Author Archive for sarah-lawsky
The Metro Crash and Tax: WMATA Clarifies
posted by Sarah Lawsky
In a just-posted article, the Wall Street Journal sheds some light on WMATA’s claim that the 1000-series cars could not be replaced because “tax advantage leases…require that WMATA keep the 1000 Series cars in service at least until the end of 2014″:
June 25, 2009 at 2:49 pm
Posted in: Tax
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The Metro Crash and Tax: Leaseback Infrequently Asked Questions
posted by Sarah Lawsky
As discussed in an earlier post, Metro said that it could not comply with the NTSB recommendation that Metro replace its 1000-series Rohr cars because of a “tax advantage lease.” This post explains tax advantage leases in more detail–not the specifics of the WMATA’s Rohr leases, which we haven’t seen, but rather sale-leasebacks (sometimes called “sale-in/lease-outs,” or “SILOs”) in general. We’ll talk about two parties: TransitCo, which, like WMATA, is a tax-exempt transit authority, and Taxpayer, which is not tax exempt and has a regular flow of income. (This post discusses domestic sale-leasebacks; there are additional tweaks for cross-border sale-leasebacks.)
So: Leaseback Infrequently Asked Questions (or, Everything You Wanted To Know About Leasebacks but Were Afraid To Ask, Because You Thought You Would Probably Get Really Bored).
June 25, 2009 at 12:59 pm
Posted in: Tax
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The Metro Crash and Tax: A WMATA Leaseback Agreement
posted by Sarah Lawsky
You can click here to see the documents that make up one of the WMATA leaseback agreements. It was an exhibit last year in a lawsuit that was eventually settled. I haven’t yet had a chance to read through it carefully, but in case others want to review it, I thought I would make it available. Note that we do not know whether this particular leaseback agreement involved the Rohr 1000-series cars (the page that lists the equipment involved is blank).
Additionally, Senator Grassley has picked up on the issue.
(Thanks to Matthew Mantel, one of the many excellent GW law librarians, for finding this document.)
(Edit: This is the third post in a series. One, two, three, four, five.)
June 25, 2009 at 10:41 am
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The Metro Crash and Tax: Known Unknowns
posted by Sarah Lawsky
We know that a 1000-series Rohr car was involved in the recent Metro crash, that the National Transportation Safety Board had recommended that the 1000-series cars be replaced, and that at least one reason Metro provided for not replacing the 1000-series cars was that “tax advantage leases…require that WMATA keep the 1000 Series cars in service at least until the end of 2014.” In a future post, I will explain more about the general type of deal (sale-leasebacks) in which Metro was involved. However, I first want to emphasize that there are at least two very important things I, at least, do not know about the crash and the sale-leaseback deals.
First, I do not know whether the 1000-series cars caused or exacerbated the damage and injuries from the crash. We know that the cars are old, and that the NTSB recommended they be replaced, but as the excellent “Dr. Gridlock” writes, “Those cars do need to be replaced. They’re approaching the end of their useful lives, and it would make no sense to fix them again. But at the moment, we have no idea whether the age of the 1000 Series had anything to do with the cause of the accident or its consequences for those aboard.” This information will come only after the crash is fully investigated, and perhaps not even then.
Second, because I have not been able to locate the sale-leaseback contracts, I do not know how those contracts would have treated replacing the cars. (If anyone has the contracts, it would be wonderful if you wanted to send them to me). When WMATA says that it could not replace the cars because of “tax advantage leases,” I do not know whether that means the leases actually require that the cars remain in service (i.e., switching out the cars would trigger a termination fee), that switching out the cars would be possible but expensive under the lease (i.e., would not trigger a termination fee but would trigger some other kind of cost), or something else.
Obviously, the relevance of tax deal to the damage caused by the crash depends on the answers to these questions, answers I do not have.
(Title hat-tip: Donald Rumsfeld.)
(Edit: This is the second post in a series. One, two, three, four, five.)
June 24, 2009 at 5:09 pm
Posted in: Tax
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The Washington Metro Crash and Tax
posted by Sarah Lawsky
Taxes raise revenue, of course, but they also induce behavior. Sometimes these behavioral responses are intended by lawmakers (for example, when lawmakers raise taxes on an activity they deem undesirable, such as smoking), but often they are not.
The deadliness of yesterday’s Metro crash in Washington, DC, my hometown and current location, may be, at least in part, one of these unintended consequences.
June 23, 2009 at 9:39 am
Posted in: Tax
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Update: The Code and Regs Find a Home
posted by Sarah Lawsky
The Winter 2008 complete Code and Regs have found a happy home–indeed, perhaps the best home imaginable. They have gone to live with Sheldon S. Cohen, a former IRS commissioner, adjunct GW Law professor, and all-around good guy.
Sheldon S. Cohen, Former IRS Commissioner, Adjunct GW Law Professor, and All-Around Good Guy
Photo courtesy of Widener University School of Law.
June 23, 2009 at 7:49 am
Posted in: Tax
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Spay or Neuter Your Income Tax Code: A Photo Essay
posted by Sarah Lawsky
My family had a yard sale.
June 13, 2009 at 7:15 pm
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“Your Prayers Can Save the World’s Fattest Cat!”
posted by Sarah Lawsky
Genius. In only eight words, this tabloid headline covers the crucial topics of religion, fat, and cats. From the first word, “your,” the reader knows she is the true topic. She has power: she can solve the most serious version of a particular world problem (the problem happens to be feline obesity, but that is a real problem, as many cat owners know). Indeed, she is a savior. And what’s more, there is a way to lose weight (having others pray) that is easier than eating less and exercising more. The only possible improvement I can imagine–and I’m not certain it is an improvement, in part because it is three letters longer–is “Your prayers can save the world’s fattest kitten.”
The headline, which I noticed last night in the grocery-store checkout line, reminded me of a passage from Sarah Schulman’s novel Girls, Visions and Everything. The main character, Lila, writes fiction:
The very first things Lila had ever written were for the local Supermarket News. That was great practice. There was an event, say, the price of grapefruits. There was an audience. Her job was to describe the event….There was no looking around for subject matter, only for description, a task she took very seriously. Did prices plummet, or were they slashed?
Some lawyers and law professors might model their writing on Cardozo or Holmes or even Scalia, but I’ll bring that anonymous headline writer and Lila along for the ride as well.
June 12, 2009 at 11:55 am
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You Would’ve Thought They Worked for Moo-dy’s
posted by Sarah Lawsky
If you were deciding whether to loan someone money, it would be very useful to know the chances that the person would pay you back. (For example, the higher the chance they would default, the more you would charge them to borrow the money.) Rating agencies–two dominant agencies are Moody’s and Standard and Poor’s (or “S&P”)–are supposed to provide lenders with that information. The less the risk of default on a particular financial instrument, the higher the rating. The rating agencies predict (or model) the risk, and if the rating agencies don’t do a good job, financial instruments’ market prices don’t reflect their actual value.
As others have discussed in a much more nuanced fashion, rating agencies may be partly to blame for the recent financial crisis. The agencies appear to have been more concerned about keeping their clients (those who issued the financial instruments) happy than rating financial instruments accurately. The ratings were too high, prices were too high, lenders and other purchasers of financial instruments didn’t anticipate default…and (to oversimplify) there’s your financial crisis.
But there appears to have been another market failure associated with rating agencies–a totally unexploited chance for profit.
June 2, 2009 at 12:11 pm
Posted in: Corporate Finance
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Geek, Memory
posted by Sarah Lawsky
Do you remember the first time you rode a bike? Your first day of school? When your younger sibling was born? How about your first experience with tax?
I have two early memories of tax, neither pleasant.
In the first, I was about six years old and went to the store near my grandmother’s apartment to buy a pretzel stick, which cost ten cents. It said so right on the plastic container. But when I gave the mean proprietor a quarter, he gave me back 14 cents. After standing outside crying for a while, I finally got up the courage to go back in and confront him: “I think you gave me the wrong change.” “Haven’t you ever heard of sales tax, kid?” he yelled. No, actually, I hadn’t.
Mean, horrible game.
My second tax memory, from around the same time: The fourth square of the Monopoly board is labeled “Income Tax,” and, until last year, if you landed on it you had to pay $200 or, if you preferred, 10% of your total worth. The practice in my family was always to pay the $200. But one day my father landed on this square and for some reason (probably, in retrospect, because the game had just started) decided he would pay the 10%. I protested. There are, as I discuss below the jump, a lot of things wrong with this rule, but when I was six, the biggest thing wrong with the rule is that it took a really long time to calculate your total worth. “You’ll never finish!” I yelled. “This is boring!” Infuriated by the heavy compliance burden, I quit.
What are your early tax memories?
(Below the jump, I discuss three additional serious problems with the 10% rule, one definitional, one substantive, and one related to the fact that it’s really hard to be six years old.)
May 14, 2009 at 11:18 am
Posted in: Tax
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Embryo Exchanges and the Adoption Tax Credit
posted by Sarah Lawsky
So, where are we? We know what an embryo exchange is. We know that Georgia has enacted a law (signed by Governor Perdue last week, effective July 1), the Option of Adoption Act, that permits, but does not require, the intended parents in an embryo exchange to obtain an order of parentage or adoption. And we know that some people have claimed that, given the Georgia law, a federal adoption tax credit is available for expenses incurred in embryo exchanges. But this claim is incorrect. No federal adoption tax credit is available for such expenses.
May 13, 2009 at 10:46 am
Posted in: Tax
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Krugman on Interstellar Trade
posted by Sarah Lawsky
I’m probably the last person to have seen this, but in case not:
Paul Krugman, The Theory of Interstellar Trade. He deserved the fake Nobel for this alone.
(Extra credit for anyone who can work out the OID implications.)
HT: “Nylund.”
May 11, 2009 at 6:12 am
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When’s Your Baby?
posted by Sarah Lawsky
The tax code has plenty of perks for having kids. (I’m not really supposed to give tax advice, but I should say that notwithstanding the $1000 per child tax credit, and the additional per-child dependent exemption, and, if your income is low enough, an increased earned-income tax credit, as well as various other child-related tax benefits, having children will be a net financial loss.)
Very bad tax shelter.
But when do you get these tax advantages? When do you have kids? (No, not like that–have kids whenever it works for you–why are you asking me?) I mean, is a child an individual for tax purposes only when he is born, or are yet-to-be-born children also individuals for tax purposes? As I’ll discuss in a later post, this question matters for figuring out whether a federal adoption tax credit is available for embryo exchanges, because the federal adoption tax credit is available only for the adoption of an “eligible child,” and an eligible child is defined as an “individual” who meets certain requirements. So we will need to figure out whether an embryo counts as an individual for these purposes.
May 9, 2009 at 5:02 pm
Posted in: Tax
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Cluck
posted by Sarah Lawsky
“Tax is…close to the top of the pecking order, I imagine.”
–Alfred Brophy, Reef C. Ivey II Professor of Law, University of North Carolina School of Law, The Faculty Lounge, May 4, 2009 (link added)
Tax Chicken: "I'm Number One!"
Image: gingerchrismc, Free range (Flickr.com); used under a Creative Commons Attribution-Noncommercial 2.0 Generic license
May 6, 2009 at 11:46 am
Posted in: Tax
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Hey, Tax Code, You Stay Boring!
posted by Sarah Lawsky
Being a tax professor often involves questions like whether a pre-transaction redemption should be taken into account when determining whether substantially all assets have been transferred so that the transaction can qualify as a C reorganization. The bottom line about these questions is: nobody cares. I mean, your client might care, and if you’re taking a corporate tax exam, your professor might care, but probably your mom doesn’t care (unless she’s a tax dork too, in which case, lucky you!).
But the tax code can be used not only to raise revenue, but also to provide incentives or disincentives for various activities and to express views and values. So in addition to the many important but sometimes obscure or technical questions always present in tax law, difficult moral issues–”hot” issues about which lots of people have immediate, strong views–can also get mixed up with tax.
May 5, 2009 at 3:24 pm
Posted in: Tax
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So Long, and Thanks for All the Poems
posted by Sarah Lawsky
This post marks the end of my guest-blogging stint here at Concurring Opinions. It’s been very fun for me. The best part has been the comments, which were challenging, interesting, and very smart–and frankly, sometimes just plain genius (I’m looking at you, Mack). I leave you with some links to awesome stuff:
One of a few sources of very, very random numbers
Thanks!
August 14, 2008 at 9:21 am
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The Weight of Probability, the Cloud of Uncertainty, and More
posted by Sarah Lawsky
This is my second post responding to comments on Probably?. You can view the first post here.
A.J. Sutter asks whether all tax probabilities are created equal. He suggests that for very basic advice (for example, the permissibility of a home office deduction), the advisor’s opinion might be based on how many times his clients have gotten into trouble when audited, but for more exotic structures, it would be harder to estimate the chance that a court would uphold the transaction, because there wouldn’t be as much experience for estimating prior probabilities. I think this is right, but I’m not sure it means that we necessarily know the probability of success of the more common transaction, in a frequentist sense. Rather, I think Sutter’s point gets at the idea of the Keynesian idea of the “weight” of a given probability: that an argument has more “weight” than another when it is based on more evidence. And his point also highlights one of the problems with relying on tax advisors for your probability estimates: you’re not just getting a probability estimate, you’re also getting the tax advisor’s level of certainty about his estimate, and also, because the tax advisor will be liable if he really messes up, the probability number might have moved based on the tax advisor’s risk aversion. And you, the taxpayer, have no way of disaggregating those numbers.
August 8, 2008 at 5:14 pm
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It Had To Be That Way
posted by Sarah Lawsky
This is the first of at least two posts responding to the comments to the post about Probably?.
AEW wrote that he did not understand how the distinction between risk and uncertainty relates to subjectivist and frequentist interpretations of probability. He gave this very good example:
Say I have two dice, one with dollar signs on 4 sides, and one with dollar signs on two sides. I put one in each hand (behind my back) and let you choose a hand. I take that die and say ‘I’m going to roll this, and if a dollar sign comes up, you win a dollar.’ What are the odds that you win a dollar? You could say that the probability is either 1/3 or 2/3, you don’t know. Or you could say the probability is 0.5. Does this count as uncertainty? It’s true that to say that the probability is 0.5 is subjective in the sense that someone who peeked behind my back would have a different belief of the probability. But it’s fully consistent with a frequentist interpretation of probability in that if we repeated the process ad infinitum, the frequency would approach 50%.
A couple of things. First, before the whole process starts, we are dealing with risk. If the hand is truly selected randomly, there is a 50% chance that there will be a 1/3 chance of a dollar sign, and a 50% chance that there will be a 2/3 chance of a dollar sign, so there is a 3/6 chance, or 50% chance, that I will roll a dollar sign. And true to a frequentist interpretation, if we repeat the whole thing (picking the hand, then rolling the die that was in that hand), the frequency of dollar signs will approach 50%.
August 8, 2008 at 7:44 am
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An Apology
posted by Sarah Lawsky
Oatmeal raisin cookie, you are much loved, by many, many vocal fans. Please, oatmeal raisin cookie, accept my apology for suggesting that one could ever write a paper that indicated otherwise. O, oatmeal raisin cookie, is any cookie loved as much as you?
Image: dizznbonn, cinammon-raisin-oatmeal cookies sweetened with maple syrup (Flickr.com); used under a Creative Commons Attribution 2.0 license
August 7, 2008 at 10:52 am
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Probably?
posted by Sarah Lawsky
I’ve been wanting to write an article entitled “Oatmeal Raisin: The Cookie Nobody Loves.” Unfortunately, although this title captures, I am convinced, a deep truth, I could not find a way to link it to tax law. So instead of describing why, if you leave out lots of plates of different kinds of cookies and come back a little while later there are always more oatmeal raisin cookies left than any other kind, but if you come back an hour later, all the cookies, including the oatmeal raisin cookies, are gone (nobody loves ‘em, but they do like ‘em), this post will describe the piece I wrote instead: Probably? Understanding Tax Law’s Uncertainty.
As I described in an earlier post, flipping a coin is risky, because while we do not know whether it will come up heads, we do know the probability that it will come up heads (50%). The presidential election is uncertain, because we do not know whether John McCain will be elected president, and we do not know the probability that he will be elected president. A.J. Sutter pointed out in a comment to that post that the distinction between risk and uncertainty (that is, between known probabilities and unknown probabilities) ties into the debate about the correct interpretation of probability statements. As it happens, that debate is precisely Probably?’s topic.
We might say that the probability that an event will occur is the number of times that event will occur over the long run out of the number of times that it could occur. So when we say that a coin has a 50% chance of coming up heads, we mean that if we flip the coin a lot of times–a million, say–about half of those flips will come up heads. And the more times we flip, the closer the percentage of heads will get to 50%. This is a frequentist interpretation of a probability statement.
But this interpretation doesn’t work if the event we’re talking about is not risky, but is, rather, uncertain. As others have noted, tax law is uncertain–that is, that we do not, and cannot, know the probability that a court will uphold a particular tax position. Tax advisors make these sorts of probability statements all the time, because a taxpayer faces lower penalties if he can get a tax advisor to give an opinion that there is a certain level of probability that the taxpayer’s position will eventually be upheld by a court. But if we don’t and can’t know this probability, what does it mean to say that there is a, say, 90% chance that a particular tax position will be upheld?
It means, I think, that the speaker believes that there is a 90% chance the tax position will be upheld. Or, put another way, the speaker would pay 90 cents to play a game in which he would get a dollar if the position were upheld and get nothing if it were struck down. This is what’s known as a “subjectivist” interpretation of a probability statement.
So, who cares? Well, everyone should care, of course!
August 7, 2008 at 8:08 am
Posted in: Tax
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