Paper Highlights How Taxpayers Can Game Proposed Tax Legislation

A group of mostly law school academics and one partner at a large law firm has written an important article highlighting some major problems with the current tax legislation. Here is the abstract from The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the New Legislation

This report describes various tax games, roadblocks, and glitches in the tax legislation currently before Congress. The complex rules proposed in the House and Senate bills will allow new tax games and planning opportunities for well-advised taxpayers, which will result in unanticipated consequences and costs. These costs may not currently be fully reflected in official estimates already showing the bills adding over $1 trillion to the deficit in the coming decade. Other proposed changes will encounter legal roadblocks that will jeopardize critical elements of the legislation. Finally, in other cases, technical glitches in the legislation may improperly and haphazardly penalize or benefit individual and corporate taxpayers. This report highlights particular areas of concern that have been identified by a number of leading tax academics, practitioners, and analysts.


We have previously posted on the House and Senate versions of tax legislation, though have noted that for the most part the proposed legislation does not have many provisions that directly address tax procedure or tax administration.

I recommend this paper to our readers. It invariably follows that whenever there is tax legislation some very smart people consider ways to exploit the legislation’s ambiguities. For years, Congress, the IRS/Treasury and the courts are left to legislate, administer and adjudicate around the uncertainty.

Yet as the authors describe in this paper, the proposed Senate and House legislation presents gaming opportunities of a different scale. Consider two of the key domestic provisions, the lowering of rates on C Corps and the preferential treatment of passthrough entities. As the paper discusses, in the absence of major changes, or broad anti-abuse provisions that require an engaged and funded IRS, there are likely to be gaming and planning opportunities spinning off this that will keep the tax advice business fully employed.

For those who do not have the time to read the paper take a look at the Twitter feed of Tax Notes regular Martin Sullivan, who neatly summarizes the paper in a series of tweets (I list the first seven of these; his twitter feed has a bunch more):

  • “Tax Games” Paper warning to Congress #1: Malpractice for advisors not to advise clients to use of C corps as shelter so interest otherwise taxed at up to 43.4% will be taxed at 20% under new bill
  • “Tax Games” Paper warning to Congress #2: Malpractice for advisors not to advise clients to use of C corps as shelter so tax on dividends otherwise taxed at up to 23.8% will be taxed at 10% under new bill
  • “Tax Games” Paper warning to Congress #3: Employees (presumably wealthy, who do not need immediate cash) can become C corps and instead of getting salaries taxed at regular rates can pay 20% tax now and defer or completely eliminate tax on distribution
  • “Tax Games” Paper warning to Congress #4: Active business owners of C Corps can minimize taxes by paying themselves low salaries. Determining “reasonable compensation” is a judgment call fraught with controversy.
  • “Tax Games” Paper warning to Congress #5: Taxpayer can put C corp in Roth IRA and, if payouts delayed to retirement, only pay total of 20% tax on C corp income.
  • “Tax Games” Paper warning to Congress #6: Employees at service firms can form own partnerships and charge for services in lieu of salary. Then they receive 23 percent deduction (in Senate bill) on fees for service instead of paying full freight on wages.
  • “Tax Games” Paper warning to Congress #7: Limits on doctors and lawyers and such qualifying for passthrough benefits can be avoided by splitting business into unqualified professional business and qualified business that provides services

Many of the House and Senate provisions will likely allow the well-advised to game the system. Less sophisticated employee/taxpayers will be left behind. The result will be more pressure on IRS/Treasury and the courts to police abuses and attempt to figure out who is on the right side of Congress’ largesse. So, while the proposed legislation may not have in the traditional sense many tax procedure and administration provisions it will, if enacted, be the most significant legislative development relating to tax administration for decades to come.

UPDATE: To see Martins Sullivan’s summary of the paper see here

Authors of Tax Games paper:

Reuven S. Avi-Yonah  University of Michigan Law School

Lily L. Batchelder New York University School of Law

J. Clifton Fleming Jr. Brigham Young University – J. Reuben Clark Law School

David Gamage  Indiana University Maurer School of Law

Ari D. Glogower Ohio State University (OSU) – Michael E. Moritz College of Law

Daniel Jacob Hemel  University of Chicago – Law School

David Kamin  New York University School of Law

Mitchell Kane  New York University

Rebecca M. Kysar  Brooklyn Law School; Fordham University School of Law

David S. Miller  Proskauer Rose LLP

Darien Shanske  University of California, Davis – School of Law

Daniel Shaviro  New York University School of Law

Manoj Viswanathan  University of California Hastings College of the Law








Republican Tax Bill Passes Senate

The Senate passed sweeping tax legislation last night. There is lots to digest in the bill, and there still is a reconciliation process to clear up differences between the House and Senate versions. As with the House legislation, there is not much procedure in the bill, though some of the substantive changes have major administrative implications.

While not the main focus, the Senate bill has some procedural provisions, which I highlight below:

  • Changes the due diligence rules to include due diligence requirements associated with Head of Household filing status as well as CTC, EITC and AOTC;
  • Extends time to return property subject to levy under Section 6343 from nine months to two years;
  • Extends time to bring a wrongful levy suit under Section 6532 from nine months to two years;
  • Caps user fees for installment agreements and explicitly waive fees for taxpayers at or under 250% of federal poverty guidelines;
  • Defines proceeds under the whistleblower provisions to include interest and penalties under internal revenue laws and proceeds from laws IRS investigates, administers or enforces including criminal fines, civil forfeitures and violations of reporting requirements; and
  • Modifies rules relating to property exempt from levy due to the elimination of the dependency exemption deduction and the increase in the standard deduction; the Senate bill provides that the amount that escapes levy is the sum of the standard deduction and $4,150 times the number of dependents in the taxpayer’s household. Given the increase in the standard deduction this amounts I believe to an additional amount of income that will be free of IRS levy; however absent submission of a verified statement the IRS is to treat a taxpayer as a MFS taxpayer with no dependents.

This is a moving target, and what comes out of the sausage factory is still up for grabs.



An Internship Announcement for Students and a Request for Support from a Fellow Blogger

We try not to abuse your inbox but occasionally we receive requests that might be of interest to the community working in the tax procedure area. Today, we bring forward two separate matters.

Access to Tax Court Records

First, Peter Reilly, who blogs at Forbes where we occasionally blog, is interested in hearing from individuals interested in a discussion concerning public access to Tax Court documents and requested that we notify readers of PT. He is writing a “piece about the Tax Court’s lack of electronic transparency.” For those of you who have sought Tax Court records, you know that the Tax Court electronic docket does not have the same links that you would find on Pacer. The Tax Court has reasons for the way their electronic docket works which are rooted in privacy concerns for the parties who file petitions. Practitioners, and others wanting access to Tax Court records, have concerns about the ability to access the public records at the Court. Peter asked for our assistance it pointing people to him who have an interest in engaging in this debate. He can be reached at

Tax Division of the Department of Justice

If you want to get a great start on learning tax procedure, it is hard to imagine a better place than the Tax Division. You would work with great lawyers while learning the ins and outs of tax litigation. Copied below is a message sent out by Dara Oliphant, Counsel, Office of Management and Administration at the Tax Division soliciting interested individuals to apply for an internship with them:

I am writing to encourage your students to consider applying for a volunteer legal internship with the DOJ Tax Division. The Tax Division represents the United States in courts across the country in a wide spectrum of interesting and cutting-edge cases involving issues arising under federal tax law. Our Division is ranked as “one of the best places to work” in government by the Partnership for Public Service. We seek to create a work environment and organizational culture that reflect the diversity of American society and that foster the success of every employee by appreciating and building upon the skills, experiences, and uniqueness that each employee brings to the workplace. We also place a high value on diversity of experience and cultural perspective and encourage applications from all interested eligible candidates. More information about the Tax Division is available at:

Currently, the Tax Division is accepting applications from law students who wish to volunteer during the Summer, and the deadline is January 1, 2018.  As set forth in the job announcement link – – we have approximately four summer volunteer positions available in Washington, DC and one in Dallas, TX.

(We are also accepting applications for students looking for internship positions for Fall 2018, and that deadline is May 1, 2018.  I will send a follow-up with that announcement when it is posted.  We generally hire between 13-16 volunteer interns during each academic semester.)




Happy Thanksgiving!

Fresh off his Presidential pardon, the Tax Atturkey is thankful for the fact that he will be able to gobble again (and not be gobbled).





We are all also very thankful to all of you for reading, and all of our wonderful guest posters!  The three of us have a million other things to be thankful for, but all are a distant second to our families (Keith couldn’t send photos, but he is also very thankful for his as well).

Some from Les:



















And my four:

Tax Court Judicial Conference Application Deadline Extended to This Friday

Readers may have heard that the Tax Court is holding a judicial conference from Monday evening March 26 to mid-day on Wednesday, March 28, 2018 at Northwestern University Law School. The Tax Court has issued a release about the conference, including information about how to apply to attend.

The Tax Court has extended the deadline to apply, from Wednesday until Friday, November 17.

The Tax Court release discusses the court’s interest in attracting a diverse conference community. The conference will be an opportunity to hear panels on issues of interest to tax litigation as well as give the court a chance to get feedback on ways to improve the tax litigation process. The panels consist of judges, academics, and practitioners from government and the private sector.

Getting together with people who share an interest in the tax litigation process sounds like a great way to spend a few days.

ABA Tax Section Seeking Nominations For Janet Spragens Pro Bono Award

The ABA Tax Section is accepting nominations for its annual award given to an individual or law firm for sustained and outstanding achievements in pro bono activities in the tax law. Nominations will be accepted until December 8th. Information about the straightforward submission process and a listing of the criteria for both firms and individuals can be found here.

The award is named after the late Professor Janet Spragens, who was a pioneer in the tax clinic movement and a mentor to me when I started teaching and directing a tax clinic over 20 years ago.

For those of you who did not have the pleasure of knowing Janet, a wonderful tribute to her from Nancy Abramowitz, her longtime colleague at American University, can be found here. One of my professional highlights was accepting the award on Janet’s behalf when I was able to share with the Tax Section my thoughts on Janet.

I know Janet would be pleased with the work that so many are doing to make the tax system fairer and more accessible.


House Republicans Introduce Major Tax Reform Legislation

House House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced the Tax Cuts and Jobs Act, self-described as “bold legislation to overhaul America’s tax code for the first time in 31 years.”

Text of the bill is here; the press release is here.

There is not much in the legislation with a procedural or tax administration focus (with the exception of expanding IRS math error power when there is no SS# accompanying a CTC claim), though the scope of the changes for both individual and business taxpayers portends a major impact on tax administration.

For a summary in table form, see the Tax Foundation twitter post here 

Some of the highlights on the individual side: eliminating the deduction for tax prep advice, alimony and personal casualty losses, and medical expenses. In addition it cuts back the mortgage interest deduction cap (tying it only to principal residence and halving the cap on the deduction), Section 121 exclusion on gain from principal residences (requiring a 5 out of 8 yr use/ownership rather than current 2 out of 5 years) and allows state and local property tax deductions but only up to $10,000.  In addition it boosts the standard deduction and eliminates the dependency exemption deduction (though the definition is still retained for credit purposes).

The Child Tax Credit is increased to $1,600; most of the increase is nonrefundable and the income phase out is also increased so it has little impact on moderate and low income workers, though the $1,000 refundable portion of the CTC is indexed to inflation.

On the pass through income side, an issue we previously discussed, the bill limits the top rate on pass through income to 25%; it has what appears to be a complex anti-abuse provision that is summarized by the Tax Foundation in its review  as follows:

Begins with assumption that 70 percent of income derived from a business is compensation subject to ordinary rates and 30 percent is business income subject to the maximum 25 percent rate for active owners. Businesses can “prove out” of the 70/30 split based on demonstrated return on business capital at the short-term applicable federal rate (AFR) plus 7 percent. Certain specified service industries, like health, law, financial services, professional services, and the performing arts are excluded from the 70/30 split and can only claim the benefit of the lower pass-through rate to the extent that they can “prove out” their business income.

Professor Batchelder on Twitter flags this “prove out” as “the heart of the pass-through loophole for the wealthy” and “great for gaming” and a provision that tax lawyers will “love.”



Federal Bar Association Tax Section Writing Competition

Last month PT celebrated its 1,000th post and its 2,000th comment. One aspect of the success of the site is that we are occasionally asked to post an announcement because of the number of readers who look at PT. Today, we are happy to comply with a request from the Federal Bar Association Tax Section to publicize its writing competition.

The website for the competition is here. The rules for the competition can be found here and a flyer about the competition can be found here. Effective writing skills will serve any budding tax attorney well. This is a great competition and winning would provide quite an honor (in addition to cash and a trip to D.C.)

We encourage eligible students to write on tax procedures issues and suggest that they can find many good topics from the posts on this blog.