The Taxation Section is pleased to announce its inaugural Law Student Writing Challenge, open to full or part-time law students attending an ABA-accredited law school located in the State of Michigan. Students are asked to write a paper analyzing a tax-related issue from one of several categories. The Taxation Section has selected a list of questions in the following areas: (i) federal income taxation; (ii) state and local taxation; (iii) employee benefits; and (iv) estates and trusts and gift taxation.
Challenge participants will be evaluated on their research, analysis, persuasiveness, and writing ability. Members of the Taxation Section will review and evaluate the student submissions and choose the top submissions in each category to be published in the Michigan Tax Lawyer. The author of each submission selected for publication will be invited to be recognized at the Taxation Section’s Annual Tax Conference to be held May 23, 2019, at the Inn at St. John’s. The review panels will choose an overall winning entrant to the Challenge who will be awarded a $1,000 cash scholarship plus free entries to both the 2019 Annual Tax Conference and the Taxation Section’s 2019 Fundamentals of Taxation program to be held in October 2019. The top submissions in each other category would receive a $250 cash scholarship (for total scholarships awarded of $1,750).
Participants must choose from the list of selected questions and write a paper addressing the topic. The paper can be no longer than 8 pages and must conform to the article specifications for the Michigan Tax Lawyer (posted on the Writing Challenge website). Participants may submit papers in more than one category, but the Taxation Section reserves the right to limit the number of scholarships awarded to a single individual.
Questions: There are four questions posted on the Law Student Writing Challenge website, picked by the Chairs of the Federal Income Tax, State and Local Tax, Estates and Trusts, and Employee Benefits committees of the State Bar of Michigan Taxation Section. These questions were posted on January 15, 2019.
Format: Each participant will write a paper that shall not exceed 8 pages in length and that otherwise conforms to the specifications set forth for submissions to the Michigan Tax Lawyer. These specifications can be reviewed at the following link. The paper itself should not include author/biographical information, which will be separately included with the submission packet. At the top of each paper, the category of the questions should be added as the title (e.g., Federal Income Taxation).
Eligibility: Eligible participants must be enrolled, as of January 1, 2019, and continuing through April 15, 2019, on a full-time or part-time basis at an ABA-accredited law school that is located in the State of Michigan. Students are expected to provide evidence of enrollment at a qualifying institution, which will be subject to confirmation by the Taxation Section. Participants are expected to draft their submission independently and without the assistance of others.
Submissions: Participants will submit their paper via email to the Taxation Section’s Program Facilitator, Mary Owiesny, at email@example.com on or before April 15, 2019. The submission must be a single PDF document that includes (i) a cover sheet with the student’s name, law school and contact information, (ii) evidence of their enrollment at a Michigan law school, and (iii) their paper. Participants may submit papers in more than one category, but the Taxation Section reserves the right to limit the number of scholarships awarded to a single individual.
Review process: The review process will be conducted by panels of the Taxation Section. The author’s identifying information will not be known by the reviewers during the review. Reviewers will award points to each entry based on, in no particular order, (i) substantive analysis, (ii) conciseness, (iii) format, (iv) writing style, and (v) originality. The selection of the top submissions shall be in the sole discretion of the Taxation Section.
Law Student Writing Challenge Questions
Federal Income Taxation
The Tax Cuts and Jobs Act (P.L. 115-97) was the largest piece of federal tax reform in over thirty years. The law significantly changed important portions of the individual income tax (e.g., individual tax bracket changes, doubling of the standard deduction, elimination of personal exemptions, and limiting or eliminating several common deductions). What policy goals do the reforms to the individual income tax represent? Are they consistent or is there tension between some of these reforms? What actions should the new Congress take to support or revise the Tax Cuts and Jobs Act?
State and Local Taxation
On June 21, 2018, the United States Supreme Court issued its decision in South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018), in which the Court approved the imposition of sales/use taxes on sales of property even if the seller has no physical presence in the taxing state. Wayfair was decided under the Dormant Commerce Clause because Congress had not passed laws addressing the issue before the Court. What legislation should Congress pass in response to the Wayfair decision?
Estates and Trusts
Advising business owners on succession planning is an important aspect of any attorney practicing in the area of estates and trusts. While the Tax Cuts and Jobs Act (P.L. 115-97) included provisions that significantly increased the federal gift, estate and generation skipping transfer tax exemptions from $5 million per person (indexed for inflation), to $10 million per person (indexed for inflation), the provisions doubling the exemptions are set to expire after December 31, 2025. Accordingly, estate planners still need to be well-versed in these areas when advising business owners on how to best transfer their business interests to the next generation. While gifts or waiting until death are viable options under certain circumstances, there are several other alternatives to ensure their assets are passed in the most tax effective manner.
Assume that you have a client who owns 100% of the membership interests in a limited liability company (treated as a partnership for U.S. federal income tax purposes) that is worth $30 million, and that the client is interested in transferring a minority interest in the business to the client’s two (2) children.
Prepare an analysis of the following alternative planning techniques: (i) a sale to an intentionally defective grantor trust; and (ii) a self-cancelling installment note. More specifically, explain each strategy, identify the legal authority supporting each strategy, and discuss the estate, gift and income tax consequences for each strategy.
Internal Revenue Code Section 83(i), enacted by the Tax Cuts and Jobs Act (P.L. 115-97), allows rank-and-file employees of privately held corporations to elect to defer the income inclusion on the receipt of stock pursuant to the exercise of a stock option or settlement of a restricted stock unit. Despite the well-meaning intentions of its drafters, Code Section 83(i) has received negative reviews in the business community due to its significant compliance requirements.
These requirements include: (i) a company must make grants to 80% of its full-time employees while excluding top executives from deferral opportunities and (ii) the company must withhold taxes at the end of the deferral period at the maximum federal rate instead of the flat supplemental withholding rate. Despite some clarifications issued by the Internal Revenue Service in Notice 2018-97, numerous ambiguities exist about: (i) what it means for all employees to have “same rights and privileges” with respect to stock options or restricted stock units and (ii) the timing of the employer’s withholding obligations pursuant to the 83(i) election. Additionally, it is not clear why Code Section 83(i) imposes mandatory withholding at the maximum income tax rate, when it will likely result in excessive withholding in relation to the tax ultimately owed by many rank-and-file employees.
Given the parameters of the statute, how would you draft guidance for employers that would properly incentivize companies to consider complying with these requirements? Consider that only a small percentage of individuals is likely take advantage of these deferral opportunities unless a company spends a significant amount of time and resources on educating their employees.