The levels of both mandatory and discretionary funding for the IRS face an uncertain future as Congress returns from its August recess, and the fate of the agency’s annual funding likely won’t be determined until the end of the year.

Lawmakers have a September 30 deadline for fiscal 2027 government funding when they return from the summer break, with the passage of a short-term extension of funding at fiscal 2026 levels into December serving as the most likely scenario. But language in the final version of that stopgap bill plays a role in forecasting additional cuts to the agency’s boosted operations support funding.

A stopgap funding bill passed by the Senate August 8 includes language to prevent a second $11.7 billion rescission in mandatory funding the IRS originally received in the Inflation Reduction Act — a cut that would be otherwise copy-pasted in a clean extension. A separate stopgap funding bill that passed the House July 21 doesn’t include similar language to explicitly remove a reference to the rescission for the stopgap period.

The House is expected to hold a vote on the Senate funding bill the week of August 31. But even if funding is extended through December, the status of annual funding for the IRS for the remainder of the fiscal year will remain up in the air until the end of the year, if not later.

House Republicans’ fiscal 2027 financial services and general government (FSGG) bill would set a $10.2 billion annual budget for the IRS, down from $11.2 billion for fiscal 2026. The legislation would give the agency its smallest budget since 2004 and would include $3 billion for taxpayer services, flat from last year; $3.6 billion for enforcement, a nearly 28 percent cut year over year; and $3.6 billion for technology and operations support, up nearly 14 percent.

The post An Uncertain Future for IRS Funding appeared first on TaxProf Blog.

     

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Professor Townsend’s Introduction highlights how the symposium papers weave together three themes: holism in the design of legal education, reflected in the number of leadership programs and courses appearing in law school curricula over the last 15 years or so; the “professional identity formation” pillar of the Carnegie Report; and professional responsibility and legal ethics, as one (non-exclusive) route to exploring the meanings and practices associated with leadership, in law and otherwise.

The Introduction closes with this:

There is no better time to engage the themes and arguments of this volume. From internal pressures related to mental health and well-being and the elusiveness of work-life balance to external drivers concerning the profession’s reputation among the public and the threats posed by artificial intelligence, the legal profession faces a precarious future. In light of these and other challenges, law schools must be able to prepare law students with the skills, capacities, and character needed to lead in the face of uncertainty and ambiguity.

The post Journal of Legal Education: “Leadership and Character in the Law” appeared first on TaxProf Blog.

     

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• McGinnis: AI and the Public Purpose of Legal Scholarship

 

The abstract:

The controversy over artificial intelligence in legal scholarship exposes a deeper disagreement about what legal scholarship is for. This Essay argues that scholarship’s governing public purpose is to improve warranted public understanding of law and the reasons that should guide legal institutions. That purpose, rather than the amount of unaided labor invested in an article, should determine how AI may be used. From this account, the Essay derives a responsibility principle: scholars may use AI extensively, but they may publish only work whose material claims they have verified, whose intellectual debts they have reasonably investigated and acknowledged, and whose controlling judgments they understand and are prepared to defend. It distinguishes these threshold conditions of scholarly integrity from the separate question whether an article is sufficiently important, original, and illuminating to merit publication. It also develops a four-factor framework-materiality, opacity, verifiability, and substitution-for determining how much human supervision a particular use of AI requires. The Essay rejects AI coauthorship and argues that disclosure should concern epistemic methods needed to evaluate or reproduce a claim, not the complete history of an article’s production. It further contends that AI can promote warranted understanding of law by reducing advantages supplied by extensive institutional support. It offers model guidelines for law reviews to regulate the use of AI in legal publications. Finally, it tests the theory against a possible post-centaur future in which machines may produce superior scholarship without substantial human intellectual contribution.

Me:

No notes.

The post McGinnis: AI and the Public Purpose of Legal Scholarship appeared first on TaxProf Blog.

     

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• Ellen P. Aprill, “Once and Future Revocation of Tax Exemption: Public Policy, Illegality, Terrorism, and Charitable Purpose“
• John A Townsend, “Loper Bright Flip Flops on Chevron Deference: A Tax Lawyer’s Perspective“
• Andrew David Appleby, “Data Extraction Taxes“
• Edward Alan Zelinsky, “The Uneasy Case for the Stability of Property Tax Revenues: Reflections on Tax Equity Now NY LLC, Proposition 19 and ‘Dark Stores'”

The post New Issue of The Tax Lawyer appeared first on TaxProf Blog.

     

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California lawmakers are moving to shut down a tax maneuver that luxury vehicle owners use to avoid paying state taxes.

The Assembly Wednesday approved a bill (SB 1406) by Sen. Jerry McNerney (D) to close what’s known as the “Montana loophole,” where Californians create shell companies in Montana to purchase and register cars, pickups, yachts, and recreational vehicles to bypass sales tax. They then use those vehicles in California. The measure passed the Senate in May.

The bill would allow the California Department of Tax and Fee Administration to apply the state’s use tax to shell companies with at least one Californian as an owner. Individual owners could be held liable for unpaid taxes.

“For years, wealthy tax evaders have avoided paying sales taxes by setting up phony shell companies to buy Ferraris, Lamborghinis and other exotic vehicles in Montana,” McNenery said in a statement on the bill’s passage. “Closing the Montana Loophole will help restore some fairness to our sales tax system by ensuring that everyone pays what they owe.”

The Assembly narrowly approved measure 59-19; it cleared the Senate 31-8. It now heads to Gov. Gavin Newsom (D), who will have until the end of October to sign it.

California is one of several states stepping up efforts to recover revenue lost to Montana plates. McNerney estimated that thousands of California residents have used the maneuver and that it is costing the state more than $20 million annually in lost revenue.

Previous Coverage:

• More States Cracking Down on the Montana Vehicle Registration Tax “Loophole”

The post California Fix for Montana Plates Tax Loophole Heads to Newsom appeared first on TaxProf Blog.

     

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“Although law school admissions have rapidly changed in recent years, the structure of Duke’s Office of Pre-Law Advising — among the first of its kind in the United States — has not. 

Since the office’s establishment in 1969, only one person has filled the role of pre-law adviser — a model `definitely not sustainable,’ according to Dean of Pre-Law Advising Patrice Barley, Law School ‘05.

Amid administrative restructuring, staffing shortages and a rapidly rising applicant pool, the office faces a tumultuous year ahead. A University spokesperson wrote in an email to The Chronicle that Duke `remains committed to providing students and alumni with robust support and high-quality advising as they pursue admission to law school.’ 

But with that task of providing `robust support’ falling almost solely on Barley, she has some apprehension.” 

The post Inside Duke’s 1-person pre-law advising office appeared first on TaxProf Blog.

     

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The first half of 2026 produced significant decisions that collectively probe the practical reach and doctrinal boundaries of alternative apportionment and opened new lines of debate this summer at two major state tax conferences.

Four matters in particular illustrate the range of issues now in play, with Smithfield Packaged Meats Corp. v. California Franchise Tax Board being the most closely watched decision.

• In Smithfield, the taxpayer successfully tested whether California’s single-sales-factor regime can be overridden by the state’s alternative apportionment statute when the sales factor produced a roughly 600 percent disparity relative to in-state property and payroll. The superior court said yes, and allowed an equally weighted three-factor formula.
• In Apple Inc. v. Nebraska, both sides proposed adjustments to the sales factor for IRC section 965 repatriation amounts earned over more than a decade but reported on a single 2017 return. The district court rejected the state’s approach and remanded for a new determination, leaving open the outer limit of alternative apportionment for multiyear foreign income.
• In Tractor Supply Co. v. South Carolina Department of Revenue, the South Carolina Court of Appeals upheld the department’s authority to require combined unitary reporting as an alternative method after finding that separate-entity filing with intercompany transfer pricing failed to fairly represent the retailer’s business activity in the state.
• On June 1 the U.S. Supreme Court issued an order in Florida v. California denying Florida’s motion for leave to file a bill of complaint against California over the latter’s treatment of substantial and occasional sales, including capital-gains-type receipts, in the sales factor.

None of the decisions rewrote the constitutional ceiling. Together, however, they examine how far taxpayers and revenue agencies can push statutes modeled on section 18 of the Uniform Division of Income for Tax Purposes Act, whether by petitioning for relief from the standard formula or by imposing an alternative method.

At the FTA conference, Fort said that courts and administrators have long struggled to apply section 18-style provisions, which have no federal counterpart. Revenue agencies commonly invoke that authority to address sales factor inflation and tax-motivated structures, he said, while the Apple and Smithfield decisions raise new questions about the sales factor and single-sales-factor regimes.

“Right now a lot of states are using alternative apportionment to try to figure out what to do with global intangible low-taxed income and net controlled foreign corporation tested income” Fort said. The aim is to head off a constitutional challenge to what taxpayers argue is foreign-derived income, though whether that is an appropriate use of the discretionary authority is an open question.

In Apple v. Nebraska, both sides tried to adjust the apportionment factors for 13 years of repatriation income compressed into a single year. The court rejected both approaches. “Maybe that’s beyond what alternative apportionment can do, but we’ll see,” Fort said.

The persistence of the older “rare and unusual” standard for applying alternative apportionment is now being tested by the widespread adoption of single-sales-factor formulas. The 2026 flashpoint was Smithfield.

…

At the MTC conference, Lynn Gandhi of Foley & Lardner said she sees renewed taxpayer interest in alternative apportionment following Smithfield, and from special problems created by capital gains, partnership complexities, and modern businesses that generate multiple streams of income.

…

After years in which relief under section 18 felt largely unattainable, Smithfield has raised the possibility that taxpayers can actually succeed in obtaining a different formula, including relief from a pure single-sales-factor regime.

However, Gandhi said the rise of single-sales-factor apportionment adoption by states originated as a business-driven, political initiative. She rejected contemporary arguments that treat the single sales factor as a neutral or inherently appropriate measure of business activity, noting that the formula “had its origins in tax avoidance and tax minimization” rather than any pure theory of fair apportionment, and said it therefore carries no special legitimacy from its current widespread use.

The post Alternative Apportionment: 2026 Flashpoints appeared first on TaxProf Blog.

     

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Abstract

One of the central promises of legal AI is to automate drudgery—the formal, repetitive tasks of lawyers’ work that consume time without calling for much discretion. Yet it remains an open question how well AI models actually perform on such tasks. This article presents the first empirical examination of AI performance on perhaps the most ubiquitous and lamented form of legal drudgery: citation formatting under the Bluebook. We make four contributions. First, we develop a new benchmark of 2,058 Bluebook queries and show that, on average, frontier language models produce a fully compliant legal citation only 42.6% of the time in a zero-shot setting. Second, we conduct an experiment with five top law reviews and show that even a “reasoning” model falls far below the average score of the human candidates in these journals’ annual editor-selection competitions. Third, we show that simply providing the models with the rules offers only modest improvements, calling into question the ability of retrieval-augmented generation (RAG) to ensure rule-following alone. Finally, we develop an approach that does meaningfully improve compliance: a neuro-symbolic system that first uses a model to parse natural language into structured citation elements, and then delegates the formatting to a deterministic rule-execution engine. This approach achieves an average accuracy increase of 32.4 percentage points and total accuracy of up to 85.5% on our benchmark. These results point toward a reorientation for legal AI. The original promise of automating drudgery still remains out of reach for even frontier language models on their own—but pairing them with symbolic rule engines may offer a tractable path forward.

The post Can AI Handle BlueBooking? Thank Goodness. appeared first on TaxProf Blog.

     

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Enter private-placement life insurance, a customizable insurance contract that allows unlimited investments to grow tax-free.

“It is a Roth IRA on steroids for people who can afford it and want to leave it to their heirs,” said Jim White, founder of Great Oak Wealth Management. 

The policies have surged in popularity among wealthy individuals, who use them to invest in alternative assets such as hedge funds, private credit and private real estate. Such investments can come with higher returns—and hefty annual tax bills. 

But there is a major catch. To comply with Internal Revenue Service rules, the investor must give up control of the assets within the policy. That means putting the money in a specialized private investment vehicle known as an insurance-dedicated fund or a separately managed account whose investments are sourced and overseen solely by their adviser. 

Created in the early 1990s, private-placement life insurance takes advantage of tax-code provisions intended to encourage people to provide for their dependents using life insurance. The policies began gaining traction a little over a decade ago when wealth advisers realized they could manage—and charge fees on—the assets, which are essentially locked up for years.

…

The executive’s investments could one day be worth hundreds of millions of dollars, and he won’t have paid a dime in ordinary-income or capital-gains taxes on their growth. He can take withdrawals or loans against the policy’s cash value but generally doesn’t expect to tap the proceeds. When he dies those will go to beneficiaries income-tax-free in the form of a death benefit. 

His policy is inside an irrevocable trust set up for his children—a structure often recommended by advisers—meaning it also wouldn’t be subject to estate taxes.

“It’s a way to create a tax-efficient wrapper around tax-inefficient investments,” said Callahan, who heads up BFA’s family wealth planning.

…

Some in Congress would like to see private-placement life insurance lose its tax-free status. Sen. Ron Wyden (D., Ore.) in April introduced legislation that would separate it from traditional life insurance, making its earnings and losses taxable to the policyholder as they are earned each year. 

“We cannot have a bunch of ultrarich tax dodgers abusing its special tax treatment to set up tax-free hedge funds and shelter mountains of cash,” Wyden said in a press release announcing the legislation.

Previous TaxProf Coverage:

• Glogower & Granato: Reforming The Taxation Of Life Insurance
• Gómez:Too Good To Be True—Private Placement Life Insurance Policies
• The Very Rich Have A Plan To Escape Biden’s Tax Increase: Private Placement Life Insurance
• WSJ on Avoiding Hedge-Fund Taxation Via “Private Placement” Life Insurance

The post WSJ: ‘A Roth IRA on Steroids’: Wealthy Americans Find Another Tax-Free Way to Invest appeared first on TaxProf Blog.

     

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