Monday, July 28, 2014

Sheppard on International Tax: What's Gonna Work? Teamwork.

Lee Sheppard has a nice column today on dual consolidated loss rules and BEPS (gated), in which she states:
Would-be reformers of the corporate income tax like to believe in the tax equivalent of a single game-changing player. They want an instant, simple solution -- be it a territorial system or formulary apportionment. They don't want to have to think about the grunt work of making an international system work. They don't want to have to think about the heavy lifting of rewriting the source rules. They don't want to think about detailed anti-hybrid rules. 
Of course she uses Argentina v Germany rather than the Wonder Pets, but same idea.

She goes on to explain the multiple problems posed by hybrid entities and how the BEPS hybrid draft has, and has not, addressed these. Sheppard's article demonstrates yet again that making income taxation work today means regulatory globalization that parallels the scale and scope of economic globalization.

The magnitude of the task is vividly demonstrated in FATCA: a concise statute that has rapidly expanded into thousands of pages of regulations, guidance, and agency explanations, a bilateral agreement network that dwarfs the US tax treaty network, and the spawning of a global compliance industry trucking in data collection, transfer, and analysis in both the private and public sectors. BEPS would be no different. it would require the same type of global infrastructure and the same level of sustained commitment. But it is clear that while the US has a great appetite for making FATCA work, and has directed all of its economic might to that effort, it is much, much less interested in seeing BEPS through. The ultimate outcome of BEPS is all too predictable from past OECD efforts that were not initiated by the US.

Thursday, July 10, 2014

Potato Salad

If you don't immediately know what this post is about, then you are really missing out.  Here is the kickstarter campaign. I used a kickstarter question on my tax exam last year so a student sent me this. Then I found this article about the hysterical reaction. I sent it to my student, who thought if it happened to him he would appear on TV with a new rolex and carrying the potato salad in one hand, making the following entrance:



Yes, that looks just about right.

Tax Foundation has already posted an analysis concluding that the cash is taxable income. I disagree: though that is the presumption for kickstarter campaigns, presumptions are rebuttable with different facts and circumstances. In my view this campaign clearly sparked individuals to give out of detached and disinterested generosity, and therefore the full amount is excludable from income as a gift for tax purposes.

Friday, July 4, 2014

IRS claims statutory authority for FATCA agreements where no such authority exists

Over at federal tax crimes blog Jack Townsend has posted a letter from the IRS to Congressman Bill Posey, in response to an inquiry the Congressman apparently made about the intergovernmental agreements ("IGAs") to implement FATCA by other governments (instead of directly by foreign financial institutions, per the law Congress enacted in 2010). Treasury says:
“Your letter also asks about statutory authority to enter into and implement the IGAs. The United States relies, among other things, on the following authorities to enter into and implement the IGAs: 22 USC Section 2656; Internal Revenue Code Sections 1471, 1474(f), 6011, and 6103(k)(4) and Subtitle F, Chapter 61, Subchapter A, Part III, Subpart B (Information Concerning Transactions with Other Persons)."
None of these sources of law contain any authorization to enter into or implement the IGAs.  It is patently clear that no such authorization has been made by Congress, and that the IGAs are sole executive agreements entered into by the executive branch on its own under its "plenary executive authority”. As such the agreements are constitutionally suspect because they do not accord with the delineated treaty power set forth in Article II. As Michael Ramsey wrote in a 1998 article, the danger is that if the president seeks to reach agreements outside of his plenary constitutional powers, the agreement lacks domestic legal effect.

Just to be clear, the fact that a document signed by an individual might or might not bind the United States as a matter of constitutional law does not mean that the United States will not honor whatever commitments the individual makes under such an agreement. The contrary is likely the case especially given the predicament Treasury found itself in, coupled with the pitiable small promises undertaken by the US in these "agreements."

But we should be clear that the analytical terrain we should be traversing is whether the scope of the plenary executive authority can suffice to support as a matter of law the promises made in some 80 or so IGAs (many of which are currently agreements in principle only). We should not be wasting anyone's time pretending that Congress has authorized Treasury or the Secretary of State to enter into the IGAs. It has not.

So let’s take a look at what these sources actually say.

22 USC 2656 is about the power of the secretary of state. It says:
The Secretary of State shall perform such duties as shall from time to time be enjoined on or intrusted to him by the President relative to correspondences, commissions, or instructions to or with public ministers or consuls from the United States, or to negotiations with public ministers from foreign states or princes, or to memorials or other applications from foreign public ministers or other foreigners, or to such other matters respecting foreign affairs as the President of the United States shall assign to the Department, and he shall conduct the business of the Department in such manner as the President shall direct.
If that is an authorization for the IGAs, it is a vague one at best. Does an IGA constitute “correspondences, commissions, or instructions,” “negotiations”, “memorials or other applications,” or “such other matters respecting foreign affairs”? Under what interpretation of such relevant provisions? Also there is nothing here about the content or scope of the treaty power hereby implicitly authorized. Is IRS saying that with this power the Secretary of State can bind the nation at will on any matter, without the need for the President to seek advice and consent from the Senate prior to ratification? If so this is an extraordinary claim that does not scan with either historical practice or constitutional theory. 

26 U.S. Code § 1471 is, of course, part of FATCA. It is entitled “Withholdable payments to foreign financial institutions”.  It sets out the reporting obligations imposed on foreign financial institutions and states that the Secretary is authorized to treat a foreign financial institution as “meeting the requirements” of 1471 if the institutions complies with procedures or requirements set forth by the Secretary or is “a member of a class of institutions” identified by the Secretary. 

There is explicit authorization in 1471 for the Secretary to engage in agreements with FFIs to implement FATCA. However where is the authorization in 1471 for the Secretary to engage in agreements with other countries to implement FATCA? It is not in the text, certainly.

Therefore to what specific provision of 1471 could IRS possibly refer when it suggests this statute authorizes individuals to sign agreements altering the reach of FATCA on behalf of the United States? There is clearly no explicit authority. Is it implied? If so, by what?

Moreover, many or most of the IGAs have been signed by officers of the Secretary of State, ambassadors, consulates general and others, and not by Treasury. Does s1471 also impliedly delegate its implied treaty power authority to those outside of Treasury who have signed on behalf of the United States? Certainly there is no explicit delegation here.

26 U.S. Code §1474(f), also part of FATCA, is the statutory authorization for the Secretary of the Treasury to 
“prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of, and prevent the avoidance of, this chapter.” 
There is no authority expressed in this provision for the Secretary to enter into agreements with other governments. Does IRS suggest that an IGA constitutes “regulations” or “other guidance”? Under what interpretation of that characterization does the Treasury interpret the promulgation of either regulations or other guidance as an authorization to negotiate an agreement with a foreign government?

26 U.S. Code § 6011 is entitled “General requirement of return, statement, or list,” and it states the parameters under which a person must make a return “[w]hen required by regulations prescribed by the Secretary.” There is authorization in 6011 for the Secretary to require taxpayers to fulfill various reporting requirements, including electronic reporting. There is no authorization in 6011 for the Secretary to engage in agreements with other countries to implement 6011. 

What provision of 6011 is IRS suggesting confers the authority to negotiate agreements with other governments without Senate advice and consent?  Does IRS mean to imply that each and every authorization that Congress gives Treasury for the prescription of regulations is an implicit authorization for Treasury (or its implied designees in other departments) to conclude agreements with other governments? If so, this is a surprising claim of executive power that is inconsistent with the treaty power described in Article II of the constitution. I would think Congress would like to know under what interpretation of Congressional direction to the Secretary to issue guidance, IRS or Treasury would conclude that it now holds the power to make treaties on behalf of the United States.  

In other words, if IRS stands by this authorization it is suggesting that any tax code section that authorizes Treasury to regulate implicitly contains both a treaty making power as well as the power to delegate authority to departments other than that specifically charged with implementing the statute. That is not a plausible claim.

26 U.S. Code § 6103 is entitled “Confidentiality and disclosure of returns and return information” and it provides that “returns and return information shall be confidential,” with exceptions provided by statute. There is authorization in 6103 for the Secretary to engage in agreements with taxpayers to implement 6103 (for example in the case of advance pricing agreements). There is no authorization in 6103 for the Secretary to engage in agreements with other countries to implement 6103. Therefore, as with 1471 and 6011, to what specific provision of 6103 does IRS refer, and under what interpretation of the authority given by Congress in 6103 to enter into agreements with taxpayers does IRS find the authority for anyone to enter into agreements with other countries?

26 U.S. Code Part III, Subpart B is entitled “Information Concerning Transactions With Other Persons” and it contains 26 US Code §§ 6041 through 6050W—a very broad set of statutes involving information reporting, none of which explicitly grant anyone the power to bind the nation to anything. Certainly nowhere in the subpart appears any express authorization for Treasury to enter into agreements with other governments in respect of s1471 or otherwise. Therefore the same questions I have raised with respect to 1471, 1474, 6011, and 6103 would seem to arise here.

In short I see no express authorization anywhere in any of these authorities for the Treasury to enter into the intergovernmental agreements. Moreover there is no precedent for such agreements, and they are being signed by US officials who are not members of the Treasury. Does it not seem at least noteworthy that an enormous network of bilateral tax agreements has been established, a network that dwarfs the existing tax treaty network in size and scope, all without any explicit Congressional authorization, and without any regard to the Treaty power clearly laid out in Article II of the Constitution? 

And why not cite the TIEA power?

I would add that is not at all clear why any list of authorizations for an individual to enter into agreements with other governments on behalf of the United States would not include 26 US Code § 274(h)(6)(C)(f), which has long been relied upon to by Treasury to find the authority to enter into tax information exchange agreements ("TIEAs") that were not expressly authorized by the statute (because they are not listed in Section 274 as beneficiary Caribbean Basin countries).  This statute has clearly been abused by Treasury in extending it way beyond what Congress intended. However, the fact that Congress has not complained suggests that it has acquiesced to the overreach. 

That makes the TIEAs good precedent for those who want to defend the IGAs as a matter of law. In omitting this, the only plausible source of support for the authority to bind the nation without the advice and consent of Senate, does IRS suggest that Treasury now backs away from this authority? If so, why would they do that? The answer is of course that IRS believes that if necessary the TIEAs can also be considered sole executive agreements, and as such a TIEA "does not need Senate or other congressional approval." This is an official claim that the IRS doesn't think Treasury or anyone needs even s.274 as a cover: the executive can simply act alone to achieve its tax goals through international agreements.

At the end of the day, it is clear that Treasury saw a real and serious need to work with other governments to make FATCA work. There is no disputing that fact, and indeed it is a step toward multilateral cooperation which should be celebrated if only it weren’t so lopsided, and if only it weren't being accomplished via the threat of economic sanctions for all the world’s tax havens except the United States itself. But no amount of need or want can sidestep the constitutional delegation of powers among the branches, and the treaty power is no exception: nor should it be. At least one Treasury official has already conceded that the explanation for the IGAs is that they are "executive agreements”, not Article II treaties. 

IRS and Treasury should therefore just admit that the IGAs are simply “sole” executive agreements—not authorized by Congress but entered into by the executive branch under its sole discretion. 

This is a tenuous position and it ought to fail constitutional scrutiny but for the fact that in the past, Congress has acquiesced to this exercise of power by the executive and it is likely to do so again, especially given how little has been undertaken by the United States in these IGAs. As Lee Sheppard pointed out in a Tax Notes article two years ago, "An executive agreement depends on the good will of the parties to enforce it.” And as Susie Morse also pointed out in Tax Notes last year, Treasury is very likely to try to enforce their part of the IGAs. 

Since the US side of the IGAs is to deliver very modest undertakings that Treasury also believes can be done without congressional approval (namely, extending the longstanding s. 6049-based information exchange with Canada to other countries), this is probably true; all IGA promises to alter the law in the future should be seen as what they are, unenforceable promises that are beyond Treasury’s control and so won’t be delivered. 

Therefore honesty is still the best policy for Treasury. Instead of citing non-existent statutory authority that is easily refuted by simple reading, Treasury should own what it is doing outright. These are sole executive agreements, they lack statutory approval, they undertake very little on the part of the United States, but they are an effective way of pretending to be cooperative so that other countries can save face as they submit to the threat of economic sanctions that is FATCA. There isn’t really any reason why Treasury shouldn’t acknowledge this reality, since it is, strictly speaking, of Congress’ own making.

Monday, June 30, 2014

NGOs using non-binding OECD Guidelines to launch complaints about tax avoidance #TJHR

Thanks to a visit from Savior Mwambwa to Montreal last week in connection with the Symposium on Tax Justice and Human Rights, I finally sat down to look closely at the complaint raised by several NGOs against Glencore International AG, a Swiss company, for their transfer pricing strategies related to the Zambian-based Mopani Copper Mines Plc.

What I found was quite startling news to me (but not to a number of NGOs, and not to Martin Hearson, who is quickly becoming an indispensible go-to for interesting developments in international taxation): the OECD has apparently set up a sort of soft-law dispute resolution regime in which anyone can bring complaints against perceived tax dodging by multinationals, by lodging a request to a designated bureaucrat in the multinational's home states. This is a metaphor for taxpayer standing, an issue I have been curious about in the past but haven't made much progress on despite more than a little help from some of my regular readers.

This soft-law dispute resolution regime is quirky, to say the least. That's, of course, to be expected. So far the regime seems to be toothless or offer little more than a bit of theatre, but it is intriguing to watch the NGOs try to make hay with it, and more power to them if they can gain any traction. If they can, I expect to see the floodgates opened up for taxpayer-standing suits levied against MNCs in OECD member nations for their tax dodging efforts in developing countries, all on the strength of a document that isn't law anywhere.

This is the stuff of global legal pluralism.

The regime emerges from a non-binding set of OECD guidelines that require multinational enterprises to (among other undertakings) adhere to the arm’s length transfer pricing standards (also developed by the OECD) wherever they operate, and to structure transactions consistent with economic principles unless there are specific local laws allowing deviation from this general rule. Again, these guidelines are non-binding standards. But there is a real live process built up in this document. It is sprinkled throughout the Guidelines but the main parts are these:
[from p. 18:] Governments adhering to the Guidelines will implement them and encourage their use. They will establish National Contact Points that promote the Guidelines and act as a forum for discussion ... The adhering Governments will also participate in appropriate review and consultation procedures to address issues concerning interpretation of the Guidelines in a changing world.
[from p. 72:] The National Contact Point will ... Respond to enquiries about the Guidelines from: a) other National Contact Points; b) the business community, worker organisations, other non- governmental organisations and the public; and c) governments of non-adhering countries. 
... The National Contact Point will contribute to the resolution of issues that arise relating to implementation of the Guidelines in specific instances in a manner that is impartial, predictable, equitable and compatible with the principles and standards of the Guidelines. The NCP will offer a forum for discussion and assist the business community, worker organisations, other non-governmental organisations, and other interested parties concerned to deal with the issues raised in an efficient and timely manner and in accordance with applicable law. 
In providing this assistance, the NCP will: ... Make an initial assessment of whether the issues raised merit further examination and respond to the parties involved. ... consult with these parties ... facilitate access to consensual and non-adversarial means, such as conciliation or mediation ... make the results of the procedures publicly available.
From this we can discern the following soft law dispute resolution regime:

  • If you think a MNE is engaged in behavior inconsistent with the MNE guidelines, you can make a complaint to the National Contact Point (NCP) in the country(ies) where your target MNE is organized/operates. 
  • The NCPs "will" respond to enquiries from the public.
  • The NCPs "will" assess issues raised, and, if the NCP thinks the issues merit further review, will consult with you and with the MNE about the issue you raised, facilitate mediation, come to a decision and publish their results.
So how is this process working so far? Spoiler alert: about what you'd expect from a non-binding regime run by the OECD.

Over at OECD Watch (H/T Martin Hearson, naturellement), I searched "tax" and got 74 results. Most seem to involve conflict minerals and outright corruption (including bribery and financing armed rebels) but I am interested in how the process is being used to challenge tax avoidance, specifically with transfer pricing (on the theory that regulating transfer pricing is all about drawing that ever-elusive line between tax avoidance and evasion, so we are not always taking about activities that are inherently objectionable--in other words, these would be the hardest cases, so if any traction is gained, it is definitely worth noting). 

The Glencore/Zambia case is documented here. The result: the NCP of Switzerland took a look, consulted the parties, and concluded that, in the words of OECD Watch, "the parties agreed to disagree." OECD Watch reports that:
"the complainants are disappointed that the agreement did not go further than an agreement to disagree. They feel that the result shows that there is little value in engaging in a dialogue with the companies on these issues. According to the complainants, the company has not complied with its commitment as part of the agreement to respond to a detailed set of questions regarding its tax payments."
So, a dead end and as far as I see, no way to appeal or contest anything that has happened or not happened; on the other hand, there doesn't seem to be anything (other than resource constraints of would-be complainants) preventing reopening the case by simply filing a new complaint.

Other dead ends:
  • CBE vs. National Grid Transco, opened in 2003 in connection with acquisition of Copperbelt Energy Co (CEC), stating that "financial and tax incentives given to CEC are alleged to have resulted in an unstable macroeconomic environment by having increased the tax burden on the poor, having introduced discriminatory treatment and massive externalisation of funds." Case closed by UK NCP in 2005 "for 'want of prosecution'." I am not sure what that means.
  • NiZA et al. vs. Chemie Pharmacie Holland (CPH), a conflict minerals complaint opened in 2003 that sought clarification of whether tax payments made by CPH subsidiaries in the DRC were consistent with the Guidelines. Case first accepted but then quickly rejected by the Dutch NCP in 2004, for "lack of an investment nexus." 
  • War on Want and Change to Wins complaint against Alliance Boots, opened in November 2013 and quickly rejected by the UK NCP for offering only "unsubstantiated" allegations. The NGOs alleged that Alliance Boots violated the Guidelines disclosure and tax provisions, by, among other items, failing to act "in accordance with the spirit of UK taxation laws by shifting profits to offshore tax havens using complex financial instruments, shell financial companies in Luxembourg, and payments from one party to another to finance the purchase of company debt in a circular manner. The complainants sought mediation to bring concrete reforms of the company' governance, tax, and disclosure procedures so they are aligned with the Guidelines." I hope they assemble some documentation and try again: this is an interesting case for observers of the emerging links between tax justice and human rights.
I found one NGO win in this database, but the victory appears hollow, at least to the NGO:

  • Global Witness vs Afrimex, regarding tax payments made by Afrimex (a UK co operating in the DRC) to an "armed rebel group with a well-documented record of carrying out grave human rights abuses." The UK NCP agreed with many of GW's charges and concluded "that Afrimex failed to contribute to the sustainable development in the region; to respect human rights; or to influence business partners and suppliers to adhere to the Guidelines." Global Witness later followed up with Afrimex to see how things were going; the company said it had stopped trading in minerals. But GW seems skeptical, and states that "the case illustrates the severe limitations of relying on voluntary guidelines to hold companies to account. The OECD Guidelines for Multinational Enterprises remain a weak, non-binding mechanism. The NCP does not have the legal powers to enforce decisions arising from its conclusions and there is no in-built mechanism for following up its recommendations. The UK government will have to take further action to ensure that the investigation and conclusions of the NCP are more than just a theoretical exercise."

So far, the process isn't looking too promising for those using the guidelines to resist the status quo of international tax practice. Still,  I found one that was re-opened from a prior failed attempt, 15 Belgian NGOs complaint against Nami Gems for tax evasion in the DRC. This is a re-opening of a complaint that was rejected 10 years ago on what look like fairly flimsy grounds, will be interesting if the NGOs are learning from experience and improving their strategy as they go along.

I know that there are those that believe it is frustrating or even pointless watching activists work through international tax rules looking for justice. But activists are a finger on a pulse. They are looking to the rule of law to produce justice. When they feel that it doesn't, they again look to the rule of law for avenues of redress against unjust situations caused or ignored by the law. It is an optimistic and hopeful strategy, that refuses to give up on law. I hope that law can live up to its promise in this respect. It is the case that we perceive international taxation to occur mostly in the anarchy of the post-Westphalian nation-state-based global order. Yet organisations like the OECD transcend this order all the time, often in ways we don't understand and usually with a very little amount of scrutiny from tax law scholars. The activists are watching more closely. We would do well to pay attention.



Thursday, June 26, 2014

IRS's "Super creditor" status

Bryan Skarlatos recently testified to the House Ways & Means Committee about the IRS's "Super creditor" status via its federal tax lien power. Given the global nature of the US tax jurisdiction over nonresidents with US person status, the powers of the IRS to seize assets in satisfaction of tax debts is of increasing interest. I think this power is very likely to be ill-understood by those outside the United States. Looking ahead at life under FATCA, consider that soon the IRS will have the information to start assessing tax debts on its global diaspora, and then we will see what happens.

 WRITTEN TESTIMONY OF BRYAN C. SKARLATOS, ESQ.
The Internal Revenue Service (the “Service”) is a “Super Creditor” because Congress has given it powers to collect money and property that far exceed those of any ordinary creditor. Typically, a creditor who is owed money cannot just take property of the debtor. Instead, the creditor must first bring a lawsuit, obtain a judgment, and then invoke the power of the court to execute on the judgment by seizing the debtor’s property, usually with the help of a court order or a public servant such as a marshal. In contrast, when taxes are assessed, the Internal Revenue Code automatically creates a lien in favor of the Service in a taxpayer’s property. Then, the Service has the unique and powerful ability to levy on or seize property that is subject to a federal tax lien. In addition, the Service can sue in federal court to collect taxes. 
Assessment 
The first step in the tax collection process is the assessment. In general, the Service cannot attempt to collect from a taxpayer until a tax has been assessed.
The Internal Revenue Code gives the Secretary of the Treasure the authority to assess tax. A tax is assessed when it is recorded as a liability, or account receivable, on the Service’s records. 
Once a tax has been assessed, the Service is required to notify the taxpayer that the tax has been assessed and to demand payment of the tax. The notice and demand for payment must be made within sixty days of the assessment. The notice and demand must be left at the taxpayer’s home or place of business, or sent to the taxpayer’s last known residence. Failure to pay an assessed tax after notice and demand for payment has been made gives rise to a federal tax lien and the Service’s ability to collect through levy or seizure of property. 
Federal Tax Lien 
If any person liable to pay a tax fails to pay after notice and demand, the amount not paid, including interest and penalties, becomes a lien in favor of the United States upon all property and rights to property belonging to such person. The tax lien is the mechanism that gives the Service rights to the taxpayer’s property. However, the lien itself does not transfer any value to the Service. As discussed below, a levy is the tool used to transfer the actual property to the possession of the Service. 
A federal tax lien arises against any person liable for the tax and attaches to any interest in property that the person may have. A tax lien also attaches to any property the taxpayer may acquire in the future. This is another way of saying that the tax lien attaches to after acquired property. 
The law of each individual state determines whether and when a taxpayer has an interest in some type of property. Federal law determines the extent to which the federal tax lien attaches to that interest. For example, the tax lien attaches to a taxpayer’s interest in a joint bank account to the extent that the taxpayer can withdraw money from the account. Similarly, if under state law, one spouse has a right to community property, then the tax lien attaches to that spouse’s interest in community property. Or, if one spouse has an interest in property held as tenants by the entirety, then the federal tax lien can attach to that interest. A federal tax lien attaches to interests in personal or real property, bank accounts, retirement accounts, Social security benefits, alimony (but not child support) payments, beneficial interests in trusts, contingent interests, future interests, and intangibles such as accounts receivable, trademarks, licenses, royalties and franchise rights.  
The federal tax lien relates back to the date of assessment. However, a federal tax lien does not have priority over purchasers for value, holders of security interests, mechanics lienors or judgment creditors until a Notice of Federal Tax Lien (a “Notice of Lien”) is filed. The Service may file a Notice of Lien to obtain priority over these holders of interests through the general rule of “first in time, first in right.” The interest that is perfected first has priority if and when the property rights are sold or seized. 
State law determines where a Notice of Lien must be filed to be effective. Generally, Notices of Lien are filed with clerk of the court in the county where real property is located, with the clerk of the court in the county where the taxpayer is located in the case of personal property, or with the clerk of the federal district court in the district where the real property or taxpayer is located. Filing the Notice of Lien provides constructive notice to anyone else who may hold or acquire an interest in property and gives rise to the “first in time, first in right” rule. 
The Notice of Lien is merely a device that provides deemed notice to other interested parties for purposes of establishing priority. The federal tax lien exists independently from the Notice of Lien and there is no requirement that the Service even file the Notice of Lien. However, if the Service does file a Notice of Lien, it must give the taxpayer written notice that the Notice of Lien is being filed with five days of the filing and give the taxpayer an opportunity to request a Collection Due Process hearing (a “CDP Hearing”) to contest the filing of the Notice of Lien. Requesting a CDP Hearing does not stop the filing of the Notice of Lien; it just gives the taxpayer a forum to request that the lien be lifted. 
Once a federal tax lien arises, it generally is valid until the taxpayer’s liability is satisfied or until the time for enforcing the lien expires. Generally, an assessment may be collected by levy or court proceeding within ten years after the date of assessment. The ten-year period can be extended under limited circumstances.The filing of a Notice of Lien, by necessity, is open to the public and can harm a taxpayer’s credit standing and can affect business relationships by, for example, triggering a default under certain credit agreements, etc. 
Levy and Seizure 
If any person liable to pay a tax fails to do so within ten days after notice and demand, then the Service may collect the tax by levying on all property owned by that taxpayer, or on which there is a federal tax lien for the payment of such tax. Levies and seizures are ways in which the Service takes possession of property or rights to property. Levies and seizures are essentially the same thing. The term “levy” is typically used when the Service takes possession of intangible property or rights to property and the term “seizure” is typically used when the Service takes possession of real or personal property. A levy or seizure is a provisional collection device, meaning that disputes over ownership, priority or even liability for the tax can still be disputed after the levy or seizure. 
Two notices must be issued before the Service can execute a valid levy or seizure. First, the Service may not attempt any collection until ten days after a notice and demand for payment of the tax. This notice and demand can be the same notice and demand that must be made within sixty days after the assessment as described above. Typically, the Service sends two or three notices and demands for payment of taxes before it proceeds with the levy process. 
Second, the Service must notify the taxpayer in writing of its intention to levy on the taxpayer’s property or rights to property at least 30 days before the date of the levy (the “Notice of Intent to Levy”). The Notice of Intent to Levy must be given either in person, left at the taxpayer’s dwelling or usual place of business, or sent by certified or registered mail, return receipt requested, to the taxpayer’s last known address.Like the Notice of Tax Lien, the Notice of Intent to Levy must inform the taxpayer of the right to request a CDP Hearing within 30 days of the Notice of Intent to Levy. At the CDP Hearing, the taxpayer can challenge the appropriateness of the collection activity and, in some cases, the validity of the underlying tax liability. If the taxpayer timely requests a CDP Hearing, the Service may not proceed with levy until the CDP Hearing is complete. 
The Service can use a levy to take any property subject to the federal tax lien. This includes just about any kind of property in the possession of the taxpayer or property in the hands of a third party to which the taxpayer is entitled. The Service can levy property from a third party simply by serving the levy on that third party. No special notice or procedure is required to levy property from a third party. 
Typically, a levy only reaches property in possession or rights in existence as of the date the levy is issued. Unlike a federal tax lien which attaches to after-acquired property, most levies do not reach after acquired property. Thus, a levy served on a bank will reach the balance in the account on the day of the levy and does not reach a deposit made the day after the levy. However, there is an exception to this rule. A continuing levy can be issued on salary and wages. A continuing levy is like a vacuum cleaner that continues to sweep up money as it is paid to the taxpayer. 
There are very few types of property that are exempt from a levy. State laws that provide homestead exemptions, protect certain types of retirement accounts, or limit the amount of a person’s salary that can be garnished, do not trump the federal levy laws and are ineffective against the Service’s power to levy. Federal law provides limited exemptions for things like school books, tools of trade, wearing apparel, fuel, provisions, furniture and personal effects, unemployment or workers compensation benefits and a minimum amount of wages.As noted above, the Service typically has ten years from the date of assessment to collect a tax by levy. 
Judicial Proceedings 
In addition to the administrative lien and levy procedures described above, the Service can also request the Tax Division of the Department of Justice to sue a taxpayer in federal court to collect a federal tax liability. Federal courts have subject matter jurisdiction over suits to obtain judgments pursuant to the Internal Revenue Laws. While an assessment and lien are not necessary prerequisites for such suits, there usually is an assessment and related federal tax lien. The Service sometimes uses the judicial remedy to reduce a federal tax lien to judgment when the statue of limitations for collecting administratively by levy is about to expire. If the Service obtains a judgment against the taxpayer, a whole new statute of limitations for collection on the judgment begins to run. 
The Service also uses judicial remedies to sue third parties who have failed to turn over property in response to a levy, to establish liability against a transferee of property, or to recover a refund of taxes that was mistakenly paid to a taxpayer. 
Taxpayer Defenses 
There are many ways that a taxpayer can defend against the collection of taxes. The CDP Hearing requests referred to above are some of the most powerful tools that a taxpayer can use because, while a CDP Hearing request does not stop the filing of a Notice of Lien, it can stop a levy pending the outcome of the CDP Hearing. Of course, if the Service collects money or property improperly, the taxpayer can sue for a refund. 

Sunday, June 22, 2014

Graetz: The Tax Reform Road Not Taken -- Yet

Michael Graetz has been working away at convincing Americans to accept a national level consumption tax, and he has another go at it with The Tax Reform Road Not Taken -- Yet. Here is the abstract:
The United States has traveled a unique tax policy path, avoiding value added taxes (VATs), which have now been adopted by every OECD country and 160 countries worldwide. Moreover, many U.S. consumption tax advocates have insisted on direct personalized taxes that are unlike taxes used anywhere in the world. This article details a tax reform plan that uses revenues from a VAT to substantially reduce and reform our nation’s tax system. The plan would (1) enact a destination-based VAT; (2) use the revenue produced by this VAT to finance an income tax exemption of $100,000 of family income and to lower income tax rates on income above that amount; (3) lower the corporate income tax rate to 15 percent; and (4) protect low and-moderate-income workers from a tax increase through payroll tax credits and expanded refundable child tax credits. This revenue and distributionally neutral plan would stimulate economic growth, free more than 150 million Americans from having to file income tax returns, solve the difficult problems of international income taxation, and remove the temptation for Congress to use tax benefits as if they are solutions to the nation’s pressing social and economic problems.
Prof Graetz has been working on this idea for quite some time and he's likely right that a national consumption tax would solve some major problems for the US income tax system. It would reverse the "income" tax from a mass tax to a class tax again, refocusing the income tax regime on its most productive base, namely, the upper-middle class. It would go a long way (but not by any means all the way) in resolving some of the worst aspects of citizenship taxation. It is just a fact that including non-residents as if they were resident throws people right into the deep end of US tax law even if they are regular working class households, because everything they do is "foreign" and therefore subject to the world's most complicated anti-avoidance regime. Eliminating income taxation for a large majority of those people would go some steps toward a remedy without actually fixing the fundamental problem.

But Prof Graetz's has been an uphill battle. I can think of at least two main reasons for this: first, introducing any new tax is political suicide in the US and second, it would be little more than a double tax (for those that would remain in the income tax system) because the US income tax is in large part already a consumption tax in that it exempts so much in the way of savings. As we know from Haig-Simons, income equals consumption plus delta savings over the period. When savings are exempt, income taxation is equivalent to consumption taxation. So introducing VAT in the US means imposing a new consumption tax on the very same base as something we currently call an "income" tax.

For those that would be exempt from the income tax, the VAT would simply step in and claim roughly the same amount of tax, and therefore presumably the picture wouldn't change much in terms of revenue raised, but would change quite a lot in terms of form filling and paper filing, which means less administration for the same tax. That would be great for the ever-starving IRS. (A cynic might observe that it could mean less from penalties from those who fail to file things properly, which is set to become a most fruitful source of extra revenue in just a couple of weeks.)

Moreover, the switch from an income tax system that ultimately acts like a consumption tax to a straightforward an easier-to-administer consumption tax might solve the revenue problem, but it would still need cash transfers to solve the progressivity problem and therefore can only be solved with another form of political suicide, namely, increasing welfare payments to the poor (that's the "refundable credits" part of the plan).

Still, worth reading and watching as Prof Graetz continues to wage what often seems like a one-man battle to change attitudes toward a national VAT in the United States. It is striking how difficult it is to convince Americans to embrace a tax that would do almost exactly what the current income tax system does, but at a fraction of the cost. On principle people really still like the income tax and they really hate the idea of a national consumption tax. Cognitive dissonance? Or a naïve hope that the income tax can be restored to its former glory if we can only figure out a way to tax savings again?

Rosenzweig: An Antigua Gambling Model for the International Tax Regime

Adam Rosenzweig recently posted An Antigua Gambling Model for the International Tax Regime. Here is the abstract:
The international tax world is facing a defining moment. While there is little agreement on anything within the field, there appears to be a growing consensus that the modern international tax regime — the so-called flawed miracle emerging from World War II — is irrevocably broken. As the countries of the world confront the challenges facing the international tax regime in the next century, new models for an institutional framework for international tax become increasingly crucial to its success. While significant progress has been made in developing underlying norms to serve as the basis for a modern international tax regime, less focus has been paid to building the institutions and structures necessary to implement these norms. To this end, this Essay proposes looking to the recent experience of the WTO in the Antigua Gambling case as a model for a new institutional framework for the new international tax regime. The Essay then proposes three potential ways to do so: (1) the creditable gross-withholding tax method, (2) the extraterritorial excise tax method, and (3) the WTO cross-retaliation method. 
By serving as an example of how to balance the needs of larger, wealthier countries and smaller, poorer ones, the Antigua Gambling model could help overcome one of the largest obstacles confronting the development of a modern international tax regime. Perhaps an Antigua Gambling model could serve as the basis for a new institutional framework for international tax.
Ambitious, and on my to-read list.

Saturday, June 21, 2014

Tax and Human Rights: What's Next? #TJHR

Yesterday we concluded the McGill Tax Justice and Human Rights Research Collaboration Symposium. It was an action-packed three days and I left feeling that what I had set out to generate had in fact been accomplished: a cross-platform, cross-disciplinary conversation on the intersection of taxation and human rights. Everyone learned a great deal about a range of people who want to think about how taxation and human rights concepts work together, and a range of ideas and challenges generated by that exercise. I think I came away with at least a sense of the current landscape of this field, its recurring themes and questions, and where the research is likely to go in the near future. 

I'll write some more on this as I have a chance to reflect on the proceedings and review some of the tape of the sessions I had to miss (running a conference is all too unfortunately more about moving people around and dealing with technology and such than sitting back and listening). We have sought waivers from the conference participants and will be able to upload some of the sessions, or parts thereof, in the coming weeks. We are also in process of obtaining permission to post papers and presentations, and as those come in we will post those as well.  Not all presenters and presentations will be available online but enough, perhaps, to give a sense of what took place over the past three days. Updates on available content will be available at the conference website, linked above. 

As with any conference, what the participants say is only part of the story: the other and more lasting part is the networking and connection building that takes place. I heard from some of the participants about exciting new connections and possibilities for future collaboration. I myself managed to connect with many participants with whom I hope to collaborate again in the future. It is an exciting field and one I believe is gaining momentum. There is much work to be done.

The photo on the conference flyer, reproduced above, is a detail of the grand entrance to Old Chancellor Day Hall at McGill. We added it to the flyer as a tribute to the history of research and learning that goes on in this institution, and as a symbol of openness, welcome, and inclusion that characterizes the Faculty of Law at McGill. I hope and believe that the symposium opened many doors for future collaboration on the subject of tax justice and human rights. 

More updates in the weeks to come. 


Friday, June 20, 2014

Today at McGill Law: Final Day of Tax Justice and Human Rights Research Collaboration Symposium #TJHR

Today is the third and last action-packed day of  conversation among students, academic researchers, and tax justice advocates and activists on the topic of tax justice and human rights. It has been a fascinating and enlightening experience so far. You can continue to follow the proceedings and make comments on twitter at #TJHR. Program and speaker info here.

Here is the final day's lineup:
Time
Topic
Location
08:30 – 09:00
Registration & Arrival Tea/Coffee
Atrium
09:00 – 10:30
6. Reducing Inequality: Tax Avoidance and Capital Flight
Ofer Sitbon (PhD candidate, College of Law & Business, Tel Aviv), Moderator
James Henry (Senior Economic Advisor, Tax Justice Network),Kleptocracy and Human Rights
Steven Cohen (Professor, Georgetown University Law Center), Does Swiss Bank Secrecy Violate International Human Rights?
Brigitte Alepin (Partner, Agora Fiscalité), The Foundation
Steven Dean (Professor, Brooklyn Law School), A Tax Regime to Catalyze Social Enterprise Crowdfunding
Lee Sheppard (Journalist, Tax Analysts), John Christensen (Director, Tax Justice Network), discussants
Moot Court (room 100)
10:30 – 10:45
Refreshment Break
Atrium
10:45 – 12:00
7. Reducing Inequality: Tax Avoidance and Progressive Taxation
Neil Buchanan (Professor, George Washington University Law School), moderator
Chris Odinet (Associate Professor of Law, Southern University Law Center), Taxing Property Owners
Jean-Pierre Vidal (Associate Professor, Dept of Accountancy, HEC Montreal), Ethics in Taxation: what is it, and why should a tax specialist care?
Niko Lusiani, (Senior Researcher, Center for Economic and Social Rights), A Post-2015 Fiscal Revolution: Human Rights in the Struggle to Finance Sustainable Development
James Henry (Senior Economic Advisor, Tax Justice Network), Attiya Waris (Senior Lecturer, Faculty of Law, Univ. of Nairobi), discussants
Moot Court (room 100)
12:15 – 14:00
Lunch, Keynote Speaker Attiya Waris (Senior Lecturer, Faculty of Law, University of Nairobi)
 Thomson House
14:00 – 15:30
8. Justice in Labour and Capital Migration
Samuel Singer (Associate, Stikeman Elliott), Moderator
Aldo Caliari (Director, Rethinking Bretton Woods Project), Unleashing the Potential of Human Rights Standards to Demand Tax Justice
Lynne Latulippe (Professor, University of Sherbrooke), Tax Competition and Paradigm Shift in International Law
Krishen Mehta (Senior Advisor, Tax Justice Network, New York), Can Developing Countries Attract Investment and Still Get a Fair Deal on Tax Justice?
Henry Ordower (Professor, Saint Louis University), Retreat from Progressive Taxation in the Swedish Welfare State: Does Immigration Matter?
John Christensen (Director, Tax Justice Network), Neil Buchanan(Professor, George Washington University Law School), discussants
Moot Court (room 100)
15:30 – 15:45
Refreshment Break
Atrium
15:45 – 17:00
9. Environmental Tax Justice
Jessica Magonet (BCL/LLB candidate, McGill Faculty of Law), Moderator
Toby Sanger (Senior Economist, Canadian Union of Public Employees), Tax Justice and Climate Change
Tracey Roberts (Visiting Assistant Professor, Seattle University School of Law), Tax – A Better Mechanism to Protect Rights in the Global Commons
- Rodolfo Salassa Boix (Professor, National University of Cordoba),Distribution of Ecological Costs Through Environmental Taxes
Stéphane Dion (MP for Saint Laurent-Cartierville), Jim Henry (Professor, Saint Louis University), discussants
Moot Court (room 100)
17:00 – 18:00
10. Roundtable on Tax Justice Campaigns and CSO Actions
Imad Sabi (Head of Global Partners Program, Oxfam Novib), Moderator
Dennis Howlett (Executive Director, Canadians for Tax Fairness)
Duncan Wigan (Researcher, Copenhagen Business School)
Victoria Harnett (Campaigns & Communications Advisor, Aid & Development Finance at Oxfam International)
Moot Court (room 100)
18:00 – 18:15
Wrap Up and Closing Remarks, Allison Christians (Stikeman Chair in Tax Law, McGill Faculty of Law)
Moot Court (room 100)
18:15 – 20:00
Closing Cocktail
 Atrium

Thursday, June 19, 2014

Today at McGill Law: Day Two of Tax Justice and Human Rights Research Collaboration Symposium #TJHR

The conversation among students, academic researchers, and tax justice advocates and activists on the topic of tax justice and human rights continues at McGill today. You can follow the proceedings and make comments on twitter at #TJHR. Program and speaker info here.

Here is the day's lineup:
Time
Topic
Location
08:30 – 09:00
Registration & Arrival Tea/Coffee
Atrium
09:00 – 09:15
Welcome remarksAllison Christians (Stikeman Chair in Tax Law, McGill Faculty of Law); Dennis Howlett (Executive Director, Canadians for Tax Fairness); John Christensen (Director, Tax Justice Network); and Jean Symes (Program and Policy Analyst, Inter Pares)
Moot Court (room 100)
09:15 – 10:00
1. Setting the Stage
William Stephenson (Editor in Chief, McGill Law Journal), Moderator
Kim Brooks (Dean and Weldon Professor of Law at the Schulich School of Law at Dalhouse University), Why Justice Matters for Tax Policy
Ignacio Saiz (Executive Director, Center for Human Rights in Economic Policy), The Evolving Norms and Standards of Human Rights
Allison Christians (Stikeman Chair in Tax, McGill Faculty of Law), Who Has Rights, What Rights, and Against Whom?
Moot Court (room 100)
10:00 – 11:15
2. Human Rights and Tax Justice Reports
Aldo Caliari (Director, Rethinking Bretton Woods Project), Moderator
Lloyd Lipsett (President and Rapporteur, International Bar Association Task Force on Illicit Financial Flows, Poverty and Human Rights): IBA Human Rights Institute Task Force on Illicit Financial Flows, Poverty and Human Rights Report
Kate Donald (Adviser to the UN Special Rapporteur on Extreme Poverty and Human Rights), UNHRC Report
Adrienne Margolis (Founder and Editor, Lawyers 4 Better Business), L4BB Report
David Quentin (Senior Adviser, Tax Justice Network), and Shirley Pouget(Senior Program Lawyer, Int. Bar Assoc. Human Rights Institute), discussants
Moot Court (room 100)
11:15 – 11:30
Refreshment Break
Atrium
11:30 – 12:45
3. Gender and Fiscal Justice
Liz Nelson (Partnership Development and Resources Coordinator, Tax Justice Network), Moderator
Annick Provencher (Professor, Faculty of Law, Université de Montréal),From the Invisible Hand to the Invisible Woman
Rhys Kesselman (Professor, School of Public Policy, Simon Fraser University), Income Splitting and Alternatives for Family Tax Cuts in Canada
Kathleen Lahey (Professor, Queen's University Law School), Sex Equality and Tax Justice: Gender Impact of Tax, Benefit, and Other Fiscal Policies
Kate Donald (Adviser to the UN Special Rapporteur on Extreme Poverty and Human Rights), Attiya Waris (Senior Lectrurer, Faculty of Law, Univ. of Nairobi), discussants
Moot Court (room 100)
12:45 – 14:15
Lunch, Keynote Speaker Thomas Pogge (Leitner Professor of Philosophy and International Affairs, Yale University) VIA SKYPE
Thomson House
14:15 – 15:45
4. Fiscal Justice: Regional Challenges and Initiatives
May Hen (Master's candidate, Simon Fraser University), Moderator
Savior Mwambwa (Policy and Advocacy Manager, Tax Justice Network - Africa), The Reform of the Global Tax System: Keys Issues and Lessons from Africa
André Mendes Moreira (Associate Professor of Tax Law - Federal University of Minas Gerais), Indirect Taxes and Tax Justice
Misabel Machado Derzi (Professor of Tax Law, the Federal University of Minas Gerais), Guerre fiscale, Bourse Famille et Silence
Renaud Fossard (Latindad), Latin American Countries: Local Issues and International Influences
Lyne Latulippe (Professor, University of Sherbrooke), John Christensen (Director, Tax Justice Network), discussants
Moot Court (room 100)
16:45 – 16:00
Refreshment Break
Atrium
16:00 – 17:30
5. Reducing Inequality: International Corporate Tax Reform
Jo Marie Griesgraber (Executive Director, New Rules for Global Finance Coalition), Moderator
Erika Siu (Tax Research Consultant, International Centre for Taxation and Development), BEPS Monitoring Group Activities: An Update
Michael Knoll (Theodore K. Warner Professor of Law, University of Pennsylvania Law School), Competitive Neutrality and the EU Model
Lee Sheppard (Journalist, Tax Analysts), OECD Initiative on BEPS
Robert Fox (Executive Director, Oxfam Canada), Business Among Friends: Why corporate tax dodgers are not yet losing sleep over global tax reform 
Samuel Singer (Associate, Stikeman Elliott), discussant
Moot Court (room 100)
17:30 – 17:45
Announcements
Moot Court (room 100)
17:45 – 18:30
Refreshment Break: Atrium


Breakout Session: IBAHRI Update on Tax and the Millennium Development Goals, Moot Court (room 100)

Wednesday, June 18, 2014

Today at McGill Law: Tax Justice and Human Rights Research Symposium #TJHR

Today is the first day of the Tax Justice and Human Rights Research Collaboration Symposium, a three-day conversation among students, academic researchers, and tax justice advocates and activists on the topic of tax justice: what is it, how is tax connected to human rights or how could it be, and what research needs to be done to further this emerging field? You can follow the proceedings and make comments on twitter at #TJHR.

Here is the day's lineup:

Day 1: Emerging Scholars Symposium
Wednesday, 18 June

Time
Topic
Location
08:30 – 09:00
Registration & Arrival Tea/Coffee
Atrium
09:00 – 09:30
Welcome RemarksDaniel Jutras (Dean, McGill Faculty of Law)
Room 316
Panel A
Samuel Singer (Associate, Stikeman Elliott), Moderator
Room 316 
09:30 – 10:00
Leyla Ates (PhD candidate, University of Wisconsin and Istanbul Kemerburgaz University), Developing Countries And Globalization of Tax Law Making: Turkısh Tax Law Reforms on Fighting Tax Evasion
Steven Dean (Professor, Brooklyn Law School), discussant
10:00 – 10:30
May Hen (Master's candidate, Simon Fraser University), Who runs the Cayman Islands? Field notes on elite tax discourse
Lyne Latulippe (Professor, University of Sherbrooke), discussant
10:30 – 10:45
Refreshment Break
Third floor lobby
Panel B
William Stephenson (Editor in Chief, McGill Law Journal), Moderator
Room 316
10:45 – 11:15
Regina Duarte (LLM Candidate, Federal Univ. of Minas Gervais, Brasil),Globalization, Tax Competition and Tax Base Erosion: a Matter of Human Rights
Henry Ordower (Professor, Saint Louis Univeristy), discussant
11:15 – 11:45
Martin Hearson (PhD candidate, LSE), Why Do Developing Countries Sign Tax Treaties?
Lee Sheppard (Journalist, Tax Analysts), discussant
11:45 – 12:15
Montano Cabezas (LLM Candidate, Georgetown University Law Center),Giving Credit Where it is Due: Rethinking the Corporate Tax Paradigm
Kim Brooks (Dean and Weldon Professor of Law at the Schulich School of Law at Dalhouse University), discussant
12:15 – 13:45
Stikeman Chair’s Luncheon featuring a keynote talk by James A. Robb, Stikeman Elliott
Atrium
Panel C
Sas Ansari (Phd Candidate, Osgoode University), Moderator
Room 316
13:45 – 14:15
César Alejandro Ruiz Jiménez (LLM Candidate, Vienna University), Right to Property and Taxation
Stephen Cohen (Professor, Georgetown University Law Center), discussant
14:15 – 14:45
Juan Agustin Argibay Molina (LLM Graduate, McGill), Trade Mispricing in Argentina: A Case Study
Neil Buchanan (Professor, George Washington University Law School), discussant
15:45 – 15:15
Daisy Ogembo (Assistant Lecturer, Strathmore Law School, Nairobi), VAT Refunds and Tax Justice
Andre Moreira (Associate Professor of Tax Law, Federal University of Minas Gerais, Brazil), discussant
15:15 – 15:30
Refreshment Break
Third floor lobby
Panel D
Sarah Blumel (Independent), Moderator
Room 316
15:30 – 17:00
Incubator Session: Designing a Research Project, Methodology & Collaboration, and Publishing
Adrienne Margolis (Founder and Editor, Lawyers 4 Better Business);Krishen Mehta (Senior Advisor, Tax Justice Network); Gabriel Monette(Réseau Justice Fiscale); and Shirley Pouget (Senior Program Lawyer, International Bar Association Human Rights Institute)
17:00 – 19:00
Cocktail reception
Atrium
19:00 – 20:30
Roundtable on Tax Justice and Human Rights: Open to the Public
Allison Christians (Stikeman Chair in Tax, McGill Faculty of Law), Moderator
Featuring Alex Himelfarb (Director, School of Public and International Affairs, York University); Kate Donald (Adviser to the United Nations Special Rapporteur on Extreme Poverty and Human Rights); Attiya Waris (Senior Lecturer, Faculty of Law, University of Nairobi); and Denise Byrnes(Executive Director, Oxfam Québec)