Category Archives: Law: Tax

The (Rare?) Case of a Regulation that Does the Opposite of a Statute

US personal tax returns are normally due on April 15; because the 15th fell on a Saturday this year, the IRS extended the date to April 18. That date got a lot of publicity. What got almost no publicity, however, is that Congress changed the date for filing the much more rare Reports of Foreign Bank and Financial Accounts (FBAR). The due date for the FBAR got moved from its usual date of June 30 to April 15 (or, this year, April 18).

Congress could not have been clearer in Section 2006(b)(11) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41,

The due date of FinCEN Report 114 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 [[Page 129 STAT. 459]] with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081-5. For any taxpayer required to file such Form for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.

Whether there is some deeper purpose beyond tidiness at work here I leave to the tax lawyers. But if like me you have a foreign bank account (leftover in my case from a period working abroad) and have a tendency to file tax returns rather close to the deadline, you could easily miss the new earlier due date for reporting the foreign account’s existence. Never fear–Treasury has your back: even if this is not the first time you have been required to file an FBAR Treasury has unilaterally given you an automatic extension.

According to the Fincen web site,

The new annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15. This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the Act). Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the Federal income tax filing season. The Act also mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required. (Please note: The due date for FBAR filings for foreign financial accounts maintained during calendar year 2016 is April 18, 2017, consistent with the Federal income tax due date.)

Although undoubtedly well-intentioned and useful (the agency likely has better things to do than to put many people unaware of the deadline change into violation and expend resources punishing them in some way) this is nonetheless a rather weird rule given the statute.

Agency regulatory power exists to the extent created by statute (or, perhaps and exceptionally, when deriving directly from inherent Presidential power). It follows, quite obviously, that agencies cannot act in opposition to a statute, for that would be not only arbitrary and capricious but ultra vires as well. Nor, we learned from Youngstown Sheet & Tube v. Sawyer (The Steel Seizure Case), 343 U.S. 579 (1952), can the President act in the teeth of a clear statutory command, save perhaps when applying an equally clear Constitutionally delegated power.

Some people argue that President Obama violated this basic principle when ordering ICE to deprioritize enforcement against certain classes of undocumented persons. ((Others find the use of public non-enforcement to be potentially legitimizing, see my colleague Leigh Osovsky’s The Case for Categorical Nonenforcement, 69 TAX L. REV. 73 (2015), (reviewed in JOTWELL: The Journal of Things We Like (Lots), Oct. 16, 2015). )) But that was, in form and I would argue in substance as well, not a case of totally undermining the statute, but rather a Presidential decision to choose among priorities in a world in which it was clear resources were inadequate to fully enforce all the rules Congress had asked ICE to enforce. What is more, in form although perhaps not in substance, the Obama regulation did not require agents to refrain from deporting the favored classes of non-dangerous aliens; it merely suggested rather strongly that this would be a good idea.

Given this context, Treasury’s FBAR extension rule seems a little weird. There can be little doubt that the automatic deadline extension effectively not only undermines the statutory command that there be an earlier due date but in practice extends the former June 30 deadline to October 15. It does so by paying lip service to the deadline–it is officially April 15 (or 18)–but gives everyone effected an automatic extension whether or not they ask for one.

I think this may be too cute. But I also think it is unchallengable, since no one has standing to complain: the people affected by the rule are not harmed in any way, and nothing stops them from filing by the 18th if they want to. And no one else has a legal interest. Perhaps Congress could sue, as the House did over the Obama regulations, but the issue is far too trivial to merit that response.

It’s not unusual to see an agency rule that seems to go farther than a statute allows; such is the bread and butter of administrative-law-based challenges to regulations. It’s a lot stranger to see an administrative pronouncement that not only undermines a statutory command but in fact does the opposite.

Posted in Law: Administrative Law, Law: Tax | 1 Comment

Nomenclature Matters

What you call it can determine how it is regulated. Businesses are lobbying hard to be allowed to repatriate “$2 trillion in untaxed profits outside the United States”. Seems to me they practically have won the war by labeling this money “stranded cash” when in fact it should be called “sheltered cash”.

Thus we get stuff like this:

But this much is clear: There is a growing political consensus that the time has come for change in the tax rules to encourage repatriation of the vast troves of corporate earnings held outside the country. Companies, ordinary American taxpayers and thousands of investors have substantial and sometimes conflicting stakes in the outcome.

“Everyone agrees that something is going to be done about this,” said Edward D. Kleinbard, the former chief of staff of the congressional Joint Committee on Taxation, and now a law professor at the University of Southern California. “The question, of course, is exactly what.”

Well, I don’t agree. Let’s just close the loophole going forward as a first step, so as not to make foreign investment more profitable than domestic. Then maybe we can talk about wealth taxes?

Meanwhile, please can we call this $2 trillion what it is: tax-sheltered cash stored in offshore bank accounts.

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Nothing is Ever Simple

Naked Capitalism has more about Why Strike Debt’s Rolling Jubilee Puts Borrowers at Risk. Serious tax stuff. Not only isn’t this simple, but it actually does seem to carry real risks all around.

Previously: Tax Risks in Occupy Wall Street’s Debt Jubilee (11/18/12) and OWS to Buy, Forgive Distressed Consumer Debt (11/08/12)

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Tax Risks in Occupy Wall Street’s Debt Jubilee

I wrote previously of Occupy Wall Street’s plan to buy and forgive distressed consumer debt. A commentator on that post noted that it created a tax issue, and a colleague agreed it was a risk. A fuller treatment of the problem, and some instant revisionist thinking about the ‘Jubilee’ program in general is over at the excellent Naked Capitalism blog, Occupy Wall Street’s Debt Jubilee: A Gimmick with Tax Risk.

Like most of the things they run, well worth a read.

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Step One in Tax Shelter Reform, a (Very) Modest Proposal for Transparency

Today’s NYT article on how the Estée Lauder heir Ronald S. Lauder uses tax shelters to protect his billions reminded me of An Investment Manager's View on the Top 1%:

A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules. I am not optimistic.

(Incidentally, there’s some other interesting stuff there, including a rich-person’s view of why the 99.5% and up are so different from the bottom half of the top 1% (ie. 99.0 – 99.5). That group is mostly very successful professionals who find their retirement prospects to be better than most, but still less certain than they would like. The top 0.5%, on the other hand, the writer says, are or were in finance.)

While it would be good to do some serious reform of the tax system, the vested interests are in fact all pushing hard the other way (e.g. the quiet concerted action to destroy the inheritance tax).

Perhaps, therefore, as a first step we could require that anyone who uses a tax credit or deduction that saves them more than, say, $250,000 in tax liability, must disclose what tax credit/deduction they used, how much they saved and have it recorded along with their names on a registry published online, in a nice searchable format, by the IRS. There is a long tradition of having tax returns private, but perhaps for this we should change it: if you want to keep your privacy, don’t take the tax shelter. Note that my proposal does not require that the taxpayer disclose either income or total tax liability, just the size of the savings and its source.

As I’ve said before, I’m not at all a tax lawyer. I invite people who know more about tax law to explain why this idea is unworkable, pointless, or fattening.

Posted in Econ & Money, Law: Tax | 8 Comments

Tax Law and Airline Baggage Checking Fees

In Why The Tax Code Encourages American Airlines to Award Bonus Miles for Checking Bags in Boston View from the Wing explains how the tax code encourages airlines to add fees to base ticket prices rather than bundle prices like cable TV companies do.

I guess this means we have to start taxing baggage checking fees?

[Edited shortly after original posting for clarity.]

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