Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

A Member of the Law Professor Blogs Network

Monday, April 14, 2014

Marian on the Intersection of Tax Law and Securities Regulation

Omri Y. Marian has posted Reconciling Tax Law and Securities Regulation on SSRN with the following abstract:

Issuers in registered securities offerings are required to disclose, among other tax matters, the expected tax consequences to investors that result from investing in the offered securities (“nonfinancial tax disclosure”). I advance three arguments in this regard. First, nonfinancial tax disclosure practice, as sanctioned by the SEC, does not achieve its intended regulatory purposes. Nonfinancial tax disclosures provide irrelevant information, sometimes fail to provide material information, create unnecessary transactions costs, and divert valuable administrative resources to the enforcement of largely-meaningless requirements. Second, I suggest that the practical reason for this regulatory failure is an unsuccessful attempt by tax practitioners and the SEC to address investors’ heterogeneous tax preferences. Specifically, nonfinancial tax disclosure practice assumes the existence of a “reasonable investor” who is also an “average taxpayer”, and tax disclosures are drafted for the benefit of such average taxpayer. The “average taxpayer”, however, is not a defensible construct. Third, the theoretical reason for the dysfunctionality of the regulatory regime is misapplication of mandatory disclosure theory to tax rules. I argue that given the special nature of tax laws, mandatory disclosure theory — even if accepted at face value — does not support current regulatory framework. To remedy this failure, I describe the types of tax-related disclosures that would be supported by mandatory disclosure theory. Under my suggested regulatory reform, nonfinancial tax disclosure will only include issuer-level tax items, (namely, items at the company level not otherwise disclosed in the financial statements), that affect how “reasonable investors” calculate their own individual tax liabilities. Under such a regime, there is no need to rely on the “average taxpayer” construct.

http://lawprofessors.typepad.com/securities/2014/04/marian-on-the-intersection-of-tax-law-and-securities-regulation.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef01a73da9e523970d

Listed below are links to weblogs that reference Marian on the Intersection of Tax Law and Securities Regulation:

Comments

Post a comment