti-government, and anti-regulation crowds will help the plaintiff accumulate resources with which to pay his many debts. It’s the same pattern seen in the fund raising ostensibly marketed as necessary to fight phantom election fraud. Already, many in those crowds are rejoicing that these lawsuits have been filed. Unfortunately, millions will fork over funds, even and especially those who are not in the best of economic condition. There is a reason con artists have thrived throughout the entirety of human history. When mixed with hypocrisy, the work of con artists becomes deadly to genuine freedom.

He claimed, in August of 2015, by asking, “Who knows taxes better than me?,” that he was more knowledgeable about taxes than anyone else. In “Who Knows Taxes Better Than Me?”, I replied that his other statements proved he knows very little about taxation that matters.

He also claimed, not long thereafter, by asking, “Who knows the tax code better than me?,” that he understood an unspecified tax code more than anyone else did. In “Who Knows the Tax Code Better Than Me?”, I replied that there are people who understand the tax code, whichever one it might be, more than he does.

At the same time he claimed that he had great people helping him pay as little tax as possible, using “every single thing in the book.” In that same commentary I noted that these “great people” surely understood tax more than he did, and cautioned that paying as little tax as possible isn’t an issue “as long as what he is doing is within the law.”

He also claimed, some time thereafter, that paying no taxes made him smart. In Does Not Paying Federal Income Tax Make a Person Smart?, I pointed out that even if paying zero taxes is a smart thing, it doesn’t necessarily mean that the taxpayer is smart, and using the word “smart” is misplaced if the reason for not paying federal income taxes is tax fraud.

He also claimed, seven months ago, that the claim he paid $750 in 2016 was true because it was a “statutory number”, that is, “a filing fee.” In How Not to Prove You Know Taxes and the Tax Code Better Than Anyone Else, I pointed out that his statement, like some other statements he made, demonstrated that he was nowhere near being a tax expert.

Now, as reported by many sources, including this hillreporter.com story, he offered this tidbit:

They go after good, hard-working people for not paying taxes on a company car. You didn’t pay tax on the car or a company apartment. You used an apartment because you need an apartment because you have to travel too far where your house is. You didn’t pay tax. Or education for your grandchildren. I don’t even know. Do you have to? Does anybody know the answer to that stuff?

Wait! I thought he knew everything about taxes. And he doesn't don’t know the answer to a question that diligent students in a basic income tax course can answer? Perhaps those who adore him might now realize that his boasts of omniscience, whether about taxes, infections, medical cures, what the generals know, and pretty much anything else, as the bunk and hokum that they are. Perhaps they will understand that behind all the ranting claims of greatness is nothing more than a con artist, that his claims about election fraud are as absurd as his claims about his tax knowledge, and that the politicians and operatives who are loyal to him are a menace.

When tax return preparers engage in fraud, they cause damage not only to their clients who end up needing to find funds with which to pay the resulting tax deficiencies and to invest time in dealing with the consequences but also to taxpayers generally. The damage, in terms of lost revenue and time waste, is extensive. I have written about tax return preparers who have been charged with, been convicted of, or have pled guilty to various tax fraud crimes, in posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for the IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, and Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant.

Several weeks ago, two members of Congress, one from each side of the aisle, with bipartisan support, reintroduced the Taxpayer Protection and Preparer Proficiency Act. Originally introduced in 2015 and again in 2019, the bill gives the IRS authority to regulate tax return preparers. The IRS had tried to regulate tax return preparers under the regulatory authority of 31 U.S.C. section 330, but in Loving v. I.R.S., the Court of Appeals for the District of Columbia Circuit affirmed the decision of the United States District Court for the District of Columbia that the authority granted by 31 U.S.C. section 330 did not extend to regulation of tax return preparers. The court concluded that tax return preparers are not agents of the taxpayer and do not practice before the IRS by virtue of preparing a return. The legislation has been proposed and reproposed in order to expand section 330 to remove the limitations currently in the statute that were identified by the court.

Though the court’s analysis and conclusion are correct, one wonders why any tax return preparer would object to regulation of an industry undermined by unscrupulous participants. According to this report, strong support for regulation of tax return preparers, and thus for the proposed legislation, has come from organizations such as the American Institute of Certified Public Accountants, the National Association of Enrolled Agents, and the National Association of Tax Professionals. Some people objected to the IRS attempt to regulate tax return preparers because they prefer that “things be done by the book,” and thus support the legislation though objecting to what the IRS attempted. Others, sadly, simply object to what the IRS attempted to do because they object to regulation generally, or object to particular regulation that impedes what they are trying to do.

The proposed legislation requires tax return preparers to demonstrate minimum competency standards. They can do so by obtaining an identifying number, satisfying any examination and annual continuing education requirements required by the IRS, and completing a background check administered by the IRS or Treasury. These requirements are waived for preparers who have been subject to comparable requirements administered by the IRS or comparable state licensing program, as well as individuals supervised by preparers who fit within the waiver. The legislation requires preparers to include their identification number on any return or claim for refund prepared by the preparer. The legislation provides that the IRS can rescind a preparer’s identification number after appropriate notice and opportunity for a hearing, if recission would promote compliance with the tax law and effective tax administration.

The proposed legislation might add a bit of “paperwork” and a small fee for legitimate preparers, but it will not put them out of business. What will the proposed legislation do to the tax return preparers who engage in fraud? In theory it would put them out of business. In theory, taxpayers seeking tax return preparation assistance would ask for proof that the preparer has an identifying number, and would refrain from patronizing those who do not have such a number. In practice, though, the law-breaking preparers will forge ahead, falsely claiming to have, and showing a false, preparer identification number. Some clients will continue to use the services of unscrupulous tax return preparers because the temptation of bigger refunds and the elimination of additional tax due is too strong to resist. But with at least yet another fraud charge arising from the false use or presentation of a preparer identification number raising the adverse consequences of being caught, perhaps some unscrupulous preparers will terminate their businesses, or get the required clearances and give up on the fraud. I doubt it, though, because the fraud is so deeply connected with the marketing promises used to bring in clients. A shift to competition in a market dominated by competence rather than false promises is not a market in which the unscrupulous wish to participate.

So if the legislation is enacted, will it have a beneficial effect? Probably, though surely not one that wipes out all or most of the fraudulent tax preparation industry. Will the legislation be enacted? One might think so, considering it has bipartisan support, but it had bipartisan support in 2015 and in 2019, and failed to advance. Why? Perhaps not enough members of Congress want to stop tax fraud. Perhaps not enough members of Congress understand the seriousness of the problem. Perhaps too many members of Congress are under the sway of lobbyists and contributors who engage in tax fraud and fear any movement to suppress it. Perhaps not enough Americans are putting sufficient pressure on their Congressional representatives to get this legislation enacted.

Tax fraud by tax return preparers happens much too often, and the IRS lists ”unscrupulous tax return preparers” as one of its “Dirty Dozen” tax scams that taxpayers should be careful to avoid. I have written about tax return preparers who have been charged with, been convicted of, or have pled guilty to various tax fraud crimes, in posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for the IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, and When Language Describing the Impact of Tax Fraud Matters.

But is it enough simply to warn taxpayers to be on the alert for suspicious behavior and questionable marketing techniques by tax return preparers? No, it is not. More needs to be done, and has been done. For example, as described in a recent Department of Justice news release, a federal court ordered that a tax return preparer in Illinois, who prepared returns with false information, false deductions, and false credits, who is known by at least two names, and who does business under another name, be permanently enjoined “from preparing returns for others and from owning, operating or franchising any tax return preparation business in the future.” The order permits the federal authorities “to conduct post-judgment discovery to monitor compliance.” It also requires the preparer, both individually and through the business, to notify various individuals, presumably including clients, that the injunction has been entered. The order additionally requires the preparer to advertise the injunction in places where the preparer does business.

The press release noted that during the past ten years, the Department of Justice has “obtained injunctions against hundreds of unscrupulous tax preparers.” The Department tries to help taxpayers avoid having returns prepared by enjoined tax return preparers and tax return preparation businesses by providing an alphabetical listing of these persons and businesses.. Unfortunately, the Department of Justice’s attempts resemble a game of whack-a-mole, as unscrupulous preparers pop up to replace those who are shut down almost as soon as injunctions go into effect. Worse, some enjoined preparers simply open up shop using new names for themselves or their businesses.

It’s nice that the Department of Justice is trying to help taxpayer avoid dangerous tax return preparers, but that is not enough. Taxpayers need to exercise due diligence. In past commentaries I have offered some advice to taxpayers who want to steer clear of fraudulent tax return preparers. In Are They Turning Up the Heat on Tax Return Preparers?, I wrote, “I will simply repeat what I have written several times in the past: ‘The lesson at the moment? Choose a tax return preparer as carefully as choosing a surgeon or child care provider. In other words, do research, talk to friends and neighbors, look at online reviews, and interview the preparer.’” I had shared that advice earlier in More Tax Return Preparation Gone Bad and Another Tax Return Preparation Enterprise Gone Bad. In Need a Tax Return Preparer? Don’t Use a Current IRS Employee, I noted, “[I]t is best to do some background checks and research just as one would do when looking for a physician or roofer.” In When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, I elaborated:

What’s a taxpayer to do? Talk with relatives, friends, and business associates. Ask them to describe their experiences with the tax return preparer that they use. Seek out a tax return preparer who has been preparing the other person’s returns for many years free of problems. Beware of the advice to use a tax return preparer who has been used only once, or even not at all. Look at reviews on various web sites. Google the name of the tax return preparer. If the preparer is a company, ask for the names of its owners and managers, and google those names. If the return that is prepared is “too good to be true,” don’t agree to its being filed, but ask for a copy and take it to another preparer for a second opinion. If it’s good to go, return to the original preparer and approve the filing. If it’s not good to go, file a complaint about the preparer with the IRS, and seek a fee refund from the original preparer.

Because it is unlikely that tax return preparers under indictment and waiting for trial put “under indictment” signs in their windows or “under indictment” tags on their web sites, and because enjoined preparers might not comply with orders to contact clients and put notices at their places of business, it is essential that clients exercise due diligence not only when seeking a new preparer but even when returning to a preparer used in an earlier year.

On at least four dozen times I have written about the need to shift to a mileage-based road fee to fund the repair and maintenance of the nation’s highways, bridges, and tunnels. I have done so in posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, and Try It, You Might Like It (The Mileage-Based Road Fee, That Is).

Throughout this fourteen-year period, opposition to the proposal has been vocal. Some comes from people who agree that using liquid fuel taxes to fund these repairs and maintenance is no longer viable, but they seek to raise the necessary revenue through means that have nothing to do with highways, bridges, and tunnels. Some come from people who fear that the proposed road fee would invade their privacy or pose assorted claimed logistical challenges. Some simply want a “let me use it and make someone else pay” approach.

Recently, in a Politico commentary, former Maryland Secretary of Transportation Pete Rahn proposed generating the funding from a commercial activity surcharge. He is among those who favor abolishing liquid fuel taxes, and though he mentions only the federal gasoline tax, it does not appear he wants to preserve state gasoline and diesel taxes.

But Rahn opposes what he calls the “vehicle miles traveled” tax, or VMT. I prefer the word “fee” because the mileage-based road fee is a fee. It relates directly to usage, which is the hallmark of a fee. Rahn’s opposition rests on two concerns. One is the familiar concern about “personal privacy.” The other is what he calls the “cost of collection.”

Rahn’s concern about personal privacy is his claim that as secretary of transportation in Maryland, he observed “the public’s fear of just using anonymous, aggregated cell phone data for planning purposes.” He thinks that “having the government actually be able to identify a person’s type of vehicle and see where and when it is driven will generate opposition that will not be overcome.” He insists that there are “many people who will not get a transponder to pay tolls for this very reason.” Yet people already are giving that information to authorities. In fact, they are giving far more information than a road fee transponder would generate. Cell phones identify where a person is, even when not in a vehicle. Cameras, which are increasing in number hourly, record vehicles and pedestrians. Though Rahn notes the concerns about opening the door to “Big Brother,” the reality is that “Big Brother” already is here and has been for some time. I debunked the privacy concerns of the sort Rahn raised in Is the Mileage-Based Road Fee a Threat to Privacy?, which I concluded with these words: “Existing technology, such as roadside cameras, credit card receipts for fuel purchases, electronic toll systems such as EZPass, and observations by law enforcement authorities, already provide substantial information concerning the location of a vehicle. Similarly, the location of an individual when in public areas is not a secret. The mileage-based road fee does not generate a significant increase in the revelation of vehicle location information, and does nothing to increase the disclosure of individual location information.”

When it comes to the cost of collection, Rahn argues that shifting from a liquid fuel tax that is collected from 600 fuel distributors to collecting from 263 million vehicles presents a significant increase in the cost of collecting the revenue. He claims that projections setting the cost at 15 percent of revenue is too high, and that the estimated percentage is too low. The track record of existing transponder-based tolling systems, such as EZ-PASS, demonstrates that concerns about collection costs are exaggerated. As I wrote in Once Again, Rebutting Arguments Against Mileage-Based Road Fees, in critiquing a report from another opponent of the mileage-based road fee, “The Glostone analysis claims that the mileage-based road fee “would require every vehicle owner to periodically report distance tax and create a costly new bureaucracy that would have to audit these reports,” and that the “added bureaucracy alone could eat up any gains in tax revenue.” The tracking device reports without any need for owner intervention. Digital technology eliminates the need for the roomfuls of eyeshade-wearing human auditors.”

Instead, Rahn wants to implement what he calls a “beneficiary pays” system. He rests this idea on the existence of people benefit from highways, bridges, and tunnels even though they do not drive or ride on those roads. Of course, he is referring to the “national highway system,” but when analyzing the issue in terms of all highways, the number of people who never drive, ride, walk, or bike on a road is a tiny percentage of the population, essentially those who are spending the rest of their lives homebound, imprisoned, or in care facilities. Yet Rahn’s point that even those folks benefit from the nation’s roads because they receive deliveries of products shipped on those roads makes sense. The question is whether it makes enough sense to absolve actual users of any funding responsibility.

Rahn proposes a surcharge on commercial activity “on U.S. streets and highways of approximately 8 percent.” To what would he apply the 8 percent surcharge? It would apply to “what that company charges their customers for transportation services.” Right there is a big problem. Many companies already offer “free shipping” to all or certain customers, but guaranteed these companies are making this up in other ways, such as the prices charged for their products. So perhaps Rahn is thinking about imposing the surcharge on what companies pay to ship goods, but that would require far more collection activity than an EZ-PASS type transponder system would. For someone concerned about the cost of collection for a mileage-based road fee, Rahn doesn’t hesitate to treat the cost of computing and collecting the proposed surcharge as worthy only of a comment about companies that do their own shipping. Not only would trying to do the complex cost accounting of allocating driver salaries, manager salaries, benefits, and other outlays create a new expense, companies would play all sorts of games to minimize what gets included in “cost of shipping.”

Note that Rahn shifts from focusing on the “national highway system” in part of his commentary to “U.S. streets and highways” when describing the proposed surcharge. Though he proposes factoring the cost of rail, vessel, and air shipping out of the amount to which the surcharge would apply, yet another complex cost accounting task that would add to the cost of collection of the surcharge, he doesn’t propose dividing the shipping costs subjected to the surcharge between those applicable to use of federal highways, bridges, and tunnels, and those applicable to use of state and local highways, bridges, and tunnels. Does he propose to allocate some of the surcharge revenue to states and localities? Does he envision abolition of state liquid fuel taxes? Does he contemplate putting all highway, bridge, and tunnel repair and maintenance within the scope of the proposed surcharge?

Rahn claims that the proposed surcharge “more directly aligns the cost of maintenance and improvement with the benefit.” However, that approach ignores the fact that the wear and tear on a highway varies according to the weight of the vehicle, yet the proposed surcharge does not adequately take that difference into account. The mileage-based road fee does, because it is tied directly to the vehicle and adjusted for weight.

The worst part of the proposal is the free ride that it gives to people who would use highways, bridges, and tunnels for personal purposes. Though Rahn might argue that these folks would be paying through the passing on to them of the surcharge imposed on millions of businesses, not everyone makes the same use of product shipping, and that use is disproportionate to the total use people make of highways even taking into account what I call indirect use, that is, the use made by others in order to deliver goods to people.

Rahn’s proposal technically is a “user fee” because it relates to use of roads, highways, and bridges. However, it measures use in a convoluted way, focusing on shipping costs, which are not directly proportional to actual use. And it leaves out use that is unrelated to product shipments. In other words, Rahn has offered, as many do, a theory that cannot hold up to practical reality.

Reader Morris pointed me to this story and asked, “Does this Councilman and financial advisor make any sense with his reasons for being behind on his tax payments? To understand the question posed by reader Morris, it is necessary to get some background.

According to the story, Memphis, Tennessee, City Councilman Martavius Jones supports a property tax increase, but is delinquent in paying at least $5,500 in property taxes to Memphis and Shelby County. The tax increase was voted down by the city council. Before the meeting at which the vote was taken, a reporter from WREG asked Jones if he was “up to date” on his tax payments, and Jones replied, “No, I’m not.” The reporter then asked, “Ok, so how can you ask people to pay more money if you’re not up to date?” Jones replied, “Because I’m paying interest on that so at the end of the day, they will receive more money from me than what was originally allocated to me.” When asked why he is behind on his tax payments, Jones would not answer. Instead he admitted he was delinquent, promised to write a check the upcoming Friday, and repeated, “But it will be more money that I’m paying to the city based on what’s expected of me.” According to the story, This was the third time WREG questioned Jones about being delinquent, the other two occurring in 2016 and 2018. Jones is a financial advisor who said “he would advise his clients to be behind on their taxes so they’re paying interest, [b]ecause it can be a tax write off for individuals.”

So why has Jones been late paying property taxes? My guess is that he thinks it is financially advantageous to delay paying the tax, and then pay even more money in the form of interest. Why would he think that? The interest rate, according to the City of Memphis web site is 1.5 percent per month, or 18 per cent annually. So someone thinking that it makes sense to delay paying the taxes seems to be concluding that it makes less sense to pay $100 today and more sense to pay $106 four months in the future. That conclusion is logical if the person can earn more than $6 on the $100 during the four-month period. That is almost impossible to do without gambling, either in a casino or in the stock market.

Perhaps Jones thinks his delay advice works because of his claim that the interest paid by his clients is a “tax write off.” So let’s take a look at section 163 of the Internal Revenue Code. Subsection (a) tells us “General rule -- There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.” But wait! Subsection (h), paragraph (1) tells us, “(h) Disallowance of deduction for personal interest -- (1) In general -- In the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.” What (a) gives, (h)(1) takes away. But paragraph (2) of subsection (h) gives back the deduction for six types of interest: trade or business interest, investment interest, interest taken into account in computing section 469 passive income or loss, qualified residence interest, interest payable on delayed federal estate tax payments, and education loan interest. Does the interest that Jones and his clients are paying on delinquent real property taxes fit within any of these six exceptions? Clearly the interest is not trade or business interest, it’s not taken into account in computing section 469 passive income or loss, it’s not interest on delayed federal estate tax payments, and it’s not education loan interest. That leaves two possibilities. Is it qualified residence interest? A careful reading of paragraph (3) of subsection (h) makes it clear that the tax debt is not qualified residence interest. Is it investment interest? A careful reading of paragraph (3) of subsection (d) makes it clear that the interest on the tax debt might be investment interest if the property is investment property, which a personal residence is not. But even if the interest on the tax debt qualified as investment interest, under section (d) it is deductible only to the extent of investment income. So it’s a wash.

So, sure, if someone thinks they can earn more than 18 percent on the money that they would otherwise use to pay their property taxes on time, they can take that risk. But in most instances, that gamble will fail. Wait long enough, and the taxpayer then needs to bear the cost of the ensuing administrative procedures and even litigation triggered by the delinquency, including foreclosure sale of the property.

In the end, we don’t know why Jones delays paying his property taxes. Perhaps he has a cash flow problem. Perhaps he forgot. Perhaps he thinks there is a financial advantage. Perhaps he advises clients to delay payment. Perhaps not. We just don’t know.

It is unsettling when tax collectors and heads of state revenue departments go rogue. I have written about charges brought against some tax collectors in posts such as A Reason Not to Run for Tax Collector (or Any Other Office)?, Perhaps Yet Another Reason Not to Run for Tax Collector, Running for Tax Collector (or Any Other Office)? Don’t Do These Things, When Behaving Badly as a Tax Collector Gets Even Worse, Tax Collector Behaving Badly: From Even Worse to Even More Than Even Worse, Bribing the Tax Collector: Bad Outcomes on Both Sides of the Deals, When Tax Collectors Do Too Many Things, So Who’s the Worse Tax Collector? , So Is There Now a “Worst Tax Collector” Contest?, and Can Long-Term Tax Collector Embezzlement Be Prevented?. Recently, in Fighting Fraud Even More Difficult When Tax Leadership Succumbs, I wrote about the embezzlement conviction of the former New Mexico Secretary of Taxation and Revenue.

Though tax collectors and revenue secretaries who succumb to the temptation to commit tax fraud, embezzlement, and similar crimes get big headline attention, the problem is a much deeper one. For example, last week, according to this report, a retired compliance supervisor for the Virginia Department of Taxation has been arrested and charged with embezzling almost $1.3 million and with computer trespass. Officials of the state’s Inspector General’s office spent a year looking into information provided by the Department of Taxation after it had done an internal investigation. Allegedly, two employees of the department gave the supervisor “access to the department’s computer systems and ‘confidential taxpayer accounts.’” The Inspector General did not reveal how that embezzlement was implemented, probably to avoid giving a blueprint to others thinking about engaging in the same sort of behavior. According to the report, the retired supervisor repaid about $250,000 of the embezzled funds. Attempts to determine how long the supervisor had worked for the department were thwarted by restrictions on the disclosure of personnel information other than name, position, job classification, and salary.

This case is troubling. Though diligent investigation, both by the department and then by the Inspector General, uncovered the theft, one wonders how many other incidents, in Virginia and elsewhere, go undetected. The key is prevention, and yet it seems that steps can be taken to prevent one person from single-handedly doing something wrong, when two or more employees are in cahoots, the protection schemes break down. For example, designing a safe so that two individuals with two different keys rather than one individual can open it prevents unauthorized entry by one individual, the protection arrangement breaks down if the two individuals decide to collaborate. Though a two-person requirement reduces the chances of mistake, it relies on the assumption that at least one of the duo is a safeguard against malicious behavior by the other. Yet history teaches that conspiracies often extend far beyond two individuals. The problem extends far beyond taxation and revenue department embezzlement, and poses a challenge that has yet to be successfully and pervasively answered.