Almost seven years ago(!), Leandra wrote about the Beatles’s “Taxman” to celebrate its 50th anniversary. At around the same time, I tried to figure out and record the song.

At the time, unfortunately, neither my playing nor my recording chops were up to the challenge. Over the pandemic, though, I spent some time and money on instruments and recording equipment and have gotten a lot better at it.

So about a week ago, I decided to record a version of “Taxman.” I listened around to various versions and ended up modeling my version largely on the recording by Bill Wyman’s Rythm Kings (and, to a lesser extent, Soulive).

I’m not quite sure I’m done yet; I’m tempted to add a horn section to the recording. But, in the meantime, here’s my recording:

In large part, I’ve been recording to make TikToks. Originally the goal with TikTok was to embarrass my kids by playing songs that middle-aged dads really shouldn’t be playing, but they weren’t embarrassed so my goal shifted to playing fun songs that people like.

I’ll probably eventually film some stuff and put together a “Taxman” TikTok but, in the meantime, I hope you enjoy my tax-themed music!

To the extent you’re interested, I programmed the drums and did the recording in Studio One. I played the bass and organ on my Yamaha electric piano, using the organ sound from a Roland JV-1010. I recorded all of the melody and harmony parts on my Akai EWI 4000s. And the tenor sax solo is on my tenor.

We are back again this week looking at the role of misinformation and disinformation in democracy, good governance, and well-grounded decisionmaking! On Friday, we are hosting the second Roundtable in the Whistling at the Fake research project (with Dr. Costantino Grasso as PI, and funded by NATO’s Public Diplomacy Division). In our first Roundtable, we focused on disinformation in the private sector.

This Friday February 25, 2022 at 10:00am EST, the subject is Disinformation and the Public Sector.

The Roundtable includes three sessions: (1) Democracy and Disinformation – the Political Level; (2) Disinformation and Public Administration; and (3) Special Issues and Final Recommendations. The international panel includes experts from law, media, government, and civil society, along with whistleblowers. To join this exciting Roundtable session, register here!

Over the last couple weeks, I’ve seen people in a couple very disparate groups worry about the 1099s they’re going to receive. (One group is saxophone enthusiasts who occasionally sell instruments and mouthpieces on eBay and Reverb.)

And why are they worried? Basically because the American Rescue Plan Act of 2021 makes it much more likely that they’ll receive 1099s, even for casual selling. Section 6050W of the Code requires companies like Paypal and Venmo (and other non-credit card payment processors) to report payments made, both to the payees and to the IRS.

Prior to the American Rescue Plan Act, that wasn’t really a big deal for a lot of casual sellers and service providers because there was a $20,000/200 transaction floor. Unless Venmo (or whatever equivalent company it was) sent more than $20,000 to a person and that person engaged in at least 201 transactions, there was no reporting requirement.

Today, the de minimis sale floor has been drastically reduced. Now, if a person receives more than $600—even in a single transaction—Venmo is going to send you a 1099.

So what does that mean? Let’s do a quick explainer:

What is a 1099?

For certain types of payments (including interest and dividends), payors are required to send an IRS Form 1099. Paypal, Venmo, and other online payment services are required to send a 1099-K. Among other things, the 1099-K includes your name and contact information and the amount of money you receive from the payment service. And, critically, you’re not the only one who gets a copy—a copy of the 1099 also goes to the IRS and to your state taxing agency.

Basically, the 1099 is meant to ensure that taxpayers report their income. There’s abundant evidence that third-party information reporting increases tax compliance. By lowering the reporting threshold, less money will go unreported and untaxed.

But What About Gifts?

It’s important to note that this provision of the American Rescue Plan Act didn’t make any changes to the substantive tax law. All it did was lower the reporting threshold. The same income that would have been taxable in 2020 is still taxable in 2022, and the same income that was exempt in 2020 is still exempt in 2022.

So, for instance, you don’t owe taxes if your sister sends you $20 for your birthday on Zelle. Because gifts are not taxable income. Similarly, you don’t owe taxes when you cover the dinner bill and your friends reimburse you on Venmo because reimbursements are not gross income.

In fact, section 6050W is only supposed to apply to payments for goods and services. So the online payment companies shouldn’t include those kinds of gifts or reimbursements on your 1099.

Will they? I truly don’t know. But I suspect they will be overinclusive in what they include, both because they don’t want to be penalized for underreporting and because they face no consequences for overwithholding.

Which takes us to:

Records, Records, Records!

It strikes me as critical, if you’re the type of person who gets paid through these services, to keep contemporaneous records with each transfer you receive. Because in the end, taxpayers have the legal obligation to prove that this particular transfer was a gift, not a payment.

But there’s more: the companies are required to report the gross amount you receive. That’s fine for payments for services. But it’s not an accurate reflection of income if you’re selling goods. After all, I may get $370 for that Phil-Tone mouthpiece, but that doesn’t mean I have $370 of income. Did I buy it for $250? Did I buy it for $400? Paypal doesn’t know. The IRS doesn’t have to know. Again, it’s on me to establish my basis. And contemporaneous records (and saved receipts) are probably the best way to do that.

Final Thoughts

Again, I want to emphasize that the reduction in the de minimis payment amount doesn’t change the substantive tax law. If you sold three mouthpieces on eBay in 2020 for a combined total of $900, you had to pay taxes on your gain in 2020 even though Paypal didn’t have to report the gain to the IRS. In 2022, you have the same tax obligation.

Only this time the IRS will know that you received $900 through Paypal.

Photo by Olga DeLawrence on Unsplash.

Information lies at the heart of a sound democracy, good governance, and well-grounded decision making, whether at the individual, community, business, or government level. Yet every day we see how misinformation and disinformation undermines all of these goals.

In response to this problem, a new research project, Whistling at the Fake (with Dr. Costantino Grasso as PI, and funded by NATO’s Public Diplomacy Division) aims to address the gap in the public’s understanding of the full scope and impact of misinformation and disinformation, and to empower the general public and regulators with tools, suggestions and recommendations for the future. The project focuses in particular on the role of whistleblowers and other informed insiders in “exposing misleading and hostile information activities and increasing public resistance to acts of this nature.”

As part of its project, Whistling at the Fake is hosting Roundtables on zoom– the first of which is this Friday, January 28, 2022 at 10:00am EST. The Roundtable, “Disinformation and the Private Sector” includes three sessions: (1) Exploring the Phenomenon, (2) Disinformation and Corporate Power and Wealth, and (3) Special Issues and Recommendations. The international panel includes experts from law, media, business, research, along with whistleblowers. To join what should be an amazing zoom Roundtable, register here!

by Diane Ring

A dominant theme of international taxation over the past 15 years has been that of cooperation and consensus—from the BEPS Project to the new Multilateral Instrument to the new BEPS Inclusive Framework. Regardless of one’s assessment of nations’ true commitments to such cooperation and consensus, it is clear that notable changes in the framework of international tax engagement are afoot.

Yet, countries themselves remain very different in terms of the wealth, GDP, natural resources, tax revenues, commercial base, infrastructure, technological capacity, and financial systems. It is not obvious that cooperation and consensus are uniformly in countries’ interests, particularly in light of who is drafting the agenda. Most pointedly, it is reasonable to ask why non-OECD, non-G20 countries would be willing to commit to global tax cooperation.

In a new empirical paper, “World Tax Policy in the World Tax Polity? An Event History Analysis of OECD/G20 BEPS Inclusive Framework Membership,” Shu-Yi Oei tackles this question by studying the OECD/BEPS Inclusive Framework, which currently has a total of 140 member states, of which 96 are non-OECD, non-G20 countries. Using event history regression methods, Oei seeks to answer the question of how these states came to join the Inclusive Framework. She posits a series of hypotheses regarding membership drivers and tests them against a new database that she has constructed. In a paper that is accessible to both international tax policy makers and empiricists, Oei provides a compelling answer to the question. Not surprisingly, the actions and initiatives of international organizations and blocs play a the significant role in the story. In fact, many of the findings prove consistent with earlier work that Oei and I have written (both separately and together) including analyses of international relations dynamics in international tax, the scope of actors shaping international tax policy, the potential for disjuncture between international agreement and domestic action, the potential influence of nonstate actors, and the ability of powerful states to draw other nations into specific tax policy choices. Oei’s new empirical paper propels this research agenda forward by allowing greater insight into the world of international tax.

By now, you may have seen one or more videos on the Break Into Tax YouTube channel (www.BreakIntoTax.com) that I started earlier this year with Allison Christians (McGill). We’ve created overview videos on tax policy, tax procedure, an array of income tax topics, legal writing, and more. We’ve done “Tax Papers Unlocked” micro-workshops on current tax scholarship. We’ve also released some #WhyTakeTax videos for students featuring a lot of tax profs, plus some tax humor videos. All Break Into Tax videos are intended to be entertaining, and most also are designed to be informative!

After about 30 videos, we wrapped up what we term “season 1.” It’s now time for season 2! We released a new intro video today, which you can find here. As mentioned there, I’ll be running this season. I’ve got some fun videos coming up, including more on income tax, more tax humor, a “crossover episode,” and something for folks interested in academia. Subscribe to the channel and turn on notifications if you don’t want to miss these as they come out!

If you’re a professor, I hope you’ll assign some of the Break Into Tax videos in lieu of a reading, for review, or as an optional resource! If you’re a student, I hope you find the explanations and illustrations helpful. Join us as you break into tax!

Just as summer is in full swing, the VIRTEU Project is back with a close look at a less than sunny side of economic life — the role that professionals (read lawyers, accountants and auditors) can play in enabling economic crime. This coming Wednesday July 21, 2021 (starting at 10:15am ET) join us in a three-panel zoom symposium that investigates how and why professionals may play this enabling role, and what responses and solutions we might consider. We will look carefully at real life case studies and talk with experts from various sectors as we explore this ongoing issue.

Register here to join us for this zoom symposium.

Yesterday my neighbor texted me to mention that three pieces of my mail had been left in his mailbox; he dropped them off in front of my door. Two were just standard junk mail but one is potentially important: a letter from the Department of the Treasury.

Perhaps you also got this letter: it has some important information about the way the the child tax credit now works. In short, the American Rescue Plan, a law signed in March, makes a number of significant changes to the child tax credit.

Two of those changes are particularly notable. First, it increases the amount of the credit to $3,000 for most children and $3,600 for children five and younger.

Second, it makes allows the IRS to make advance payments of the child tax credit. Essentially, unless parents choose otherwise, starting in July the will receive monthly payments of $250 or $300 per child (depending on the child’s age).

Third, the credit is fully refundable. Even if a parent doesn’t have enough income to owe taxes, they will receive the full amount of the child tax credit.

Finally, the age limit for the child tax credit has been increased from 16 to 17. (Note that currently these changes are all temporary–they only apply to 2021, though the may be extended as some point.)

These changes to the child tax credit are really exciting. The Tax Policy Center estimates that the combination of advance payments plus the increased credit will cut child poverty by half! And getting advance payments will help families pay their ordinary bills (rent, food, clothing, etc.) when those expenses arise rather than waiting until they file their tax returns. (Parents who didn’t file a tax return last year or who had an additional child won’t receive the advance payments automatically, but they can sign up here.)

One caution about these advance payments, though: they will almost certainly reduce parents tax refunds.

This reduction is good economically! It’s more valuable to have the money now than later. (There is a technical explanation for this that even has a name–time value of money–and if you’re interested in why advance payments are more valuable than the same payments later, you can read more about it here.)

But if you’re not prepared, you may be disappointed when you do your taxes early next year.

Understanding what I mean will be easier with an illustration. Let’s imagine we have a married couple with a two-year-old daughter. The married couple files a joint return and they earn Illinois’s median household income of $65,886. All of their income is wage income and, like nearly 90% of Americans, they don’t itemize.

Ignoring the child tax credit, the couple will owe federal income taxes in 2021 of $4,496. The child tax credit will reduce their income tax liability to $896.

But here’s the thing: when they file their tax return, they’re not going to attach a check for almost $900 because their employers have been withholding taxes from their paycheck and sending that money to the IRS during the whole year. Let’s say their employers withhold $100 from their paychecks every month. That means that during 2021, the couple has prepaid $1,200 in taxes.

But it turned out that they only owed $896 in taxes! Because of withholding, they overpaid. So when they file their 2021 tax return, they’ll end up getting a refund of $304 from the government.

The advance payments of the child tax credit changes this calculus though. Because now our married couple will get a $300 check from the government for the last six months of the year, for a total of $1,800.

That $1,800 doesn’t come out of nowhere, though. Remember, the reason the couple owed $896 rather than $4,496 was because the child tax credit reduced their original tax liability by $3,600. It still does that, but the reduction is being paid in advance.

With those advance payments, then, their $4,496 tax bill has already been reduced by $1,800 when they file their tax return. It is only going to be reduced by another $1,800. As a result, the couple is going to owe $2,696 in taxes when they file their return. They’ve still prepaid $1,200 through withholding but now, rather than receiving a $304 refund from the government, they’re going to owe $1,496.

It is important to keep in mind that the couple has paid precisely the same amount in taxes either way. But with the advance payments of the child tax credit they were able to spend money currently rather than wait for it to come. Still, if they didn’t understand that receiving advance payments would reduce their tax refund, they’re going to be in for a surprise when they file their tax returns.

So what can they do about this? There are a couple options. They can do nothing and save a portion of the monthly payments (in an interest-bearing savings account ideally!) so that they have enough cash to pay their increased tax bill later and spend the rest on current expenses (or save it or invest it or whatever they need to do).

They can file an amended W-4 with their employers so that their employers withhold more every month and they don’t face such a large bill at the end of the year.

Or if they don’t want anything to change and just want a big tax refund when they file their returns, they can even opt out on a soon-to-be-released IRS child tax credit portal.

It’s important to keep in mind that my hypothetical family was just that: hypothetical. I ignored payroll taxes and made up numbers for withholding and income and even number of children. Your situation is almost definitely going to differ in the details from what I laid out.

But the broader strokes will apply. That is, the advance payments of the child tax credit are good both because they will reduce child poverty and because it is more valuable to receive money now than later. Just remember that because the advance payments reduce the amount of child tax credit that is left when parents file their tax returns, their tax refund may be smaller than they expect.

By: Leandra Lederman

As I blogged previously, Dr. Leopoldo Parada from the University of  Leeds School of Law and I (with the support of the Indiana University Maurer School of Law) will co-host the Indiana/Leeds Summer Tax Workshop Series again this summer. It will meet online via Zoom on Fridays from 11:30am-1pm Eastern Daylight Time (4:30-6pm British Summer Time). Last summer’s series went really well. If you are interested in cutting-edge tax issues, we hope you will consider attending!

We received numerous excellent submissions in response to this year’s Call for Papers. As stated there, we prioritized tax topics that would be of interest to scholars in multiple countries. Here is the list of speakers and the papers they’ll be presenting:

Like last year, the workshop will take place on Zoom, as a regular Zoom session. We will introduce the speaker, who will have about 20 minutes for scripted remarks, and the remainder of the time will be allocated to questions and discussion. Approximately a week in advance of each talk, we expect to share the draft paper online on the following website: law.indiana.edu/summer-tax.

The Indiana/Leeds Summer Tax Workshop Series is open to attendance by interested faculty, tax experts, and students. This summer, you will need to register in order to obtain the Zoom link and the password for any password-protected papers. Please register at TinyURL.com/INLeeds2021.

Students and other attendees who would like to list on their c.v. that they “participated in the 2021 Indiana/Leeds Summer Tax Workshop Series” should do the following:

• Attend at least 5 of the scheduled sessions.
• Type in the “chat” window of the Zoom session of each session you attend a brief introduction containing your name, school or other institution, location, and degree candidacy or job title.

We encourage all attendees to introduce themselves in the chat window, as well.

If you have questions, feel free to email us at llederma@indiana.edu and L.Parada@leeds.ac.uk. We hope to see you (virtually) this Friday and at the other sessions this summer!