Florida Tax Review

AI and the Regulation of Tax Return Preparers

Linda Galler — 2025-03-25

Tax return preparers play a pivotal role for millions of taxpayers, and their number ranges in the hundreds of thousands. Despite preparers’ importance in the tax return submission process and their numerical size, they are largely unregulated. Because of this lack of oversight, a significant number of tax return preparers put their own financial interests and those of their clients ahead of the government’s financial interests.

In the past, there have been calls for increased regulatory oversight to keep wayward practitioners’ actions in check. Therefore, a decade and a half ago, Congress, in conjunction with the Treasury Department, mandated that every paid tax return preparer secure a Preparer Tax Identification Number (PTIN) and affix it to the face of the tax returns that they prepare.

Enter artificial intelligence (AI)—with its unparalleled ability to process and analyze an immense amount of data—combined with electronic tax return filings. With immediate access to PTINs and other information or characteristics associated with such returns, AI is ideally situated to identify tax return preparers who are derelict in their professional duties. Once identified, the Internal Revenue Service can hold these practitioners accountable for their mistakes and misdeeds.

Unlike the prior academic papers that have championed regulatory oversight well beyond PTIN registration (e.g., mandatory annual education courses and exams), this analysis stands apart. Instead, it recognizes AI’s power and what it can accomplish if properly brought to bear to the problem of unregulated tax return preparers. Seizing this opportunity would most likely result in increased tax compliance, the collection of billions more in revenue without raising taxes, and a narrowing of the tax gap (i.e., the difference between what taxpayers pay in tax and what they owe). Furthermore, the foregoing may be accomplished without adding needless administrative burdens.

Capitalizing Carbon

Levi Loveless — 2025-03-25

This Article explores the evolving intersection of carbon offset credits, U.S. federal tax law and clean energy tax incentives, emphasizing the complexities faced by businesses in navigating these areas. As carbon offset credits gain prominence in corporate sustainability strategies, their tax treament remains ambiguous, with companies encountering varying interpretations under sections 162 and 263.

The analysis in Part II suggests that carbon offset credits purchases are likely to be generally capitalized, subject to rare exceptions. This conclusion is drawn from notable legal precedents, including Welch v. Helvering, Jenkins v. Commissioner and INDOPCO v. Commissioner. These cases provide insight into how courts may approach the deductibility versus capitalization debate, including especially what constitutes "ordinary" and "necessary" expenses in the context of carbon credits. Historically, and likely in the future as well, these "reputation enhancing" expenditures constitute capital outlays designed to benefit the business ofver long periods of time. However, in an era where environmental sustainability is prioritized, not only culturally but also explicitly through the Code, outlays resembling a musician's "reputation preserving" outlay may find a "Swift exception" to traditional capitalization rules. Nevertheless, "expenses" apparently similar in nature both in domestic and foreign contexts are consistently treated as capital outlays, and carbon credits are likely no exception.

The Article also examines the role of clean energy tax credits—particularly sections 45Q and 45V—in the carbon capture and hydrogen production by present challenges regarding the stacking of credits, as discussed in Part III. The prohibition on combining section 45Q and 45V credits creates strategic decision points for project developers, impacting the financial feasibility of clean energy initiatives.

Finally, Part IV considers the potential shift toward a mandatory federal carbon compliance program in the United States, highlighting the increasing importance of accurate tax reporting and strategic planning. As federal policies continue to evolve, businesses must align their tax strategies with broader environmental and corporate governance goals to navigate this dynamic and challenging landscape effectively.

Do Tax Judges Favor the Tax Authority?

Orli Oren-Kolbinger — 2025-03-25

Judges and judicial systems have become more specialized in response to increasing legal complexity. While the theoretical literature has discussed judicial specialization extensively, deliberating its pros and cons and its implications—arguably an appealing background for empirical investigation—few empirical studies have attempted to quantify the relationship between judicial specialization and case outcomes. This Article fills that lacuna. It analyzes a hand-coded dataset of tax cases in which rulings were made by both specialized tax judges and generalist judges in Israeli District Courts. Its main finding is that specialized tax judges are more inclined than generalist judges toward the Tax Authority. It also finds that women judges and judges who worked in the private sector before their nomination are more inclined toward the Tax Authority than men judges and judges who were part of the public sector before taking the bench.

Gaming the Endowment Tax

Christopher Ryan — 2025-03-25

The 2017 law known as the Tax Cuts and Jobs Act (TCJA) enacted a tax on private, non-profit college and university endowments for the first time. Institutions with at least 500 tuition-paying students and endowments of $500,000 or greater per student now have to pay a 1.4% tax on their endowments. But like all taxpayers, colleges and universities may be tax averse or seek reductions in their tax burdens. That is, colleges and universities may try to avoid the tax through taking action to ensure they do not meet the threshold. Such actions include increasing the size of their student bodies, increasing student aid to ensure a small number of tuition-paying students, and spending down their endowments. Colleges may also attempt to offset taxed revenue by increasing other revenue streams. Examples of such behavior include increasing revenue from auxiliary services, admitting more “ full-pay” students who do not need financial aid, reducing financial aid for tuition-paying students (perhaps even while increasing the number of students who receive enough aid to become non-tuition paying), and admitting fewer low-income students. All of this would be economically rational behavior, but it could produce negative effects for higher-education stakeholder groups, such as students and their families.

In this Article, we assess the ramifications of the TCJA’s endowment tax for college and university revenue-seeking behavior. We use a national-level dataset and a quasi-experimental statistical model known as the “Synthetic Control Method,” which is underutilized in legal research, to examine institutional behaviors in the wake of the TCJA’s passage. We find that individual institutions—such as Northwestern University, Duke University and Vassar College, among others—may have changed their admissions, enrollment and revenue-generating behaviors to reduce their overall tax burden, offset losses in revenue or avoid the tax. We suspect that this is evidence of firm behavior to game the endowment tax imposed by the TCJA.

Towards an Understanding of Tax Complexity

Daniel Schaffa — 2025-03-25

The study of tax complexity has reached consensus on two things. First, complexity pervades the U.S. tax system. And second, it is not
always clear what tax complexity means. Indeed, it is common practice for tax complexity scholarship to note the absence of a universal tax complexity definition and then conduct its inquiry without one. A universal definition of tax complexity has proven elusive because tax complexity means many different (although often related) things. This has made the tax policy analysis of complexity challenging. As an alternative to a definition, this Article proposes a framework with four elements for considering tax complexity—(1) an activity, (2) something that changes the ease with which that activity may be understood, (3) an effect on the person trying to understand that activity and (4) additional structure isolating the key tradeoffs and identifying what normative inputs are necessary to compare policy options. This Article demonstrates how much (if not all) of the tax complexity literature fits into this framework and how this framework may improve tax policy analysis. Ultimately, this framework facilitates clearer discussions of tax complexity and comparisons between tax systems in complex environments.

Reassessing Corporate Philanthropy from a Tax Perspective

David Walker — 2025-03-25

U.S. corporations make and deduct charitable contributions in excess of $20 billion annually. This Article reassesses corporate philanthropy from a tax perspective, asking first whether the federal tax subsidy for corporate philanthropy is greater than the subsidy for the alternative stakeholder philanthropy, as some commentators have previously found. The answer: it depends. The relative degree of subsidy depends on corporate and individual tax rates, obviously, but also on the incidence of corporate philanthropy, i.e., who bears the cost, which is generally unclear, as well as other details, such as whether individual stakeholders itemize deductions. At current tax rates, however, any outsized subsidies for corporate philanthropy result to a large degree from the constriction in itemizing that followed from the 2017 Tax Cuts and Jobs Act). And many would view the effective restoration of individual deductions for charitable contributions as a positive feature of corporate philanthropy rather than as a bug. Moreover, from a policy perspective, corporate philanthropy provides numerous advantages over individual philanthropy that have not been discussed or emphasized in the literature. Corporate philanthropy mitigates the inequitable “upside-down” effect of the individual deduction for philanthropy that disproportionately favors charities supported by high-income taxpayers and may mitigate the windfall arising from stakeholder contributions of appreciated securities. Corporate philanthropy also is highly responsive to tax incentives, often provides utility to multiple stakeholders, and even transfers a portion of the cost of U.S. philanthropy to non-U.S. stakeholders. There is, in short, much to like about corporate philanthropy from a tax (and non-tax) policy perspective.