law school stuff


That’s right, I said, “Win an A in Tax Law.” My popular contest for law and paralegal students is back. So let’s get right to the good stuff…
Here’s how it works: simply write a guest post for consideration on the site about a hot tax policy issue. I don’t mean a news or legal summary. I want a policy post: tell me what the issue is and why it matters. In other words, pick a topic and take a position. Some examples of policy topics include:

  • Should the IRS have the authority to license tax preparers?
  • Should we offer tax amnesty to companies who intend to repatriate offshore assets?
  • How can we simplify the Tax Code?
  • Would a flat tax make sense?

But don’t feel limited to those suggestions. There are, after all, plenty of words in the existing Tax Code and lots of news items focusing on tax issues like corporate inversions, the Fair Tax, Panama Papers, just to name a few. You can choose anything so long as it’s tax-focused and policy-oriented.
To be clear, I’m not asking for a treatise or a law review article. You don’t have to cite like crazy, though clearly you need to credit any sources or quotes (attribution is important). I’m looking for thought-provoking, well-written posts, and relatively short ones at that. Entries should weigh in at between 500 and 1600 words. I’ll tell you what a professor once told me: extra words don’t mean extra credit, they just mean extra words.
The student who writes the best entry, in my humble taxgirl opinion, wins.
And since I’m a lawyer, and lawyers like rules, here what else you need to know:

  • Entries must be sent via email with “Law Student Submission” in the subject line to by 11:59p.m. EST on May 6, 2016. I know finals are coming up so I’m giving you two weeks this year. I figure that gives you time in between studying and binge-watching Game of Thrones.
  • Entries must be between 500 and 1500 words – in English. And in case you think like my little brother and assume that writing in all caps or italics will get you noticed, you’re only half right. It will get you noticed and subsequently ignored.
  • Send your entry in plain text, either as a text file or just typed directly in the body of the email, or PDF. No other attachments or formats will be accepted – and for the love of S corporations, don’t send me any zip files.
  • You must be a part-time or full-time law student at an accredited US law school or a part-time or full-time paralegal student participating in an ABA accredited paralegal program. Yes, an LL.M. student counts.
  • You must include your full name, your law school or paralegal program, the name of your tax professor and your email address with your entry. I won’t publish your email address, but I do need contact information for the winning entry. I respect your privacy, and I will not send you anything unrelated to your entry in this contest.
  • By entering the contest, you agree that I may post any part or all of your submission including your name and school, as a part of the contest announcements or promotions, with the exception of your email address. Posts won’t be redacted or edited so write with care.
  • Like one of the most famous judges of our time (no, not Judge Learned Hand but Judge Judy), the decision will be at my sole discretion and is final.
  • The winner will have their entry featured on the site. I’ll post the winning entry – and maybe some standouts – in May. As with all guest posts, there is some accompanying paperwork that you’ll need to take care of first (it’s painless, I promise).

The best part? I’ll send a note and ask the winner’s tax professor to give the winner an A. Of course, I can’t really make your tax professor give you an A. You know this and I know this. But sometimes, a little push from the outside just to let your professor know that you’re really interested in a subject can go a long way. It could also serve as the basis for a tax policy paper for a writing course or a law review article.
And bragging rights? Taxgirl was named one of the top 100 legal blogs by the ABA Journal for several years and is officially in the ABA Blawg Hall of Fame. A number of tax lawyers, CPAs, EAs, IRS personnel and folks on the Hill stop by the site on Forbes – that’s a lot of eyeballs. And some of those eyeballs are in the position to, oh, say, hire students. And in this job market, every little thing helps, right? Winning the contest could make for interesting conversation during job interviews and get you some exposure – the good kind, not the Kim Kardashian kind (that’s a whole other website).
So what are you waiting for? Dig out that laptop and start typing.

What happens when a taxpayer disagrees with the Internal Revenue Service (IRS)? Some people think that the matter ends there: the IRS always wins, right? Not necessarily.
There are a few ways to appeal an action with IRS. Ironically, most of those appeals actions are actually taken up with IRS meaning that if you disagree with IRS, you then ask IRS to change their minds.
There is an exception: you can take your tax matter to court. Most often, that means that you head over to United States Tax Court.
The Tax Court is an actual federal court and not, as some people think, affiliated with the IRS. At Tax Court, the IRS is a party to the matter just like the taxpayer. Generally, a case ends up in front of the Tax Court after a taxpayer is assessed a deficiency and decides to challenge the amount in court rather than pay the amount owed. There are other reasons why a matter might end up in Tax Court, including a request for interest abatement (interest is statutory), worker classification disagreements, and a request for relief from joint and several liability on a joint return. If a specific federal tax related question doesn’t fall under the jurisdiction of the U.S Tax Court, the matter may be decided in other courts, such as Bankruptcy Court and the U.S. Court of Federal Claims. With some limited exceptions, taxpayers have an automatic right of appeal from decisions of any of these courts.
Procedurally, to get your matter before the Tax Court, you file a petition. The petition has to be timely filed – there are no excuses or extensions. Once the case is filed, it gets calendared. If the matter makes it to trial (in many instances, the matter gets settled before a court date), it is heard before a judge (there are no jury trials in Tax Court) where it proceeds just like any other court matter with both sides presenting their arguments.
The Tax Court receives tens of thousands of filings each year (averaging about 30,000) but most are settled and do not actually go to trial. For those that do make it to trial, a number involve the same kinds of issues over and again. As part of the report that National Taxpayer Advocate (NTA), Nina E. Olson, presented to Congress, the NTA took a detailed look at the most litigated issues at court. For purposes of her report, the term “litigated” means cases in which the court issued an opinion. Here’s what Olson’s office found to be the top litigated issues from June 1, 2013, through May 31, 2014:

  1. Accuracy-related penalty. Topping the list this year again are accuracy-related penalties, although the NTA identified 25 fewer cases than in the prior year.
  2. Trade or business expenses.
  3. Summons enforcement
  4. Gross income
  5. Collection due process (CDP) hearings. The number of CDP cases decreased significantly this year with 105 cases in 2013 and only 76 in 2014.
  6. Failure to file penalty, failure to pay penalty, and failure to pay estimated tax penalty. Cases involving failure to pay and failure to file penalties saw the largest decrease of about 35% with 86 cases in 2013, and only 56 in 2014.
  7. Civil actions to enforce federal tax liens or to subject property to payment of tax.
  8. Frivolous issues penalty.
  9. Charitable deductions.
  10. Passive activity losses and credits.

The NTA found that more than half of the cases reviewed were filed by taxpayers who appeared without legal representation: when that happens, it’s called pro se (Latin for “for oneself, on one’s own behalf”). The highest rates of pro se matters involved failure to file, failure to pay, and estimated tax penalties and the frivolous issues penalty. The latter saw a pro se rate of 93%: that’s not surprising since most of those kinds of cases involve personal stories and/or personal statements and are not backed by statute or case law.
Taxpayer wins averaged, by issue, from 0% (summons enforcement) to 50% (frivolous issues penalty). The NTA found that taxpayers are, on average, more than twice as likely to prevail on cases if they are represented in court as opposed to pro se.
And all of that advice that your tax professional keeps telling you – and what I keep stressing on the blog – is true. Statistically, the NTA found that “taxpayers were most successful when they produced adequate records or proved they made a reasonable attempt to comply with the requirements of law.”
You can click here to read the entire Taxpayer Advocate’s report on the most litigated issues (downloads as a pdf).
The report also highlighted cases outside of the ten most litigated issues but still important for purposes of tax administration. A few of those are as follows:

  • In the closely watched matter of United States v. Quality Stores, Inc., the Supreme Court held that supplemental unemployment benefit (SUB) payments to involuntarily terminated employees were subject to Federal Insurance Contributions Act (FICA) taxes. By way of background, in connection with its bankruptcy, Quality Stores made severance payments to employees as required by its supplemental unemployment benefit (SUB) plans. For tax purposes, Quality Stores treated the payments as wages. That treatment was appealed to the Supreme Court, which concluded that the severance payments at issue were wages. The Supreme Court reasoned that severance payments, like traditional wages, varied based on factors such as length of service, function, and seniority. The Court also reaffirmed that the meaning of “wages” should be the same for income-tax withholding and for FICA.
    The NTA found the case significant because it clarified that severance payments (including SUB payments) not coordinated with state unemployment benefits are wages for federal income tax (FIT) and FICA purposes. The NTA also felt it was significant because the ruling leaves unanswered questions about the validity of the IRS’s conclusion that SUB payments that are coordinated with state unemployment benefits are not subject to FICA; it’s also unclear if states will seek to use this decision to reduce unemployment benefits to workers eligible for SUB payments.
  • The NTA also singled out Loving v. Internal Revenue Service as significant. Under Loving, the United States Court of Appeals for the District of Columbia Circuit found that the Treasury Department lacked authority to regulate the conduct of registered tax return preparers: that stopped the IRS’ efforts to regulate preparers. It also lead to the creation of the Annual Filing Season Program, a new designation meant to encourage tax return preparers who are not attorneys, certified public accountants, or enrolled agents to voluntarily apply to the IRS for a credential.
    You can read more about Loving here – and the appeal here.
  • NTA also called out BASR Partnership. In BASR Partnership v. United States, the Court of Federal Claims held that a tax preparer’s fraud could not extend the normal three-year statute of limitations for the IRS to assess a tax. Generally, the IRS must assess any additional tax within three years after the return is filed; exceptions apply “in the case of a false or fraudulent return with the intent to evade tax.” In this case, the BASR partnership entered into a tax shelter that it and its partners reported on returns filed in 2000. The IRS attempted to extend the statute since the promoter of the tax shelter intended to evade tax – even though there was no evidence that BASR and its partners knew anything about the fraud. The court found that the preparer’s guilt wasn’t enough to extend the statute of limitations. The NTA found the case significant because it suggests that innocent victims of preparer fraud may not lose the benefit of the three-year assessment statute of limitations.

There are more cases outlined in the report. If you still can’t get enough tax lit, check out what my colleague, Tony Nitti, pegged as the top ten tax cases (and rulings) of 2014.

What happens when a taxpayer disagrees with the Internal Revenue Service? Some people think that the matter ends there: the IRS always wins, right? Not necessarily.

There are a few ways to appeal an action with IRS but in a weird twist, most of those appeals actions are actually taken up with IRS. In other words, if you disagree with the IRS, you ask the IRS to change their minds (you can imagine how often that happens).

Except for one. A big one. You can take your tax matter to court. Specifically, you head over to United States Tax Court. The Tax Court is a real federal court and not, as some people think, actually affiliated with the IRS. The IRS is a party to an action in Tax Court just as the taxpayer would be. Generally, a case ends up in front of the Tax Court after a taxpayer is assessed a deficiency and decides to challenge the amount in court rather than pay.

There are other reasons why a matter might end up in Tax Court, including interest abatements, worker classification disagreements, and a request for relief from joint and several liabilities on a joint return. If specific federal tax-related questions don’t fall under the jurisdiction of the U.S Tax Court, the matter may be decided in other courts, such as Bankruptcy Court and the U.S. Court of Federal Claims.

Procedurally, to get your matter before the Tax Court, you file a petition. The petition has to be timely filed – there are no excuses or extensions (not even the government shutdown). Once the is filed, it’s put on the calendar for trial. If the matter makes it to trial (in many instances, the matter gets settled before the court date), it goes before a judge (there are no jury trials in Tax Court) where it proceeds just like any other court with both sides presenting their arguments. Taxpayers can be represented by an attorney (in order for an attorney to appear in Tax Court, he or she must be admitted to the bar of the Tax Court) or they can opt to represent themselves, a move called pro se. Of the cases reviewed this year, just under half (about 45%) were filed as pro se matters.

The Tax Court receives tens of thousands of filings each year (averaging about 30,000) but most of those are settled and do not actually go to trial. For those that do make it to trial, a number involves the same kinds of issues. As part of the report that the National Taxpayer Advocate (NTA), Nina E. Olson, presented to Congress, the NTA took a detailed look at the most litigated issues at court. Here’s what Olson’s office found to be the top litigated issues from June 1, 2012, to May 31, 2013:

  1. Accuracy-Related Penalties. The IRS may impose a penalty for an underpayment of tax if the underpayment meets certain criteria. Examples of accuracy-related penalty cases filed this year included a taxpayer’s failure to keep records substantiating income and failure to report the proceeds from the sale of a house. Taxpayers were fully successful about 15% of the time and split the decision with the IRS about 10% of the time. In one case, Bartlett v. Comm’r, T.C. Memo. 2012-254, taxpayer lost his argument for an abatement based on a reliance on TurboTax (I guess he forgot that the so-called “TurboTax defense” didn’t work for Geithner) while in another case, Neff v. Comm’r, T.C. Memo. 2012-244, the Court agreed that taxpayer relied on the advice of a competent tax professional.
  2. Trade or Business Expenses. No surprise here. The deductibility of trade or business expenses has long been an issue for taxpayers and this year was no exception. A recurring theme? Failure to keep good records. Time after time, taxpayers could not produce receipts to justify deductions and expenses. Another handful of cases were lost because taxpayers failed to separate personal use from business use of assets, including vehicles, and still others claimed business losses for what was properly a hobby (everything from cat shows to drag races was litigated). And predictably, taxpayers and IRS bickered over home office expense deductions. The IRS was the overwhelming victor in most of these cases: taxpayers only fully prevailed in 2% of cases.
  3. Gross Income. As with trade or business expenses, the matter of reporting of income was again at the top of the list. The NTA analyzed such 117 cases, most of which involved taxpayers failing to report items of income. Recurring themes included cancellation of debt income, unreported settlement proceeds and of court, failure to report wages. Taxpayers won fully or in part about 15% of the time.
  4. Summons Enforcements. Under the Tax Code, the IRS is allowed to examine any books, records, or other documentation related to civil or criminal tax liability. One of the ways to get this data is to serve a summons directly on the subject of the investigation or on a third party (like a bank or employer) who may possess relevant information. If a person who is summoned refuses to produce the information, the IRS may seek to enforce it. In that way, these kinds of cases are different from others on the list since it may be the case that it is the government bringing the action rather than the taxpayer – statistically, that happened 68% of the time last year. The IRS won most of these cases by far (95% of the time).
  5. Appeals From Collection Due Process Hearings. Collection Due Process (CDP) hearings are relatively new, just created in 1998. CDP hearings offer taxpayers the chance to request an independent review of their tax dispute by the IRS Office of Appeals in matters involving a lien or levy. Taxpayers who don’t agree with the results of a timely requested CDP hearing have the right to petition the Tax Court for a review. The lack of agreement usually resulted in an “abuse of discretion” charge against the IRS; all in all, taxpayers were successful in whole or in part about 10% of the time.
  6. Failure to File and Failure To Pay Penalties. If you fail to file on time, or if you fail to pay on time, you may be subject to a penalty. There are instances where the penalty may not be imposed – and that’s what the majority of these cases focused on. The IRS was successful in just over 82% of cases. Taxpayers were able to prove reasonable cause for all or some of the failures to file or pay in some cases by arguing health problems (Wright v. Comm’r, T.C. Memo. 2013-129) and damaged records due to Hurricane Katrina (Johnson v. Comm’r, T.C. Memo. 2012-231).
  7. Charitable Deductions. If you itemize on your federal income tax return, you may take a deduction for donations made to a qualifying charitable organization. Taxpayers disagreed with IRS’ denial of deduction in a number of instances including whether the organization was a qualifying charitable organization, whether the amount of the donation represented fair market value and whether the donation was properly substantiated. Taxpayers were successful in whole or in part about 20% of the time.
  8. Frivolous Issues Penalty. The IRS takes a hard stance against taxpayers who raise frivolous arguments (such as “there is no constitutional basis for the income tax”) or those who take unnecessary steps to delay collections enforcement. The court did not entertain arguments that tax was not required and in one case, failed to agree with a taxpayer who claimed a form W-2 was “hearsay” (Davenport v. Comm’r, T.C. Memo. 2013-41). Despite some clear losers, taxpayers were successful nearly 45% of the time though many were warned about the potential risks of continuing such behavior. Of the cases that IRS won, most penalties hovered around the low four figures (near $2,000) with some climbing as high as $25,000.
  9. Civil Actions to Enforce Federal Tax Liens. When a taxpayer refuses or neglects to pay tax, the IRS may file a federal tax lien against the taxpayer’s property. This is a pretty broad right and the IRS liberally enforces it. The IRS was successful in court in more than 90% of these cases.
  10. Relief from Joint and Several Liability (Innocent Spouse). Married couples who file jointly agree that they are jointly and severally liable for the tax due. That means that the IRS may try to collect any or all of the amount due from either taxpayers. The Tax Code provides relief from this liability in some circumstances. One of the most interesting things about these cases is that while the action is filed against the IRS, a third party (the former spouse, called an intervenor) has the right to step in and force a matter to court even when the IRS may be inclined to settle. That likely skews the numbers since it may boost the number of cases headed to court which would have otherwise been resolved prior. Of the seven cases where an intervenor was involved, taxpayers were completely successful in two instances and partially successful in two more. Overall, taxpayers in these matters were successful about 33% of the time.

Did anything on the list (or not on the list) surprise you?

If you had the chance to do it over, would you do it again?

It’s one of the most popular questions in my “Ask the Taxgirl” mailbag. Despite – or maybe because of – the scary job market, I get a lot of inquiries about law school: Is it worth it? Is it necessary if I just want to work in the tax field? Do you need a Tax LLM to get a job? But mostly, it’s simply: If you had the chance to do it over, would you do it again?

For the record, I would. I was one of those kids who liked school. I liked learning more about everything, really, but especially about the law. Social studies and civics classes were always my favorites. And while I didn’t really know any lawyers, I spent time reading about them. I remember watching old Perry Mason reruns with my grandfather and later, L.A. Law (hey, don’t judge, it was the 1980s). And despite being told as a little girl that women couldn’t achieve positions of great importance in our government, I remember hearing on the news that Sandra Day O’Connor had become the first female justice on the Supreme Court. I told my dad that I was pretty sure that I could do that, too.

And so, years later, with my great-grandmother’s voice in my head telling me that I sounded “just like a Philadelphia lawyer,” I set off for law school. I would graduate twice: once with my J.D. (your regular law degree) and the second time with my LL.M. in Taxation (more or less a Master’s in Tax Law). I pursued the LL.M. not only because I was a tax geek – and when else was I going to be able to dedicate an entire semester to Tax Policy? – but at the advice of my supervising attorney at Internal Revenue Service who told me that the job market was so competitive, the IRS was basically tossing applications for attorney positions if you didn’t have an LL.M.

It was a smart move. I had a job offer when I graduated and there was never a worry that I might not find work.

But that was a very different time.

Today’s legal job market is fairly grim. Depending on which set of statistics you believe, the number of available jobs for those with law degrees will meet or exceed the number of law school graduates by 2016, 2017 or 2021.

What is clear is that it won’t happen in 2013. Or in 2014.

For years, there have been far more law school graduates than available legal jobs. The legal market has been suffering – along with other professions – since the recession and shows no real signs of recovery. There was a time, for example, when a slowdown meant that fewer new lawyers would be hired but law firms didn’t just fire attorneys, especially those on track to be a partner. But as friends of mine picked up their pink slips, I realized, like many in our profession, that times had changed.

For a while, college students were still heading to law school in incredible numbers, despite the fact that there were likely no jobs after graduation. This year, however, it appears that reality is finally sinking in. Law school enrollment is down 11% over last year and a whopping 24% from three years ago. The number of students currently enrolled in law school is the lowest since 1975 despite the fact that we now have nearly 25% more ABA-accredited law schools today. And while it’s a bit of a market correction, those figures are still 20 to 25% higher than the projected market for new jobs which require or prefer a law degree. Some attorneys believe that’s still not enough.

Matt Willens of the Willens Law Offices is one of those attorneys.

Willens is a successful trial lawyer in Chicago. He’s the kind of lawyer that students hope that they become. His bio is a laundry list of accolades: an Illinois Super Lawyer, AV® Preeminent™ peer review rating in Martindale-Hubbell®, and a 10/10 (Superb) Avvo Rating. He writes a monthly column for the Chicago Daily Law Bulletin. He teaches Advanced Trial Advocacy as an adjunct professor at Loyola University Chicago School of Law.

You’d think Willens would be one of the leading advocates for going to law school. He’s not. In fact, he’s offering $1,000 to students considering going to grad school if they’ll agree to go anywhere but law school. It’s a curious offer. So curious that I called up Willens to ask him about it.

Law school, he told me, was a no-brainer for him. He was a good student in college and his parents had encouraged him to go to law school. He landed a job at a top tier personal injury law firm and eventually transitioned after working for others into opening his own firm in 2007. At the time, hanging your own shingle was considered an enviable career move. Now, he notes, more and more lawyers are hanging their own shingles because they can’t find a job. They’re doing so without any real mentors and no practical legal experience, a trend that Willens calls “disturbing.”

You see, law school doesn’t teach you how to be a lawyer. They’ll teach you the basics of criminal law, constitutional law, and torts law. You can learn the fine details of maritime law or environmental law. You’ll be taught how to write a brief, how to argue a case, how to draft a legal memo. But those things aren’t the actual practice of law. You don’t learn courtroom etiquette or how to deal with difficult opposing counsel. And you certainly don’t learn how to answer the really tough questions from clients.

That means that first-year lawyers still have a lot to figure out. And while some attorneys – like Willen and me – opt to go out on their own after working for other firms because they really wanted to be solo, a number of fresh graduates are opening offices merely out of desperation. Willens calls that sad, noting that it doesn’t serve clients well and it doesn’t serve the profession well.

Not at all law school graduates are stepping out on their own. Some do find employment though salaries are tight once you factor in debt load. Nearly half of all lawyers report pretax salaries in the $40,000-to-$65,000 range while law school debt averages twice that much. Monthly debt service payments for law school graduates can and do easily top $1,000.

To make ends meet, some law school graduates take jobs from predatory firms that Willens refers to as “bloodsuckers.” They are the firms that my friends talk about – the ones that offer terrible jobs at low pay and even lower morale. They are jobs that offer the promise of better things even though you understand that it’s all for show. There won’t be any job training. There is no chance of promotion. And when the math is said and done, in some cases, you’re not even making minimum wage. But it is, as one of my friends, told me glumly, still better than nothing.

Willens thinks that there are better options available. So many students, he says, go to law school because they don’t know what else to do. They are those kids who are told their whole lives that they are the “best of the best” and law school just seems like a logical step. But in today’s market, law school may not be the answer. Willens just wants students to give it more thought and maybe, he says thoughtfully, do something to make the world a better place.

As encouragement, Willens is offering $1,000 to an undergraduate entering graduate school in 2014 to use for study in any field except law. Willens calls it the “Anything But Law School Graduate Scholarship” – and he hopes to make it a regular event. It’s an antidote, of sorts, to becoming over-educated and unhappy at law school.

Willens is quick to say that he’s not anti-lawyer or anti-law school: remember, he’s not only a lawyer but he teaches law school. He just believes that some students are better served in other fields than law.

After our interview, I wondered how many lawyers shared Willens’ sentiment. Using Twitter and Facebook, I asked law school graduates (not all of whom are practicing) the same question that many of my readers ask me: “If you had the chance to do it over, would you do it again?”

The results were mixed. About half of those respondents offered an enthusiastic “yes” while others were more negative. Perhaps not surprisingly, most of those who would do it over again were older and happy at their jobs. Younger grads were much more dismissive, though no one expressed a sentiment as strongly as that Business Insider article making the rounds which declared law school “a waste of my life and an extraordinary waste of money.”

Money did figure into a number of responses. Many of the younger respondents cited huge amounts of student debt as a reason to do something else. Law school is expensive and unlike some other graduate programs, working during your first year is actively discouraged: the American Bar Association has strict regulations for accreditation that focus on limiting employment. If you don’t have savings – or if mom and dad aren’t footing the bill – there is little choice but to borrow. And borrow a lot. The average cost of law school tuition together with room and board averages between $40,000 and $60,000 per year.

I am one of those students who graduated with a lot of debt. While I’m not a fan of the debt that I accrued in law school, I like to think of it as an investment. In addition to an education that has allowed me to do some great things (like writing this blog), I took away a lot from law school. I met my husband and best friend. I had the opportunity to hang out with some amazing folks. Some jerks, too. But mostly amazing folks. I was able to pick some great legal minds. I participated in study abroad where I could compare legal systems and, let’s face it, eat real gelato. I clerked at the Internal Revenue Service, an experience that gave me tremendous insight into what it’s like on the other side of the table. And I found the place that I would be proud to call my home for nearly 20 years. I wouldn’t change a thing.

That’s not the same as saying that it’s the right decision for everyone – even if you’re a tax geek like me. You can still work in the tax world without being a tax attorney: you can be an enrolled agent, a certified public accountant, a tax return preparer, or a tax planner. It’s a pretty big field. Like Willens, however, I would encourage you to think about your options before rushing in to take those LSATs. And if you do decide to do something else, Willens might have $1,000 for you. The application deadline for his scholarship is May 1, 2014.

When it comes to taxes, everyone has an opinion. The New York Law School Law Review is looking for yours. The School is pleased to announce a call for papers to be published in connection with their upcoming October 4, 2013 symposium, The 100th Anniversary of the Revenue Act of 1913: Marking a Century of Income Tax Law in the United States.

On October 3, 1913, President Woodrow Wilson signed into law the Revenue Act of 1913. This symposium and the companion Law Review issue will examine a century of change and continuity in federal income tax law, tax policy, and the practice of tax law, highlighting the pressing technical and policy issues that are yet to be resolved. The Law Review is currently accepting abstracts for papers to be considered for publication in fall 2014. Below is a list of topics expected to be addressed at the symposium by prominent tax practitioners, scholars, and policymakers:

  • Panel I: Withholding and Information Reporting from 1913 to FATCA
  • Panel II: Debt, Taxes, and the Economy
  • Panel III: U.S. Tax Policy in a Global Economy
  • Panel IV: Perspectives on the Practice of Tax Law (including tax attorneys’ professional and ethical responsibilities and the provision of pro bono legal services)

The Law Review will also consider papers on other topics relating to the theme of the symposium.

It’s worth pointing out that this isn’t an opinion-only article. A law review article not only requires a point of view but must be well-researched and analyzed.

To submit, send your abstract for an original article, essay, reflection, and/or scholarly analysis pertaining to the federal income tax, the history and future of tax law and policy, and other issues that arise from both federal and state tax laws. The abstract should describe the type of article you will write; the issue(s) you will address and anticipated thesis; and how you will analyze or evaluate the issue(s). The abstract is due by September 3, 2013, and should be no more than 500 words. Send in MS Word format together with your CV, to Editor-In-Chief G. William Bartholomew ’14 at If selected, the final paper will be due by January 6, 2014, and may not exceed 50 pages in length, double-spaced, including footnotes. That’s right, 50 pages. This isn’t a short op-ed piece.

Space in the issue is limited and papers will be selected on a rolling basis, so early submission is recommended. Upon consideration of your abstract, the Law Review may also extend an invitation to speak at the symposium (travel and accommodations provided), which will be held at New York Law School. This is a great opportunity to get noticed in the tax world – especially for law students, young lawyers, and professors.

For more information about the Law Review and past symposia and issues, visit

Americans now owe an astonishing $956 billion in student loan debt. The rate of student loan debt outpaced inflation last year – and keeps climbing. I should know: I am one of those still working to pay off student loan debt. I borrowed to pay for my education because I couldn’t afford to go otherwise.

I understand that part of borrowing means paying back. I am fortunate in that I am in a position to pay my loans back – albeit slowly – because I have a job. With unemployment rates at near all-time highs, not every one is in that same position.

There is some relief available for those who have borrowed and are near default: loan forgiveness programs allow certain borrowers to reduce their monthly payments in order to pay what they can afford. The rest of the loan, at the end of the repayment schedule, is forgiven.

Awesome for those folks, right?

Not quite.

The problem with the plan, as with many such debt relief initiatives, is that the forgiven debt is considered taxable income. Depending on the amount of forgiveness – and the timing – that can result in a huge tax bill. How huge? Consider this: many students (including myself) owe more in student debt now than originally borrowed, despite making payments. Interest accrues beginning at the first dollar owed which means that students, especially those in graduate school programs, could accumulate more debt while still in school.

Even if students start paying back immediately, the cost of an education can nearly double. With a repayment schedule of 20 years, interest on a $40,000 loan can easily reach $30,000, even with a moderate interest rate. At the end of the term, it’s not unlikely that you’ll have paid nearly as much in interest as you have in principal – assuming you can afford it. If you can’t, and you qualify for one of these federal programs for forgiveness, you’ll have the remainder written off. Sort of.

That remainder would be subject to tax – at your then marginal tax rate. That means that you could replace one bill (student loan debt) with another (tax debt).

Here’s an example. Let’s say you borrow $40,000 and accrue $30,000 interest (20-year payback at 6%). At the end of the term, let’s say that the remainder of your debt is forgiven. To keep math simple, let’s say that the balance due is still $40,000. If you’re making $50,000 at that time, your taxable income is $50,000 plus the $40,000 in forgiven debt. The extra tax bill? About $11,000. Ouch.

The good news is that the tax won’t be due for a few years – after the loan is forgiven – assuming, of course, that nothing changes. Start saving now.

(H/T: ABA Journal)

Paying for private school can be painful.

Losing the right to ever practice law again has to be worse.

And yet, Bruce Paul Golden apparently weighed the two and opted for the latter. The former securities lawyer, who graduated from Harvard Law School in 1969, was recently disbarred by the Supreme Court of Illinois for lying about his income in order to get financial aid for his child’s private school education. The former partner at McDermott Will & Emery LLP misrepresented his income by as much as 90% to qualify for financial aid. How much aid? Less than $25,000 over a number of years.

You read that right. He sacrificed his career and his reputation for between $6,000 and $8,000 per year. And even though he’s been away from McDermott for a while, to give you a little perspective, profits per partner at the Chicago-based firm last year were reportedly $1.5 million.

To accomplish his deceit, Golden didn’t just rub a number out or change a zero. He went to great lengths, even preparing and submitting false tax returns to the school, Francis W. Parker School in Chicago, over a four year period in order to substantiate his lies.

False tax returns. I know what you’re thinking.

For the record, the federal statute of limitations for auditing tax returns is three years – with a few exceptions. One of those exceptions is this:

In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.

Just saying. Though to be clear, there’s no indication that Golden submitted any of those fake tax returns to anyone other than the financial aid department at Francis W. Parker – including IRS. It appears that he merely altered existing copies.

But this issue is one that I receive emails about on a disturbingly regular basis though usually, the target is financial aid for college and not private elementary school as is the case here. As the cost of education skyrockets, parents feel trapped to pay for school – and some of them consider lying in order to get financial aid. And yes, financial aid forms require that you submit supporting documentation, usually pay stubs or federal income tax returns. Here’s where folks get into trouble: they lie on their tax returns in order to skew the numbers for financial aid. Sometimes it’s overstating deductions (bad) or omitting income (really bad). Other times, it’s lying about dependents, exemptions, and in some instances, marital status (really, really bad). In almost every instance, one lie leads to another because it’s hard to keep up. Just like with Golden.

Again, it appears from the disciplinary proceedings that Golden “merely” lied to the school year after year and not to the IRS. But look what happened to him.

(H/T: ABA Journal)

Occasionally my mind is blown by what we can do with technology. Today is totally one of those days. I’m currently on a USAirways flight headed for Las Vegas where I’ll be speaking and mingling with about 1,400 other tax professionals at the Practitioners Symposium and TECH+ Conference in partnership with the Association for Accounting Marketing Summit (if you’re interested in what we’re up to this week, you can follow the conference on twitter using the hashtag #pstech – or follow me @taxgirl – but be forewarned that I will, of course, also be whining about missing my kiddos). I say “currently” because I’m really, truly online, on an airplane – a new experience for me. I can report, from my perch above the clouds, that we’re cruising at about 500 mph and are more than 30,000 feet in the air.

Crazy, right? All of that means, of course, that I have a little bit of time to dig through the “Ask the taxgirl” mailbag and answer the more non-tax related questions that I’ve gotten since the last time I looked. Here you go, enjoy!

Taxpayer asks:

How’s your mom?

taxgirl says:

This is the most popular non-tax question that I’ve gotten over the past month (my readers are the best).

She is doing well, thank you for asking! For those of you who don’t know, my mom had emergency heart surgery in the spring and then, apparently since she doesn’t see me as much as she could, she had a stroke a few weeks ago to get me back home again (kidding, Mom!). She is doing terrific – as close to normal as she ever was (even a little bossy if her directions at my aunt’s funeral are to be believed). I am very thankful for your collective thoughts and prayers. My mom is awfully special and it would stink if anything happened to her. She even taught me a thing or two about tax – you can read all about it here.

Taxpayer asks:

My question is what material did you use to study for the IRS exam?

taxgirl says:

I didn’t. I know this is going to roil some tax pros (yes, Bob, I mean you and these folks who have sued) but lawyers, like CPAs and EAs (enrolled agents) don’t have to take the IRS exam and are exempt from the ongoing education requirements. The theory is that those professionals are already required to take a professional exam to demonstrate competency and are subject to ongoing licensing requirements which include continuing education. You can find out more about testing here and schedule your test online with the IRS by visiting

Taxpayer asks:

I just graduated from college and I can’t find a job. Should I go to law school?

taxgirl says:

Um, do you want to be a lawyer? Because that’s kind of the determining factor here.

I realize that people go to law school all of the time for all kinds of reasons. One of my good friends went because he intended to open a real estate company with his family and wanted to be able to read and draft contracts; he never had any intention of actually practicing law in a law office. So, I get that it’s not an automatic that law school degree = working lawyer.

But in this market, however, I don’t know what a law degree gets you – other than a considerable amount of debt – if you don’t have plans to work in some kind of legal capacity (and even then, law jobs are difficult to come by these days – just ask the law school grads who applied to a Boston law firm for a law job with a $10,000 annual salary). According to a recent survey, only 65% of law school grads are working in a job that requires you to pass the bar and the NALP (The Association for Legal Career Professionals) executive director has said, about the current climate, “The entry-level job market can only be described as brutal.” So, I don’t know that it makes sense to go to law school unless working in the profession in some capacity is on your radar.

If you’re looking for ways to make yourself more marketable, I would argue that there are other, better ways to do it. Look for internships and volunteer opportunities, for example, that can lend themselves to boosting your resume. Learn a language or skill that’s in demand. Network and introduce yourself at local business organizations or alumni events; don’t forget about online opportunities to get your name “out there.”

All that said, if you’re not sure if law school is for you, contact a lawyer or two in your town (you should have some kind of connection – the same alma mater, church or circle of friends) and have a cup of coffee. Ask what they think about the profession and the market. Find out if they liked law school. And make sure that you can afford it: law school is significantly more expensive than college. If you must borrow (like me), be aware that the loan process is, in my opinion, quite abusive as compared to undergraduate loans. Additionally, there are restrictions on your ability to work if you are a full-time student at an ABA-accredited law school so your visions of paying as you go might not be realistic.

For the record, I’m glad that I went to law school. I met terrific friends there (including my husband) and wonderful mentors. I loved most of my classes and my internship at IRS was invaluable. And I wouldn’t want to discourage anyone who has their heart set on going. Just make sure it’s what you want – and not merely an expensive stopgap.

Taxpayer asks:

I currently live in State A, but will be starting a job in State B. I want to move closer to my new job and I’m looking at both states. From an income tax standpoint, which state is better to live in where I will pay less income tax? I have to consider everything when choosing where to move, like commuting costs and state income taxes since I’ll be working in State B.

taxgirl says:

I get a lot of these kinds of questions and I wish, wish, wish I could answer them but I can’t. I don’t know enough about you (!) and the specific filing requirements of the states involved to advise either way in any kind of intelligent fashion. But I will say this: with a life decision this big – and those like this – you really should seek out the advice of a professional. Find a tax professional near you who can help. Here are some tips to keep in mind when looking for one.

Taxpayer asks:

Did I read that you were writing a book?

taxgirl says:

Yes, you did! I am currently working with Forbes to release an e-book for parents about tax. It’s kind of a mash-up of updated tax information for parents together with some related “Best Of Ask The Taxgirl” from over the years. I’m really excited about it… It’s coming out soon (and by soon, I mean like this month) so you’ll definitely hear more about it. I’m also planning to do a follow-up that focuses on education.

I have two more non-fiction pieces in the hopper. One is a collaboration that I hope to be able to announce (dramatic pause) someday. The lawyers are still hashing out the details: yes, lawyers have lawyers. The other is a book on the history of tax. I’m writing as fast as my tired little fingers can type.

I have a print piece appearing in the upcoming edition of Forbes’ Investment Guide (on newsstands on June 25 and yes, I will sign your copy, cousin Teresa). You can sneak a peek here.

I also write fiction for fun. I have one completed and as of now, still unsold, (*clears throat and peers around*) novel and a couple more in progress. I have more fun writing than almost anything else. Almost – a mad pedicab ride through Time Square with my kiddos and a cocktail hour on a cruise ship with my husband are also on the list… and of course, I’m on my way to Vegas right now so that could still change!

Well, that’s a wrap for this edition of the Sunday mailbag. Thanks so much for reading!

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

Guaranteed $5 million pay packages with no strings. Borrowing from a number of banks to stay afloat. Lavish corporate offices. Unchecked spending. Questionable financials.

Another Wall Street meltdown? Not quite. This one is a law firm. And it’s huge.

Until recently, Dewey & LeBouef, LLP, (formerly the separate firms of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, now just referred to as “Dewey”) was one of the largest law firms in the world. Earlier this year, the firm touted more than 1,100 lawyers in 26 offices; it was considered one of the largest law firms in New York City and one of the largest US firms located in London. A few years ago, Dewey lawyers were making news advising in Walt Disney’s $4 billion cash and stock acquisition of Marvel Entertainment team and successfully defending Dallas Mavericks owner Mark Cuban against insider trader accusations. Now, they are packing up their offices and running from what many in the legal community have called “chaos.”

When a public company melts down, the market generally reacts. The price per share of stock tends to fall and investors can, if they think the company is worth saving, rush in and “rescue” the company by buying up those shares. Depending on the nature of the company, it can be taken apart and sold off (think about Richard Gere’s job in Pretty Woman) or some assets can simply be liquidated in order to pay off debts.

But that’s not what happens in a law firm. There are no public investors. And there is generally no incentive for another firm to “rescue” a struggling one. And there are no assets to liquidate: the assets are the people who work at a firm. And the very real problem with law firms is that, at any moment, those people can get up and simply walk away. That’s exactly what’s happening to Dewey. As of last night, the firm’s web site indicated that the number of partners at Dewey stood at about half of what it was a few months ago with defections happening every day.

There have been whispers about Dewey for months now. It was clear that the firm’s financials weren’t as solid as they were said to be. While revenues were publicly stated to be about $1 billion, those financials were eventually adjusted down by a jaw-dropping quarter billion dollars.

Even as profits were falling, partners in the firm were pocketing big dollars. Many Dewey partners had pay packages worth several million dollars that were guaranteed – even if the partner wasn’t profitable.

As guaranteed paychecks were doled out, Dewey reportedly couldn’t manage its debt load. Despite its struggles, banks continued to lend to the firm, with guaranteed credit worth a reported $100 million issued by JPMorgan Chase, Citigroup, Bank of America and HSBC.

The firm’s reputation took an even bigger hit last month when it was disclosed that the firm’s then acting chairman, Steven Davis, was under investigation by the Manhattan District Attorney’s office on grounds of “financial irregularities.” Davis was subsequently voted out of all leadership positions in the firm. Davis has, as expected, denied any wrongdoing.

The good news for partners at the firm is that they received their guaranteed April “draws” in the neighborhood of $25,000 so long as they get their time in. The bad news is that may be the last check many receive. While the firm has said, that it has no plans to file for bankruptcy, The AmLaw Daily, is reporting that Dewey’s doors will close on May 15.

There’s no doubt that many of the partners will land on their feet. Many have already fled to firms like Morgan Lewis and White & Case. But it’s a grim job market for lawyers. Finding a new home for more than 1,000 lawyers won’t be easy. And finding a new home with guarantees similar to those touted by Dewey will be nearly impossible.

Dewey had existed in some form for nearly a century. It was a stalwart in the legal world, one of a number of firms that rolled off your tongue when asked about “BigLaw.” So when we heard about the implosion, it felt a little crazy at first. This kind of thing isn’t supposed to happen in “BigLaw” – I think we all kind of bought into the notion that some firms, like banks on Wall Street, were too big to fail. It was the little firms that were supposed to crumble.

But then I remembered Brobeck, Phleger & Harrison, LLP and Wolf Block, LLP. I thought about Howrey LLP and Heller Ehrman, LLP. And I recalled the spectacular downfall that was Drier LLP (so spectacular, in fact, that Hollywood made a movie about it).

As lawyers, we make our living fixing other problems. It’s an odd thing to watch a law firm be so caught up in its own – arguably dysfunctional – culture that it can’t fix its own problems. Banks and automotive industries call in lawyers to right the ships when they were going down: so who do lawyers call?

The answer is obviously other lawyers. But, in a profession that is increasingly caught up in tradition and appearances at a time when our world is changing so very quickly, I question whether the legal culture can offer a suitable response anymore.

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Michelle Phillips just won an A… or at least a nice note to her professor. Michelle’s entry on transfer pricing is one of two winning entries in my legal writing contest.

Michelle is currently an LL.M. Taxation candidate at Boston University. Her transfer pricing tax prof is Richard Ainsworth.

As you may know from yesterday, I received a number of great entries and I couldn’t pick just one so I opted for two. I was particularly impressed by Michelle’s entry because she made tricky subject matter understandable and interesting – most practicing attorneys can’t talk about transfer pricing in such a smart, well thought out manner. Here’s what Michelle had to say:

The current transfer pricing rules and regulations put huge power in the hands of the IRS in much the same way as those ubiquitous, one-sided boilerplate form contracts. However, unlike with boilerplate, the IRS has no real market pressure or reputational concerns keeping it in check, and thus the self-appointed powers are inappropriate. First, I’ll walk through what the IRS can do, then I’ll explain some of the theory on how form contracts, although lop-sided, are actually useful. At the end, I’ll show how, if we liken the Tax Code and Regs to a contract between taxpayer and government, this theory on form contracts demonstrates how inappropriate the IRS’s position is.

Transfer pricing, in case you’re not familiar, deals with situations in which two related parties make a deal — such as a parent company selling or licensing some intangibles to its subsidiary. If left to their own devices, these parties (“controlled parties”, in the vernacular of the regs) would probably strike a deal totally different from what independent parties (“uncontrolled parties”) would negotiate. A lot of the non-market price manipulations would be based around tax consequences and finding ways to have less income in high-tax jurisdictions. For example, if a US parent company (“USParent”) licensed its patent to a Bermuda subsidiary (“BermSub”) for well below market rates, BermSub would be able to make a product very cheaply, selling to the world at a huge profit That profit would be kept in low-tax Bermuda, basically siphoning it out of USParent via the cheap patent license. To prevent this sort of evasion, the IRS has the virtually unfettered power through Code §482 and the related §1.482 Treasury Regs to adjust the incomes of controlled parties to make them more in line with what their incomes “should” have been. So, the IRS would make BermSub pay USParent an amount “commensurate with the income attributable to the intangible”, and no longer could BermSub make such a low-tax killing.

The idea of preventing parties from skirting taxes in this manner is not particularly troubling — the OECD has its own Guidelines for doing the same — but the amount of control the IRS wields through §482 is entirely inappropriate. This is particularly true with an outright sale of an intangible to a related party. In general, the IRS uses a “commensurate with income” (“CWI”) standard. What is this? Per a 2007 Memorandum:

The Treasury Department and IRS’ longstanding authoritative interpretation set forth in the regulations and other published guidance is that the commensurate with income standard must be applied consistently with the arm’s length standard.
The arm’s length standard requires that a controlled transaction be priced so as to realize results consistent with those uncontrolled taxpayers would have realized if they engaged in the same transaction under the same circumstances. – “Taxpayer Use of §482 and the Commensurate With Income Standard,” AM-2007-007 (Mar. 15, 2006), reprinted at 2007 WTD 59-27 (Mar. 27, 2007), Issues 1, 3 (“2007 CWI Memo”).

Further, Reg. §1.482–1(b) clearly provides that “the standard to be applied in every case is that of a taxpayer dealing at arm’s length with an uncontrolled taxpayer” (emphasis added). If the parties don’t behave in this manner, the IRS swoops in with their own income numbers, and taxes the parties on those instead.

So, CWI = arm’s length standard = what uncontrolled parties would have done in the taxpayer’s shoes. That means that if USParent instead sold the patent to BermSub, the IRS would check to see what uncontrolled parties would have done in that case, what deal they would have struck. Right?

Wrong. The IRS instead gets to look at the income actually attributable to the intangible (here, the patent), and tax the parties based on that income, even for a sale paid for in full immediately. Let’s pretend the patent was for a drug for hypertension. USParent and BermSub sat down with some really smart economists and industry experts and accountants, and everyone agreed that the patent was going to bring in about $50million per year for 10 years, after which the patent would expire. The IRS actually lets this figure be off by 20% (up or down) each year, both looking at a year alone and totaling up the income up through that year. If projections were off by more than 20%, the IRS will adjust the income so that it’s commensurate with the income. If BermSub makes an up-front, lump-sum payment, the IRS views that payment as all the future income stream amounts (the $50m/year payments), discounted back to present value. Uncontrolled parties might negotiate a price in the same way.

What uncontrolled parties would not do is say, “Remember that deal we made three years ago? Where I sold you that patent for hypertension, which turns out to cure erectile dysfunction and you now call it ‘Viagra’? You need to pay me more for that patent.” However, this is what the IRS does. They completely restructure the business transaction. (You can be certain that they don’t do this every time — only when the US government would be the one missing out. If the controlled party with the windfall is in the US and thus there is an increase in US tax revenue, the IRS will just leave it alone.)

The OECD doesn’t do this, and is actually pretty snarky about it, too.

Restructuring of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured. [emphasis added, chapter downloads as a pdf]

Ha! The OECD Guidelines go on to say that in rare, exceptional cases it’s ok to rewrite the terms of the parties’ contracts — when the parties were not behaving as would uncontrolled parties. In that case, the OECD Guidelines say to go back to the time the deal was made, see what rational, uncontrolled parties would have done, and adjust the incomes according to that.

This is not what the IRS does. Going back to the 2007 Memo,

The regulations allow the IRS, in its discretion, provisionally to treat the income actually resulting from the transferred intangible as evidence of what should have been projected at the time of the transfer and to make periodic adjustments to reflect the pricing had such results been projected at such time. The regulations then allow taxpayers the ability to rebut such presumption, e.g., by showing that such results were beyond the control of the taxpayer and could not reasonably have been anticipated at the time the transaction. (2007 Memo, Issue 3 (footnotes omitted).)

So, the income actually received is what the taxpayers, in their infinite psychic wisdom, should have predicted. Never mind that life is unpredictable, and that black swans occur when least expected, and that the first dozen publishers to read the Harry Potter script didn’t think it was valuable enough, and so on and so forth. Sure, the taxpayer can still go through an arduous settlement/court case process to rebut the IRS, but that’s pretty terrible.

In fact, it’s a lot like a form contract, written by the government with the US taxpayer as the customer. And it’s fair to say that this contract’s terms are distinctly unfair. As mentioned above, in certain contexts a contract with severely one-sided terms can serve a social function. In some theories on boilerplate contracts, it’s posited that these terms allow the stronger party — the one providing the boilerplate document, here being the IRS, in whose favor the terms are generally drafted — to use discretion that would otherwise be hard to exercise. That is, most of the harshest terms are not meant to be enforced against the vast majority of applicable cases, but only to circumstances where the breach is egregious. “But if the provision were explicitly limited to those circumstances, enforcement would be a difficult undertaking for a court… The one-sided provision obviates this concern…” (Lucian A. Bebchuk and Richard A. Posner, “One-Sided Contracts in Competitive Consumer Markets” in Omri Ben–Shahar (ed.), Boileterplate: The Foundation of Market Contracts, (2007) Cambridge University Press: New York, at 6–7.) This theory, however, is premised on the stronger party having strong reputational concerns and little opportunity to effectively communicate in court the bounds of reasonableness or “egregiousness” that it wants to monitor. The IRS does not fit such description, and should not be permitted to exercise such raw discretion through the creation of legal uncertainty.

To rule through fear is a sign of cowardice; uncertainty is an enemy of the Rule of Law. These rules should be amended to follow the OECD Guidelines, allowing honest parties to avoid penalties for innovative success or uncontrollable external events.

Nice job, Michelle!

If you’d like to read some of the other quality entries, check them out later today on Facebook.

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