Victor Fleischer — Professor of Law, University of Colorado.
April 2, 2013
Incremental change with a minimum of controversy must be Mr. Camp’s goal. That would explain why he takes the corner wide, steering clear of the most controversial aspect of partnership tax: carried interest. Carried interest refers to the share of partnership profits earned by an investment fund manager, and under current law it is often taxed at low capital gains rates. Critics like myself argue that because carried interest is labor income, not investment income, it ought to be taxed as ordinary income.
via A Plan to Simplify the Tax Code That May Be Too Simple – NYTimes.com.
March 13, 2013
Lynnley Browning has a story in today’s NYT about Supercharged IPOs, drawing in part on my study with Nancy Staudt.
“They involve millions, often billions, of dollars in cash transfers from newly public companies to a small group of pre-I.P.O. owners,” Victor Fleischer, a tax professor at the University of Colorado, and Nancy Staudt, a public policy professor at the University of Southern California, wrote in a 2013 study. The study said the primary reason for the deals was tax arbitrage.
via Private Equity Squeezes Out Cash Long After Its Exit – NYTimes.com.
You can download the most recent version of the study by clicking on this link.
March 6, 2013
Yahoo’s chief executive, Marissa Mayer, inspired much debate and rebuke when she recently abolished Yahoo’s work-at-home policy. In academia, “working from home” is a treasured euphemism for heading home after your morning class to have lunch, read the newspaper and take a nap. I hate to see anything that would endanger this hallowed tradition.
via The Benefits of Working in the Office – NYTimes.com.
February 7, 2013
Representative Dave Camp, the Michigan Republican and chairman of the House Ways and Means Committee, recently released a discussion draft of proposed legislation that would tax most financial derivatives on a “mark-to-market” basis. This means that at the end of each year, derivative holders would estimate the market value of the derivative, recognizing tax gains and losses each year rather than waiting until they sell the instrument.The proposed legislation is an important first step toward a more sensible approach to taxing financial instruments, an area of the tax code plagued by complexity, inconsistency and opportunities for gamesmanship.While Mr. Camp’s proposal has some imperfections, he should be commended for putting forward a smart piece of legislation. It not only closes some loopholes, it finally presents a fundamental and sensible response to the development of modern financial instruments.
via A Sensible Change in Taxing Derivatives – NYTimes.com.
January 15, 2013
From my column today:
Consider the special provision for “qualified small business stock,” which provides a zero percent tax rate on capital gains from certain investments. A better name would be the “angel investor loophole.”The tax break mainly benefits angel investors, who are individuals often retired entrepreneurs who invest in early stage companies. As these start-ups grow, they seek funding by venture capitalists, eventually seeking to be acquired or sell stock to the public. Venture capitalists have held on to their own special tax break for carried interest.The special rules for qualified small business stock were first enacted back in 1993. The rules offered a 50 percent exclusion from the then-applicable 28 percent rate for capital gains, creating an effective 14 percent rate.But as the base rate on capital gains dropped down during the last decade to 20 percent and then to 15 percent, the 14 percent rate for qualified small business stock became trivial. Then in 2009, the American Recovery and Reinvestment Act knocked the special rate for qualified small business stock down to 7 percent. That was followed up in 2010 by a bill taking the special rate down to zero.
via ‘Tax Extenders’ That Slip Under the Radar – NYTimes.com.
December 12, 2012
Many companies use tax planning to create a competitive advantage. If your competitors pay taxes at a 35 percent rate, but you have figured out a way to greatly reduce your effective tax rate, then the status quo is valuable to you.
via Not All Companies Would Welcome a Lower Tax Rate – NYTimes.com.
November 21, 2012
My latest column:
The Wall Street Rule is objectionable from a tax policy perspective when aggressive tax lawyers sanction a deal structure that contravenes the rules, or one that resides in a gray area but is contrary to what Congress intended.I do not think that is the case here. The Remic rules are designed to prevent operating companies from avoiding the corporate tax. Banks and other financial institutions that originate mortgages should pay the corporate tax. Passive conduits should not. The lawyers failed here because they relied too quickly on a client’s representations about the status of mortgages in the trust, not because they were overly aggressive in their interpretation of the Internal Revenue Code.
via Why a Tax Crackdown Is Not Needed on Mortgage-Backed Securities – NYTimes.com.
October 25, 2012
The transcript of Romney’s testimony about Staples is pretty interesting. Romney told the truth under oath, as best I can tell, but not when it came to reporting the true value of common stock for tax purposes. Romney, as a director of Staples, approved the valuation of the common stock for tax purposes as worth a tenth of a cent. Then he tells the court that it was worth $1.30. Now, this was a long time ago, and I’d be surprised if it became a campaign issue. But it’s part of a larger pattern of valuation games that Romney has proven, time and again, to be very aggressive. Needless to say, “one could justify” is not the same thing as “the value is.” From the transcript:
October 19, 2012
Thoughtful article by an experienced PE investor:
Romney’s financial success is admirable and enviable, but it came by following the mantra of increasing cash flow, cutting jobs and minimizing taxable income. Though the Obama campaign has tried to exploit this with millions of dollars in anti-Bain ads, the real issue is how Romney’s experience relates to a president’s need to balance budgetary responsibility with the heavy lifting required to address our collective concerns, our common obligations. We have heard a lot about pragmatism and practicality, but I can assure you that compassion and broader social concerns rarely make it into an investment memo. If Romney really wants to push his Bain experience, Americans will have to decide whether the answers to the problems facing them are best provided by a financier president.
via A Financier in Chief – NYTimes.com.
October 3, 2012
The legality of this loan program is questionable. In similar cases, the Internal Revenue Service has successfully argued that a series of short-term loans should be recast as what it is in substance: a single long-term loan that would be treated as a cash repatriation under Section 956 of the tax code. In an e-mail attached as an exhibit to the subcommittee report, an Ernst & Young adviser warned that with respect to the H.P. loan program, “the I.R.S. may seek to apply the substance over form [doctrine] to transactions that it views as abusive.”
A conservative adviser might have stopped there and advised against the scheme. Instead, Ernst & Young sprinkled holy water on the transaction, explaining: “We do believe that we can get comfortable with a ‘should’ level of opinion, assuming H.P. avoids behavior that could be interpreted as abusive.”
Should-level opinions and getting comfortable are, increasingly, telltale signs of aggressive tax behavior, as is a warning not to write down the goal of the transactions. “Documents and/or workpapers that indicate an intention to circumvent or otherwise abuse the spirit of section 956,” the e-mail warns, “could prove particularly troublesome and thus should be avoided.”
via Overseas Cash and the Tax Games Multinationals Play – NYTimes.com.