PUBLICATIONS

Investment Risk and The Tax Benefit of Deferred Compensation, Tax Law Review (forthcoming 2009) [LINK]

Deferred compensation is thought to generate significant tax savings compared to current compensation in certain circumstances.  The standard model used to support this conclusion does not consider investment risk and therefore overstates the tax benefit of deferred compensation significantly.  This paper describes three alternative, risk-neutral approaches to measuring the tax benefit of deferred compensation.  Each of these approaches avoids misclassifying increases in expected value attributable to increases in investment risk as a tax preference.

Was Heinz's Two-Step Redemption a Sham?  117 Tax Notes 345 (Oct. 22, 2007) [LINK]

Heinz's wholly owned subsidiary purchased on the market over $131 million worth of Heinz's common shares. A few months later, the subsidiary sold 95% of the Heinz shares to Heinz, and sold the 5% balance to an unrelated third party. Heinz claimed a $124 million tax loss from this series of transactions, even though it suffered no corresponding economic loss. The Court of Federal Claims held that the series of transactions was a sham and, in the alternative, should be recharacterized under the step-transaction doctrine. This Article critiques the parties' arguments and the court's analysis.

Can Discriminatory Taxation of Municipal Bonds Be Justified?  Thoughts on the Davis Topside Briefs, Tax Notes (forthcoming) (with Brian Galle) [LINK]

This Report continues our analysis of Department of Revenue of Kentucky v. Davis, a case scheduled for argument in the upcoming Supreme Court term. The issue in Davis is the constitutionality of Kentucky's practice (shared by all other states with an income tax) of taxing interest on federally-exempt bonds issued outside Kentucky while exempting its own municipal bonds from taxation. In this installment we evaluate skeptically a number of possible state interests that might be offered to justify that practice. For example, we point out that Kentucky's assertion that the policy conserves state revenue is wrong. We also argue that, if the goal is to transfer revenues from the state to local governments, then exemption is inferior to direct grants.

Taxing Cap and Trade Environmental Regulation, 37 Journal of Legal Studies 535 (2008) [LINK]

This paper examines the extent to which income taxation interferes with cap-and-trade environmental regulation, and reaches two conclusions. First, within a single tax period, imposing an income tax will not undermine the cost-effectiveness of cap-and-trade regulation. Second, taxes may distort cost-effective allocation of permits and abatement through time when the permit market is dominated by firms owning permits with a tax basis of zero.

Municipal Bonds and the Dormant Commerce Clause After United Haulers , 115 Tax Notes 1037 (June 11, 2007) (with Brian Galle) [LINK]

Professors Yale and Galle consider the constitutionality of the common state practice of exempting interest on the state’s own municipal bonds from taxation but imposing tax on municipal bonds issued by other states. In particular, they assess the impact of a recent Supreme Court decision, United Haulers, on challenges to in-state-only municipal bond interest exemptions like the one at issue in Davis v. Kentucky.

Deferred Compensation Revisited, 114 Tax Notes 939 (March 5, 2007) (with Daniel Halperin), reprinted in New York University Review of Employee Benefits and Executive Compensation (Alvin D. Lurie, ed.), Ch. 20, Vol. 2, 2007 [LINK]

The tax rules governing deferred compensation, codified at section 409A, are harsh and complex. The rules are focused on the least important policy considerations and overlook the most important. Professors Halperin and Yale suggest a different approach, one that would make the law simpler, fairer, and more effective.

Reforming The Taxation of Deferred Compensation, 85 North Carolina Law Review 271 (2007) (with Gregg Polsky) [LINK] [PDF]

The federal tax rules governing deferred compensation are flawed.  They often create a significant incentive for companies and their executives to structure deferred, rather than current, compensation, thereby producing highly inefficient and inequitable results. This Article addresses potential legislative reforms that would remedy this problem by neutralizing the tax treatment of current and deferred compensation.

Reexamining Black & Decker's Contingent Liability Tax Shelter, 108 Tax Notes 223 (July 11, 2005) [PDF]

This Article reviews the contingent liability tax shelter employed by Black & Decker, and critiques the arguments the government has made in its appeal to the Fourth Circuit. Prof. Yale concludes that the government’s technical arguments are unpersuasive and demonstrates that if the Fourth Circuit accepts them, it might result unintended consequences in run-of-the-mill transactions. Yale suggests a different strategy the government should pursue when challenging contingent liability tax shelters, a strategy that would prevent taxpayers from enjoying an undeserved tax windfall in abusive cases without distorting the language of the Code.

When Are Capitalization Exceptions Justified?, 57 Tax Law Review 549 (2004) [PDF]

Normative capitalization would suspend deductions for every expenditure to the extent that it procures a benefit lasting beyond the taxable year in which the cost is incurred.  A number of arguments have been advanced for departing from normative capitalization, including (1) that an inability to set rational depreciation schedules renders capitalization more distortive than expensing, (2) that capitalization and expensing lead to nearly identical results given certain steady-state investment patterns, and (3) that indirect costs should be expensed because it is too difficult to identify and allocate them among capital expenditures.  This article examines these and other arguments and concludes that exceptions to normative capitalization can be justified only in limited instances, but that none of the arguments considered justify departing from normative capitalization to the extent commonly accepted.