IRS Issues Call for Tax Statistics Research Proposals

From Tax Prof:

The Treasury Department has issued a solicitation notice for tax statistics research for the IRS's Statistics of Income Division:

The SOI requires high quality proposals for research projects that would necessitate access to federal tax microdata and are for statistical puposes, not tax compliance. A proposal should explain why it is not feasible to conduct the proposed research by using aggregate tax data – either from a special tabulation that SOI might produce or from existing publicly available data, including the SOI Individual Public Use File (PUF). Please review attached solicitation package for full details.

For this statement of work, consideration will be given only to proposals involving research on statistical methodologies, international income and taxation, non-profit organizations, estate and/or gift taxation, individual income taxation related to unincorporated businesses (except partnerships), or individual taxpayers with retirement accounts. In addition to describing the research merits of a project that will result in presentations/publications for professional conferences and journals, a proposal should specifically address the researcher’s familiarity with SOI, including the required data and metadata. A proposal must also address specific contributions to SOI’s staff development program, such as through the researcher’s mentoring and/or collaborating with SOI staff.

Tax Consequences of e-Commerce

Trevor J. Mohr, an Associate at Wilbraham, Lawler & Buba in Philadelphia, has published this interesting paper titled “Note, From the Garage to the Internet Superhighway: Tax Consequences For Individual eBay Users and IRS Policy Towards the Online Marketplace.” Below is the conclusion thanks to the TaxProf blog.

Congress and the IRS need more insight into the use of e-commerce, and current tactics employed by the IRS should be updated to reflect the change in social norms and technological advancement. Failure to do so will only lead to an increased tax gap and a heavier burden on the majority of the tax base who honestly report income and pay the requisite taxes. E-commerce has emerged as an integral function of modern business practice, yet the Code has not been modified to reflect this change. Therefore, online businesses, as well as individual vendors and purchasers, are able to avoid most applicable regulations and federal income taxation requirements with little risk of getting caught.

There are several simple solutions to the current problem, but it appears that our elected officials and appointed members of the Treasury Department are not thinking ahead of the curve to combat the loopholes technology created for online transactions. IRS Forms W-9 and 1099 should be a standard requirement for those conducting activities for profit on sites like eBay. In addition, both eBay and its users should be held responsible for the current problem they created. Although the IRS should offer more assistance to users and eBay in carrying out their responsibilities, the agency can only be stretched so far. Online traders should be more aware of their legal responsibility to pay taxes on income derived from such sales, and eBay Inc. should uphold its corporate and social responsibilities by combating the problem. eBay claims it has no responsibility because it is merely the trading platform, but that does not negate the fact that it derives income from each and every transaction. For this reason, it should be regulated and forced to assist the IRS in combating the current tax gap arising from such unreported activity. Hopefully, the law will soon catch up with technology, but until such change occurs, eBay users will continue to sidestep federal income tax reporting requirements and benefit from the burden the rest of us share.

A Theory of Taxing Sovereign Wealth

Victor Fleischer, of the University of Illinois College of Law, recently published an interesting paper titled, “A Theory of Taxing Sovereign Wealth,” on the Social Science Research Network. Below is the abstract, and you can read the full text by clicking here.

“Sovereign wealth funds enjoy an exemption from tax under section 892 of the tax code. This anachronistic provision offers an unconditional tax exemption when a foreign sovereign earns income from non-commercial activities in the United States. The provision, which was first enacted in 1917, reflects an expansive view of the international law doctrine of sovereign immunity that the United States (and other countries) discarded fifty years ago in other contexts. The Treasury regulations accompanying section 892 define non-commercial activity broadly, encompassing both traditional portfolio investing and more aggressive, strategic equity investments. Because section 892 was not written with sovereign wealth funds in mind, the policy rationale for this generous tax treatment has not been closely examined before.

This Article provides a framework for analyzing the taxation of sovereign wealth. I start from a baseline norm of "sovereign tax neutrality," which would treat the investment income of foreign sovereigns no better and no worse than private investors' income. Nor would it favor any specific nation over another. Whether we should depart from this norm depends on several factors, including the external costs and benefits created by sovereign wealth investment, whether tax or other regulatory instruments are superior methods of attracting investment or addressing harms, and which domestic political institutions are best suited to implement foreign policy. I then consider whether we should impose an excise tax that would discourage sovereign wealth fund investments in the equity of U.S. companies. If desired, the tax could be designed to complement non-tax economic and foreign policy goals by discouraging investments by funds that fail to comply with best practices for transparency and accountability.

The case for repealing the existing tax subsidy is strong. We should tax sovereign wealth funds as if they were private foreign corporations; there is no compelling reason to subsidize sovereign wealth. My analysis also shows that imposing a special excise tax may not be the optimal regulatory instrument for managing the special risks posed by sovereign wealth funds, although a carefully-designed tax would be more effective than the status quo.”

An Overview of the 'Tax Gap'

David Rifkin has out together a new research paper that takes a deeper look at the tax gap in our country. Below is the abstract, but you can check out the full article at the Social Science Research Network.

“When taxpayers underreport their income, understate their income, or fail to file their tax returns the government must spend money to audit taxpayers, to assess the tax, to collect the tax, and to borrow money to cover the lost revenue. The amount of such noncompliance with the tax laws is called the "Tax Gap" and currently it is estimated to be $345 billion annually.

This article describes the scope, the causes of, and the tools available to Congress and the IRS to close the Tax Gap. In particular, I examine the role enforcement and other methods play in closing the Tax Gap. Given the complexities involved, there is no single method that, by itself, will significantly reduce the Tax Gap. Instead, several methods - discussed herein - will need to be employed simultaneously to close the Tax Gap.”