IRS Must Define Political Activity

From the WashingtonPost.com:

The Aug. 22 article "Ruling sets up IRS as overseer of groups' gifts to campaigns" portrayed the ineffectiveness of the Internal Revenue Service enforcing disclosure on political spending. While the problem stems in part from an agency operating on "tax time," a fundamental reason the IRS cannot meaningfully enforce rules on nonprofit groups' political activity is its failure to give clear rules defining what is considered "political”.

For decades, the agency has relied on a "know it when we see it" approach, otherwise called the "facts and circumstances" test. In contrast to clear, practical rules that define lobbying for nonprofits, groups interested in political advocacy have little guidance and must guess how regulators will characterize their messages. It is this regulatory failure that allows Americans for Job Security to claim that its ads are issue advocacy and not electoral activity.

In the wake of the Citizens United Supreme Court decision, the IRS needs to step up and take on the hard task of providing guidance that defines political activity. Nonprofit organizations struggling to comply with vague rules and the public deserve no less.

California State Budget Crunch Brings Back Furlough Fridays

The California Supreme Court agreed to allow furloughs to resume on Friday, until they have enough time to thoroughly review the case. The judges must decide whether or not Governor Arnold Schwarzenegger has the right to order unpaid days off for state workers.

News10.net reports:

150,000 state workers will take an unpaid day off Friday in an effort to curb the state's budget crisis. Furloughing state employees three days a month will save $150 million a month.

The California Supreme Court cleared the way for furloughs to resume Wednesday, saying furloughs can resume while it reviews whether the governor has the authority to mandate unpaid days off for state employees.

Gov. Arnold Schwarzenegger recently ordered workers to be furloughed three days a month, following a previous round that ended in June.

It's a move that has an impact on the private sector as well as state employees.

Read more here

A Labor Market Punishing to Mothers

Many of us are already aware that there are more men in powerful corporate positions than women. In fact, out of the Fortune 500 companies, only 15 have women CEO’s. However, according to this article from the New York Times single women without children, are often favored over mothers.

The last three men nominated to the Supreme Court have all been married and, among them, have seven children. The last three women — Elena Kagan, Sonia Sotomayor and Harriet Miers (who withdrew) — have all been single and without children.

This little pattern makes the court a good symbol of the American job market. Women and men with similar qualifications — age, education, experience — are much more likely to be treated similarly today than in the past. The pay gap between them, while still not zero, has shrunk to just a few percentage points.

Yet once you look beyond the tidy comparisons of supposedly identical men and women, the picture is much less sunny. There are still only 15 Fortune 500 companies with a female chief executive. Men dominate the next rungs of management in most fields, too. Over all, full-time female workers make a whopping 23 percent less on average than full-time male workers.

What’s going on? Men and women are not identical, of course. Many more women take time off from work. Many more women work part time at some point in their careers. Many more women can’t get to work early or stay late.

And our economy exacts a terribly steep price for any time away from work — in both pay and promotions. People often cannot just pick up where they have left off. Entire career paths are closed off. The hit to earnings is permanent.

Supreme Court Nominee Elena Kagan

By now you have all probably heard about Elena Kagan, President Obama's nomination to replace Justin Stevens on the Supreme Court. Although her confirmation hearings have not yet began, I decided to make some predictions, based upon her career thus far, about her business and tax views.

No Tax Records

It is very difficult to determine exactly what impact Kagan would have on the U.S. tax code because, if confirmed, she would be the first Supreme Court Justice—in nearly four decades—to serve without any prior experience as a judge.

Respected Member of the Law Community

Kagan has a Bachelor's degree in history from Princeton, a Masters in Philosophy from Oxford and a J.D. from Harvard. She was a professor at the University of Chicago Law School, before being appointed as dean of Harvard Law School. Kagan is a highly respected member of the legal community.

Clerking Experience

Kagan worked as a clerk for Judge Abner Mikva, as well as Justice Thurgood Marshall. Mikva is widely known as a very progressive member of the DC Court of Appeals, which has led many to believe that Kagan will be progressive if confirmed to the U.S. Supreme Court. However, because of her limited record on social and fiscal issues this is merely an assumption.

Pro Shareholders as Solicitor General

Although she has never served as a judge, Kagan has been serving as Solicitor General since Obama took the White House. During her time as Solicitor General, she joined lawsuits on the side of shareholders against companies and mutual funds. According to Bloomberg, prior Solicitor Generals did not side with shareholders, leading many in the business community to consider her nomination as a slap in the face to many large corporations.

Social Justice

Although we do not know much about her tax views, according to A Taxing Matter, Kagan wrote her senior thesis at Princeton on the socialist movement in New York City in the early 20th century. Therefore, we can predict that Kagan is at least informed about arguments for social justice in our "capitalist-based economic system."

Furthering Obama's Tax Agenda

Kagan has been considered as a possible Supreme Court Justice since Obama won the election in 2008. As this article published last month on NY Times.com explains, Kagan is known for supporting "assertions of executive power." Therefore, we could expect that she would support Obama's tax agenda if confirmed to the U.S. Supreme Court, which could have significant impacts on the U.S. tax code.

Justice Sonya Sotomayor: The Future of Taxes in the United States

Over the past week, President Obama’s first nomination to the U.S. Supreme Court, the Honorable Sonya Sotomayor, has been making headline after headline as she moves through the nomination process. As such, I thought it would be a good time to take a look at some of her tax related opinions, and predict how the future of taxation in the United States might change if she were to become a Supreme Court Justice.

Lack of Tax Related Cases

Unfortunately the Supreme Court does not hear many cases on tax issues, which makes predicting how a new Justice will influence the court all the more difficult.

According to the Tax Girl, whom I follow on Twitter, during the term beginning in October 2007, the Supreme Court only agreed to hear five tax-related cases. They are all listed below, along with a brief note on the issue. As you can see, none of them were very note worthy.

• Kentucky Department of Revenue v. Davis, No. 06-666 (state bond issue)
• Knight v. Commissioner, No. 06-1286 (trust administration fees)
• CSX Transportation Inc. v. Georgia State Board of Equalization, No. 06-1287 (railroad property valuation)
• MeadWestvaco Corp. v. Illinois, No. 06-1413 (state gain issue)
• Boulware v. United States, No. 06-1509 (diversion of corporate funds to a shareholder of a corporation)

Most Cited Tax Case

Unfortunately, Judge Sotomayor has not written extensively on tax law. In fact, there is really only one tax related case that she has drafted an opinion. Although the case does not provide enough information to determine how she would decide on future issues, it can provide some hints.

In the case of Knight vs. Commissioner, 467 F.3d 149 (2006) Sotomayor’s court unanimously upheld a lower tax court ruling that said some fees paid by a trust are only partially tax deductible. Although they upheld the decision, the rejected the lower court’s reasoning and Sotomayor authored the deciding opinion.

The reason this case has gotten so much attention was because the U.S. Supreme Court heard the appeal, and rejected Sotomayor’s reasoning. They did unanimously uphold the decision, but Chief Justice Roberts noted that Sotomayor’s approach "flies in the face of the statutory language." I also found it especially interesting that one of the main areas the two courts disagreed on was what the term “would” meant under the statute in questions.

Other Relevant Cases

Although she has only authored an opinion on one tax related cases, Justice Sotomayor has ruled on a few other related cases. The first of which was Dabit vs. Merrill Lynch, 395 F.3d 25 (2005), where she overturned a lower court decision and allowed certain types of fraud lawsuits to be settled in state court, rather than federal. However, the U.S. Supreme court overturned the decision claiming that the federal government did have interest in overseeing such cases.

Empire Healthchoice Assurance, Inc. vs. McVeigh, 396 F.3d 136 (2005) was another interest case that has been discussed frequently over the past week. In it Sotomayor ruled against a health insurance company that sued the estate of a deceased federal employee who had won a settlement form a separate civil case.

U.S. Supreme Court Justice Sotomayor

Although it is impossible to predict how Justice Sotomayor would rule in a case as a Supreme Court Justice, we can make some predictions based on her history. According to the Congressional Research Service, Sotomayor’s “approach as an appellate judge has been an adherence to the doctrine of stare decisis,” meaning she has a tendency to uphold concepts decided by former justices. The report also found that her approach was “in line with the judicial philosophy of Justice Souter,” the judge she is nominated to replace.

From looking at the findings of the Congressional Research Service, and examining her history, it is quite difficult to determine how taxation in the United States would change if Sotomayor’s nomination was accepted. However, based on her decision against health care and investment companies, it seems likely that Sotomayor might be somewhat progressive in her approach to the tax code. Yet, with the Supreme Court only hearing a handful of select cases per year she might never even get the opportunity to rule on a meaningful tax case.

Nomination as a Distraction?

As the nomination hearings continue to make headlines, and media outlets debate Sotomayor’s use of the phrase “Wise Latina,” some bloggers are beginning to think that the Obama Administration and Democratic leaders are using the media fixation as an opportunity to “sneak through” a hefty tax increase. The bill in question was proposed in the House of Representatives as a way to generate funds to pay for health care reform. The 1% increase on families making $350,000 or more per year, and up to 5.4% increase on those making over $1 million would generate an estimated $540 billion in additional federal revenue. Although passing legislation while the American media focuses on another issue is a common tactic used in Washington, I hope it is not a sign of things to come for Justice Sotomayor and the Obama Administration.