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Wednesday, January 15, 2020

How Big is Profit Shifting? Chasing the Scream

From The Times, this morning: when will accountants take tax avoidance seriously?

'It's astonishing when you start looking into it': The rise of the sand mafia 


Modern society is built on sand, but it's a finite resource. The global demand for it is fuelling a sinister black market organisation: the "sand mafia".
Saving Democracy From the Managerial Elite Michael Lind, Wall Street Journal. Today’s must read. Essay featured on the first page, well beyond normal op-ed length. Representative sentence: “And as MIT economist David Autor and his colleagues have shown, voters in the U.S. regions hit hardest by Chinese import competition were the most likely to favor Donald Trump or Bernie Sanders in 2016.”
CNN To Pay Largest Labor Fine In History For Firing Technicians NLRB. Wowsers, long time to get restitution. 

 

Description

Chasing the Scream: The First and Last Days of the War on Drugs is a book by English writer and journalist Johann Hari examining the history and impact of drug criminalisation, collectively known as "the War on Drugs." The book was published simultaneously in the United Kingdom and United States in January 2015. Wikipedia 


Rosenberg 3A bankruptcy judge excused a U.S. Navy veteran with a law degree from repaying more than $220,000 in student loan debt, the latest court ruling to lower the barriers to discharging educational debt.
Kimberly A. Clausing (Reed College; moving to UCLA), How Big is Profit Shifting?: 

This research note describes the plausible magnitude of US revenue loss due to profit shifting, building on recent developments in the literature as well as new country-by-country data on US multinational companies in 2016. In the past, the most complete data sources have all shown large magnitudes of profit shifting, suggesting substantial revenue losses in non-haven countries. Blouin and Robinson (2019) have challenged this consensus, noting that many data sources may be flawed due to the inadvertent inclusion of double-counted profits or through an inadvertent misallocation of profit. Nonetheless, their proposed correction to the data generates its own puzzles, and experts at both the BEA and the JCT believe that the proposed correction will omit some types of profit shifting. Beyond that, Blouin and Robinson’s conclusions regarding how their adjustments affect the scale of profit shifting set aside many nuances in method that affect bottom-line findings about the scale of profit shifting. This research note uses recently released country-by-country tax data to estimate plausible benchmarks regarding the scale of profit shifting, finding that profit shifting is likely to be costing the US government about $110 billion a year in 2016 (at 2016 tax rates). While much can be done to refine these estimates and learn more about the scale of the problem, the problem remains unambiguously very large. 

 

TF's pesenter, Nina Olson (Former National Taxpayer Advocate), We need a permanent National Taxpayer Advocate, now.:
Taxpayer AdvocateThis week, the acting National Taxpayer Advocate released the 2019 Annual Report to Congress, on the heels of the IRS’s release of its own “annual report” about its performance. Reading the two documents together, one wonders whether they are reporting on the same agency. The NTA’s report focuses on the challenges the agency faces and makes concrete recommendations about how to address them; the IRS’s report celebrates the agency’s performance over the last year and how it is on track to fulfill the goals of its 2018 to 2022 strategic plan. One report is forward looking; the other is a status update.  
I’ll be scouring the contents of both reports over the next month or so, but their arrival reminds me of the important and unique role the National Taxpayer Advocate (NTA) plays in U.S. tax administration today. The NTA is the protector of taxpayer rights and, according to the National Commission on Restructuring the IRS, serves as the “voice of the taxpayer” inside the agency. Each of the Most Serious Problems, Most Litigated Issues, and Legislative Recommendations in the NTA’s 2019 Annual Report to Congress is prefaced with the relevant rights enunciated in the Taxpayer Bill of Rights; they form the framework for analysis. On the other hand, the IRS annual report doesn’t get around to mentioning “taxpayer rights” until page 12. Tellingly, the words “taxpayer rights” do not appear in any of the strategic goals listed in the annual report, nor are they listed among the “core values” of the agency.
This contrast highlights why it is so important to have a permanent National Taxpayer Advocate in place, to hold the IRS’s feet to the fire about promotion and protection of taxpayer rights, especially as it hires more audit and collection employees and launches new compliance and enforcement initiatives.


Lesson From The Tax Court: Taxpayer Who Got $1.6m Assessment Reduced To $170k Not Entitled To Costs


Tax Court (2017)Section 7430(a) permits a court to award “reasonable administrative costs” and “reasonable litigation costs” (the largest being attorneys fees) to a taxpayer who is a “prevailing party” in a dispute with the IRS.  In Mark C. Klopfenstein v. Commissioner, T.C. Memo 2019-156 (Dec. 9, 2019) (Judge Lauber), Exam assessed a $1.6 million §6707 penalty against the taxpayer.  Mr. Klopfenstein eventually secured a closing agreement from Appeals that reduced the penalty to just under $170,000.  The IRS abated the assessment to that amount.  Mr. Klopfenstein then asked for “reasonable administrative costs” under §7430.  The Tax Court said no, because Mr. Klopfenstein was not a “prevailing party.”  You will find out why below the fold.
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