Category Archives: tax law

Captain America and Taxes

Today’s post is a quick one in response to this question from ldycemn:

Since cap was frozen…should he have to pay a fine for not filling?

This seems like an appropriate question for this time of year, and luckily it has a pretty simple answer: no.  Not everyone has to file a tax return, particularly those with incomes below a certain threshold.  The filing requirements change with some frequency, but as far as I can tell there has always been a threshold.  Since Steve Rogers wasn’t earning any money after he was frozen (since he was presumed dead), he wouldn’t have to file.  If he received backpay after being thawed out then he would have to pay taxes on that backpay, but that would be based on the tax laws when he was thawed, not the years during which he was frozen.

IP and the Comic Book Superhero CLE

On Friday, April 26th at 10am Pacific / 11 am Mountain / noon Central / 1pm Eastern I will be co-presenting a live 90 minute CLE program called “IP and the Comic Book Superhero“, sponsored by the ABA Section on Intellectual Property Young Lawyers Action Group, the ABA Young Lawyers Division, the ABA Forum on the Entertainment and Sports Industries, and the ABA Center for Professional Development.  My co-presenters are Brad Desnoyer, associate professor at the University of Missouri School of Law and previous guest post author here at Law and the Multiverse; Janet Fries, of counsel at Drinker Biddle & Reath LLP in DC; and Martha L. Voelz, a solo attorney in New York.  The moderator is David Postolski, a patent attorney at Day Pitney LLP in New Jersey.

The program will cover many aspects of IP law, including patents, trademarks, copyrights, publicity rights, and their tax implications with examples and inspiration drawn from both fictional superheroes and real-world superhero-related IP.  We hope you can join us!

Superman’s Diamonds Revisited

Just over two years ago I discussed Superman’s (lack of) tax liability for crushing coal into diamonds and (actual) gift tax liability if he gave those diamonds to another person.  In the comments to that post I mentioned that Superman could theoretically avoid gift tax liability by performing the gratuitous service of crushing coal into diamonds rather than giving a finished diamond.  In this post I’d like to expand on that topic briefly.

I. Form Over Substance

Although it is true that gratuitous services are not taxed, it is also true that the IRS and the courts frown on tax avoidance schemes that attempt to exalt form over substance.  Gregory v. Helvering, 293 U.S. 465 (1935).  So a scheme by which Superman handed someone a piece of coal, fully intending to turn it into a diamond, then did so, would be tantamount to simply giving them a diamond.  The IRS would focus on the substance of the transaction, not the form, and consider it a taxable gift of property.

But if, for example, Superman were at someone’s house for a barbecue and decided to thank them for dinner by crushing a lump of their own charcoal into a diamond, that would be different.  In that case Superman really would be performing a gratuitous service.

This may seem like a fine distinction, but think of it in terms of a famous baseball player.  If the baseball player hands someone a baseball (retail value $3) and then signs it (market value $500), that’s not really a gratuitous service.  They’re really just giving the person a signed baseball.  But if the baseball player signs a baseball that the recipient already owns, then that is more clearly a service rather than a gift of property.

II. Engagement Rings

Superman has crushed coal into diamonds for various reasons, but one of the best known was his gift of a ring to Lana Lang in Superman III.  This raises an interesting question: is an engagement ring subject to gift tax?  There is, subject to certain qualifications, an unlimited marital deduction for gifts between spouses, but what about an engagement ring, which is given in anticipation of marriage?

The law surrounding engagement rings and other pre-nuptial gifts has a long and complex history, dating back to at least the Romans.  Most of the law has to do with who owns such gifts, particularly if the marriage is called off.  But it turns out that none of that matters for tax purposes.  If the donor and donee aren’t married at the time of the gift, then the marital deduction doesn’t apply.  26 U.S.C. § 2523(a).  So an engagement ring is subject to gift tax, even if the donor and donee get married later that same year.  In practice I suspect that few people actually report such gifts, even in the rare case where it would make a difference in their ultimate tax liability, but maybe Superman would actually be moral enough to do so.

III. Conclusion

Crushing coal into diamonds still doesn’t create tax liability for Superman, and he still has some ways to avoid liability if he crushes coal into diamonds for other people, but he has to be careful about it.  And strictly speaking he probably should have reported that ring he gave to Lana.

Guest Post: Clark Kent’s Taxes

Today we have a guest post from Martha L. Voelz, an associate with S.H. Jacobs & Associates LLC in New York that we met at New York Comic Con.  As we mentioned in a recent post, Clark Kent has quit his job with the Daily Planet to become a blogger.  Martha, who practices tax law, has written a post about some of the tax consequences of Kent’s newfound self-employment.  As with all of our posts, this post is not legal advice, does not create an attorney-client relationship, and does not necessarily reflect the opinions or views of the author’s employer.

Being Your Own Boss — Tax Consequences

With Clark Kent preparing to strike it out on his own in Superman #13, there are several  legal issues he faces as his own boss. As James Daily pointed out in his post, as an independent blogger and reporter Kent will have new intellectual property and liability issues. He also will have some tax differences as well.  For this post, I am sticking to Federal tax issues, but Kent will likely have state and local tax issues too.

As an employee, Kent’s share of income, Social Security and Medicare taxes were calculated and paid to the Internal Revenue Service (“IRS”) by his employer.  As his own employer, Kent now has to calculate and make these tax payments himself. Let’s start with the Social Security and Medicare tax differences, known as FICA and Self-Employment tax.

I. FICA v. Self Employment tax

When Kent received his pay stub from the Daily Planet, he would have seen withholding for his Federal income taxes and another  line notation called FICA. FICA stands for Federal Insurance Contribution Act, and this covers Kent’s tax contribution to Social Security and Medicare. FICA is found in §§ 3101-3128 of the Internal Revenue Code, which is part of the United States Code.

The total FICA tax rate is 15.3%, which is normally paid equally between the employer and employee.  Kent’s portion of FICA would normally be 7.65% and is broken down like this:

  • Social Security – Kent would pay 6.2% tax on his wages (including certain benefits) capped for the year at $110,100 in 2012 and will be capped at $113,700 in 2013. Anything Kent earns over the cap is not subject to the Social Security tax.
  • Medicare – Kent would pay 1.45% on his wages (including certain benefits). There is no yearly cap on this portion of the tax.

The reason for noting how FICA is normally paid is because in 2012 FICA is not working “normally”. In order to stimulate the economy, Congress reduced an employee’s portion of the Social Security part of FICA to 4.2% in 2011 and kept that reduction for 2012. This reduction is not set to continue in 2013. If Kent was working at the Daily Planet, when he received his first pay check of 2013 he might have been shocked by the reduction in his take-home pay and the sudden “increase” in the FICA line.

What makes this different for Kent as a self-employed taxpayer is that FICA does not apply. Instead self-employed taxpayers contribute to Social Security and Medicare under the Self-Employment Contributions Act of 1954, known as the Self-Employment Tax. This tax is found under §§1401-1403 of the Internal Revenue Code.

On its face, the Self-Employment Tax seems harsher because the taxpayer normally pays all 15.3% of the tax, which under FICA is split between the employer and employee.  However, the same 2012 reduction to the employee portion of the Social Security tax applies to the Self-Employment Tax. This means in 2012 the Self-Employment Tax rate is 13.3% and the breakdown would be as follows:

  • Social Security – Kent would pay 10.4% tax on his net earnings with the same income caps in 2012 and 2013 as FICA.
  • Medicare – Kent would pay 2.9% on his net earnings.

There are some additional differences in how the Self-Employment Tax is calculated to even out the differences between this tax and FICA.

First, the Self-Employment Tax is calculated on net earnings of the business and not the gross income. Net earnings are the amount Kent earns reduced by certain business expenses he may have during the year. Second, a portion of the Self-Employment Tax Kent paid may be deductible on his federal income tax return. This in turn may put Kent in a lower tax bracket and reduce his federal income tax.

II. Estimated Tax Payments

By becoming self-employed, Kent will have to calculate and pay income tax and Self-Employment Tax on his own. He will have to do this by making estimated payments to the IRS using Form 1040-ES. This form will help Kent calculate both his Federal income and Self-Employment Taxes.

He will need to file and make payments for each quarter to avoid an underpayment penalty. Quarterly estimated payments are due April 15 (for January, February and March), July 15 for (April, May and June), October 15 (for July, August and September) and January 15 of the following year (for October, November and December). If the due date falls on a Saturday, Sunday or Holiday, then the due date is typically the following business day.

Filing and payment is considered completed on the mailing date, and it is a good idea for Kent to send anything to the IRS via Certified Mail Return Receipt. This is his insurance should the IRS allege he missed a payment or filing deadline. Alternatively, he can make his quarterly estimated payments using the Electronic Federal Tax Payment System.

III. Happy New Year! – 2013 Tax Surprises

There are a few tax surprises in store for Kent and the rest of us taxpayers between the 2012 and 2013, in addition to watching our Social Security tax payment revert back to its normal amount.

First, some taxpayers may have to make an Additional Medicare Tax payment. If Kent makes over $200,000, then an Additional Medicare Tax will kick in. For every dollar over $200,000, he will pay Medicare Tax at 2.35%. (I assume for the rest of this post that Kent is not getting married in 2013 and has a taxpayer filing status of “Single”.)

Second, the Federal income tax brackets are set to revert to tax rates we last saw under President Clinton. The bottom income tax rate goes from 10% to 15% up to a maximum tax rate of 39.6%. Assuming Kent has an adjusted gross income between $35,351 and $85,650, his tax rate will go from 25% to 28% in 2013. This assumes that Congress does not make tax code adjustments connected to the “Fiscal Cliff” situation, which is still up in the air as of this writing. [Ed. note: the fiscal cliff has apparently been avoided, but if Kent makes more than $400,000 per year then he would pay 39.6% on income above that level.]

One of the best things Kent can do is read up on his obligations as a self-employed taxpayer and check out  the following IRS publications: Publication 334 –Tax Guide for Small Business and Publication 505 – Tax Witholding and Estimated Tax. If he doesn’t want to tackle this himself, hiring a certified public accountant is the best thing he can do. (Plus, the expense is a tax deduction in his new life as a self-employed reporter!)

I Married a Skrull!

Today’s post is about Johnny Storm (aka the Human Torch) and his marriage to Alicia Masters (actually the Skrull Lyja posing as Masters).  Ken wrote in to ask “Was Johnny Storm’s marriage to Lyja valid?”

This isn’t the only time that this scenario has occurred in comics.  Ken also asked about the marriage between Namor the Sub-Mariner and Dorma (actually Llyra in disguise).  In that case a quirk of Atlantean law came to the rescue: because Namor thought he was marrying Dorma, his marriage was to her and not Llyra, even though Dorma was not present at the ceremony.  I’m not sure what that says about the nature of consent in Atlantean law, but we’ll stick with the Johnny Storm/Lyja case, since New York law is a bit easier to research.

I. Void and Voidable Marriages

Perhaps unsurprisingly, the answer is that their marriage would be voidable.  N.Y. Domestic Relations Law § 7 states

A marriage is void from the time its nullity is declared by a court of competent jurisdiction if either party thereto: … 4. Consent[ed] to such marriage by reason of force, duress or fraud

There’s a distinction between a marriage (or other contract) that is voidable and one that is void.  A void marriage (defined in §§ 5-6) is one that never exists at all, typically in cases if incest or bigamy.  A voidable marriage is a marriage until a court declares it void, and so can theoretically remain a legitimate marriage if the parties want it to be.  So in this case if Johnny Storm and Lyja agreed that they really did love each other after all (certainly Lyja claims to), then they could stay married, though there would be a lot of paperwork to correct.

Alas, love does not conquer all here, and Johnny wants none of it.  So could he prove a case of fraud?

II. Fraud

New York law treats the kind of fraud sufficient to void a marriage as similar to that which would void a contract.  ”Marriage is a civil contract, and the courts will annul such a marriage like other contracts, where the consent of a party to it has been procured by fraud or the misrepresentation of a material fact.”  Lembo v. Lembo, 193 Misc. 1055, 1057 (Sup. Ct. 1949).  Further:

Where the ground relied upon for dissolution is fraud, the fraud contemplated by the statute must be of a nature and import so serious that it destroys the essence of the marriage contract and of a magnitude that the person asserting the fraud as a ground for dissolution would not have entered the marriage contract, if, in advance thereof, the misrepresentations had been revealed.

Di Pillo v. Di Pillo, 17 Misc.2d 673, 675 (Sup. Ct. 1959).  It seems pretty clear that lying about one’s identity as an alien at war with the human race and impersonating another person already known to the other party are sufficient.  Johnny would not have married Lyja had she been honest about her identity.  Indeed, he likely would have attacked her on sight.

III. An Alternate Approach

Another approach would be to argue that the marriage was void from the beginning (as opposed to voidable) because human/Skrull marriage is not legally recognized in New York.  Our prior post about this was a bit controversial, but our conclusion there was that interspecies marriages (e.g. Clark Kent and Lois Lane) may not be legal under current law.  Since the Storm/Lyja marriage occurred in 1987, long before even same sex marriage was legalized anywhere in the United States, we feel even more comfortable asserting that a human/Skrull marriage would not be legal (again, assuming that the marriage laws on Earth 616 were the same in 1987 as they were in the real world).

IV. Conclusion

Whether because a human/Skrull marriage is legally impossible or simply because Storm was tricked into marrying Lyja, Johnny would have no trouble getting out of the marriage.  There might still be legal consequences, however.  A question for any tax attorneys or accountants in the audience: if Johnny had filed his tax return as married/filing jointly and claimed the standard deduction, would he have to repay any tax if the marriage was later declared void?  If so, could he seek compensation from Lyja?

PS238: Superheroes and Tax Deductions

PS238 is a long-running comic series by Aaron Williams that is available online and in print.  The comic is set at the titular public school, which is a special school for children with superpowers, called metaprodigies.  Earlier this month we got an email from Sean asking us to take a look at PS238, and there are legal issues aplenty.  We’re going to start with a bit of tax.  Very minor spoilers below.

(Since we’re talking about tax, we should reiterate our disclaimer: this is a discussion of a fictional scenario, not legal advice, and does not constitute the formation of an attorney-client relationship.  If you need tax advice, hire a lawyer or an accountant.)

I. The Setup

One of the students at PS238, Tyler Marlocke, doesn’t have superpowers, but he’s enrolled there because his superpowered parents are certain that he’ll develop superpowers any day now.  To give him a fighting chance against the other children (particularly in gym class), the school assigns him a mentor: The Revenant, a gadget-based superhero.  During one of his training sessions he goes to the Revenant’s home, which is located above a high-end gym for people with superpowers.  The Revanant explains the unusual location thus:

Keeping a bunch of exercise equipment at home just clutters the place and since “vigilante detective” isn’t covered under the tax code, keeping my “office” at home isn’t deductible.

The naturally raises the question: would a superhero’s headquarters be tax deductible, and if not, why not?

II. Superhero Tax Deductions

What the Revenant is referring to is the fact that many (but not all!) business expenses are tax deductible.  Home offices (i.e. a proportional share of the rent or mortgage payment) can also be tax deductible, but it’s tricky to get right and can possibly increase the risk of an audit.  The situation gets even more complicated when considering “mixed purpose expenditures” that are both profit-oriented and personal (e.g. traveling for business but also to visit friends or relatives).  In the Revenant’s case, an important question is whether his vigilante detective activities are for-profit or are merely a hobby. The general rule is given by 26 U.S.C. § 183(a):

In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.

§ 183(b)(1) expands on the general rule slightly, allowing “the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit.”  This includes deductions for real property tax payments, mortgage interest payments, casualty losses, theft losses, and personal items such as charitable contributions and medical expenses.  It does not, however, include business expenses or a home office.

Going a little further, § 183(b)(2) states that certain deductions for not-for-profit activities are allowed to the extent that income from the activity exceeds the deductions available under § 183(b)(1).  Since most superheroes don’t make any money from their heroics, however, that effectively means no additional deductions.

“For profit” means more than just wishing for a profit.  The case law speaks in terms of “a bona fide expectation of economic gain,” having the “primary purpose … to make a profit” or the “dominant hope and intent of realizing a profit” or a “reasonable potential for profit.”  Estate of Baron v. C.I.R., 798 F.2d 65, 72 (2d Cir. 1986).  Anything else is usually called a hobby, although it doesn’t  have to be done for pleasure.  See, e.g., Krause v. C.I.R., 99 T.C. 132 (1992).

The IRS has developed nine factors used to determine whether an activity is for-profit:

(1) Manner in which the taxpayer carries on the activity.
(2) The expertise of the taxpayer or his advisors.
(3) The time and effort expended by the taxpayer in carrying on the activity.
(4) Expectation that assets used in activity may appreciate in value.
(5) The success of the taxpayer in carrying on other similar or dissimilar activities.
(6) The taxpayer’s history of income or losses with respect to the activity.
(7) The amount of occasional profits, if any, which are earned.
(8) The financial status of the taxpayer.
(9) Elements of personal pleasure or recreation.

T.R. § 1.183-2(b).  Several of these factors weigh against the Revenant (and indeed most superheroes), and it seems likely that his activities would be considered a hobby rather than an activity carried on for-profit.  What’s more, a home office must be used for a trade or business, which requires more than just a  for-profit activity.

III. Conclusion

The practical upshot of all of this is that the Revenant should hire an accountant.  Certain deductions may be made despite the non-profit nature of his crime fighting activities (e.g. real property tax on his office, casualty losses from destruction of equipment).  But he’s probably correct that the IRS would not consider his “vigilante detective” activity to be a business, and his office probably could not qualify as a home office if it were part of his house.  The same is true of many other superheroes, including, most obviously, Batman.

Spider-Man and Likeness Rights

Today we have a question from Hurley, who writes:

In [Ultimate Spider-Man #109]  Wilson Fisk, A.K.A. the Kingpin, points out to Spider-Man that the costume he wears and his name were given to him by a now-defunct wrestling company. Kingpin bought said company [in issue #106], which he says gives him merchandising rights to all things Spider-Man related. Clothing, toys, etc. Is this legally correct?

(If you’re interested, this storyline is collected in Ultimate Spider-Man vol. 18.)

Here’s the complete history: As usual, Spider-Man tried to make some extra money on the wrestling circuit.  The company that organized the matches was Hercules Wrestling, Inc., and apparently Parker signed away the Spider-Man name and merchandising rights to Hercules.  Later, a Spider-Man movie came out, and the studio managed to prevent Hercules from putting out Spider-Man merch, resulting in Hercules going bankrupt.  Apparently a company called C and C Licensing picked up the rights from Hercules in bankruptcy. C and C is a subsidiary of GG Enterprises, which Fisk purchased.  Thus, through this chain of subsidiaries, Fisk owns the rights to the Spider-Man name as well as the licensing rights for his likeness.  As a result, Fisk actually wants Spider-Man to keep doing his thing because Fisk makes more money from the merchandise sales than he loses from Spider-Man meddling in his affairs.  Pretty villainous, eh?

There are three major questions here.  First, what rights are involved, exactly?  Second, could Fisk have purchased them that way?  Third, is Spider-Man really powerless to do anything about it?

I. Name and Likeness Rights

Name and likeness rights generally fall under the right of publicity, which is something that we (and guest author Brad Desnoyer) have talked about before.  As Brad noted, the right of publicity “protects an individual’s ability ‘to control the commercial use of his or her identity.’” (quoting 31 Causes of Action 2d 121).  In Spider-Man’s case, the rights of publicity at issue would likely cover his “stage name” and his likeness.

Since this all happens in New York, we can use the New York right of publicity statute.  The statute covers a person’s “name, portrait or picture.” N.Y. Civil Rights Law § 51.  A “name” can include a stage name, if it ”has become known to the public and identifies its bearer virtually to the exclusion of his true name.”  See, e.g., DeClemente v. Columbia Pictures Indus. Inc., 860 F.Supp. 30, 53 (E.D.N.Y. 1994).  Under this standard, Spider-Man would qualify, as he is nationally known as Spider-Man and is essentially unknown as Peter Parker.  And of course his image would qualify as a “portrait or picture.”

So the rights at issue are pretty much as described in the comics (at least at the beginning; later on Spider-Man refers to Fisk owning “his copyright,” which is not accurate, unless Spider-Man was engaging in a little fourth wall-breaking.).

II. The Chain of Title and IP Holding Companies

From what I can tell from the comic, this all seems believable enough.  It’s not 100% clear to me how the movie studio drove the wrestling company into bankruptcy, but admittedly I haven’t read those earlier issues yet, so maybe that’s explained in more detail.  In any event, the maze of holding companies and subsidiaries is par for the course.  Many media companies have separate holding and licensing companies for characters, trademarks, and other IP.  For example, Marvel Entertainment, LLC (itself now a subsidiary of The Walt Disney Company) has three IP holding companies, including Marvel Characters, Inc.

You might be wondering why businesses bother creating IP holding companies.  The answer, as is so often the case with strange corporate behavior, is tax reduction:

Specifically, if a holding company is created to own the trademarks of the operating company, it can license those marks back to the operating company. In some states, tax income from royalties from license agreements owned by the holding company is exempt. Further, the state from which the income is paid, cannot tax that payment either. Finally, the operating company may deduct the royalty payments as operating expenses.

Allan J. Sternstein et al., Designing an Effective Intellectual Property Compliance Program, in Corp. Compl. Series: Intell. Prop. § 3:7 (2011).  Pretty sweet setup, huh?

III. So is Spider-Man Out of Luck?

Probably, unless his original contract with the wrestling company is invalid or unenforceable.  The New York statute allows a person to sign away (in writing) their right of publicity.  Interestingly, if the person is a minor, then their parent or guardian must give their written consent.  N.Y. Civil Rights Law § 50.  Ultimate Spider-Man is apparently a minor at the time, and I doubt Aunt May or Uncle Ben (who was still alive at the time) signed off on the wrestling contract, so that might be a way out.

Another issue might be whether the contract made the right of publicity assignable or available for sublicense.  If the contract was solely with Hercules Wrestling, then it might not have been properly assigned to C and C, leaving Fisk with nothing.  Unfortunately, Fisk’s storyline gets wrapped up before we find out whether Spider-Man had any legal way out.  Too bad, since he was already teamed up with Daredevil, and I’d think Murdock would like to not only see Fisk behind bars but also a piece of his business empire taken away from him.

IV. Conclusion

This was a nice application of what should be a significant issue in comics: within the fictional comic book world, superheroes and supervillains are real people and so have rights of publicity and privacy that would be worth a lot of money.  Shady licensing deals would likely abound, but some superheroes could become rich from merchandise sales and endorsements (or they could donate it to charity, as it is sometimes suggested that Superman does).  At the same time, a lot of the copyright issues that surround comic books in the real world wouldn’t exist.  Thus, instead of comic book authors getting raw deals, the superheroes themselves would.  Progress!

Death and Taxes and Zombies

Today we are excited to bring you a guest post from Professor Adam Chodorow of the Arizona State University’s Sandra Day O’Connor College of Law.  This post is excerpted from Professor Chodorow’s forthcoming article in the Iowa Law Review entitled Death and Taxes and Zombies.  You can view the full version of the article free online.  Thanks to Chris for tipping us off to the law review article and thanks to Professor Chodorow for preparing this excerpt.

The U.S. stands on the brink of financial disaster, and Congress has done nothing but bicker.  Of course, I refer to the coming day when the undead walk the earth, feasting on the living.  A zombie apocalypse will create an urgent need for significant government revenues to protect the living, while at the same time rendering a large portion of the taxpaying public dead or undead.  The government’s failure to anticipate or plan for this eventuality could cripple its ability to respond effectively.  The time to prepare is now, before panic sets in, and it is too late.  This post begins this critical task by considering whether someone who becomes a zombie should be considered dead for estate tax purposes.

I. A Zombie Taxonomy

Because the tax consequences of a zombie apocalypse may depend on the type of zombie encountered, I begin with a brief taxonomy of zombies.  While the word “zombie” originates in Haitian voodoo, the term has been applied to a variety of creatures over the years, such that there is now no generally accepted definition.  Congress has not seen fit to include a definition in the tax code, and, indeed, has not deigned to use the term.  Thus, developing a tight definition is not strictly necessary.

What follows are some of the key distinctions that may—or may not—have legal significance.  Some zombies are controlled by others (traditional Haitian zombies and the armies of Inferi raised by Lord Voldemort), while others are self-motivating (the zombies from George Romero’s ground-breaking documentary, Night of the Living Dead; the hit reality television program, The Walking Dead; and the classic work of putative fiction, Pride and Prejudice and Zombies).

Within the category of self-motivated zombies, distinctions may be made based on volition, abilities, and personality.  Some zombies slowly stumble along in search of brains upon which to feed, exhibiting little personality or ability to think (Night of the Living Dead).  Others move quickly, organize, and learn (Dawn of the Dead).  Still others retain some of the memories or personalities of the original person (American Zombie and Pet Sematary).

Another way to distinguish among zombies is the method by which people become zombies.  Controlled zombies are typically created through some form of dark magic.  Zombies can also be created by viruses (either naturally occurring (Zombieland and Zone One) or man-made (28 Days Later and I am Legend)), radiation (Night of the Living Dead), biochemical agents (Planet Terror), and even a mysterious meteor (The Zombies of Lake Woebegotton).  In some cases, one must be infected by a zombie to become a zombie (World War Z); in others, no prior zombie contact is necessary (Lake Woebegotton).  In some cases it is unclear how zombies are created.  Take, for example, Michael Jackson’s classic thriller, Thriller.  We simply don’t know what caused the first person to go zombie, and unless Michael comes back, we likely never will.

Finally, some people must die before becoming zombies, while others appear to make a seamless transition from living to undead.  There is often a connection between cause and the type of zombie created.  For instance, zombies arising from viruses often retain some vestige of their former personalities.  Controlled zombies are typically dead and retain none of the original person’s personality or memories.  Zombies of those who don’t die first are typically fast, while those whose progenitors died are typically slow.  However, it is possible to find zombies in each category that do not fit the typical pattern.  The Venn diagram is so confusing that I have opted to omit it in the interests of clarity.  This chart from Yahoo! Movies gives some sense of the complexity involved.

II. The Dead, the Undead, and the Death Tax

The most pressing tax issue raised by a zombie apocalypse is the application of the so-called “death tax,” which imposes a tax on the transfer of the estate of a “decedent.”  Zombies have been described variously as the “walking dead,” the “undead,” and the “living dead,” raising the question whether the estate tax should apply when a taxpayer becomes a zombie or, in the alternative, after a person’s zombie has been dispatched.

The definition of death, and therefore of a decedent, has generally been left to the states, each of which has its own definition.  That said, there has been a recent trend away from a definition that focuses on heart function to one that focuses on brain function.  Whether people who become zombies would be considered dead for state law purposes depends both on the definition used and the type of zombie involved.

It seems a stretch to conclude that those who transform seamlessly into zombies should be considered dead.  They never lose heart or brain function, though they now function quite differently from before.  While it might be tempting to declare them dead, significant line-drawing problems would arise as one tried to distinguish between zombies and those who have suffered some mental or physical breakdown.  Declaring such zombies dead would open the door to declaring dead a wide range of people currently considered to be alive.

The more interesting question is whether someone who has clearly died under state law and then been reanimated as a zombie should be considered dead.  For those whose dead bodies are simply under the control of a sorcerer, it would seem that the answer is yes.  A corpse magically manipulated by another is nothing more than a puppet with no heart or brain function and should qualify as dead under state law.

In contrast, most self-motivated zombies likely would be considered alive under most state law definitions.  They must have a biological mechanism by which they think and move, which typically requires brain function and some means of keeping the body nourished.  Indeed, in The Walking Dead, tests reveal that the brain function ceases and then restarts sometime later, though at a far lower level than before.  The normal way to dispatch a zombie is by destroying the brain, strongly suggesting that they would pass most brain-function definitions of death.

However, the question isn’t whether zombies can be considered alive, but rather whether, if someone’s zombie is alive, the original person can still be considered dead.  This hints at the far larger questions of how the law should treat resurrection generally and whether different types of resurrection should be treated differently.  For instance, some, like Lazarus, return intact.  Others may return as flesh-eating monsters.  Shockingly, the tax code is silent on this issue, a silence that is even more surprising when one considers that most of our legislators purport to be devout Christians, for whom resurrection is a core belief.

Those who come back fully intact would seem to be still alive, much as people legally presumed dead are still alive when they turn up years later (See, e.g., Castaway).  Those who return in altered state present a more difficult question.  A flesh-eating automaton is just not the same person the Nobel laureate he used to be.  In some real sense, the laureate has died, even if his body and some part of his brain live on.  Thus, it seems possible that the law could deem the zombie alive, without necessarily affecting the status of the original as dead.

Of course, the question we are trying to answer is not whether a person who becomes a zombie should be considered dead under state law.  Our goal is to determine whether such a person should be considered a decedent for federal estate tax purposes.  Tax law typically piggybacks on top of state law, meaning that someone considered dead for state law purposes would normally be considered dead for federal tax purposes as well.  However, federal tax law deviates from state law in a number of situations, including the question of what constitutes a devise, bequest or inheritance.  Thus, it is not unreasonable to think that a person could be dead under state law, but not a decedent for federal tax purposes.  Conversely, someone alive under state law definitions could be deemed dead for federal tax purposes.

The key justification for allowing federal tax law to deviate from state law is uniformity.  It would be unseemly if tax law deviated from state to state because of differences in state law.  Administrability is also a chief concern.  Imagine trying to determine whether people are dead under 50 different state laws while in the middle of a zombie apocalypse.  These concerns strongly suggest the need for a uniform federal standard, detached from the myriad state laws.  However, they do not suggest what the standard should be.  As with the state laws defining death, federal tax laws are surprisingly silent on the legal consequences of becoming a zombie, creating a dire need for clear guidance.

III. Conclusion

The application of the death tax to zombies only scratches the surface of the legal issues the undead present.  For instance, it is necessary to determine whether one remains married under state law to someone who becomes a zombie, and, if so, whether the Defense of Marriage Act, bars Federal recognition of said marriage.  And, then there are vampires.  But such issues must await another day, assuming it is not already too late.

Are the X-Men Human? A Federal Court Says No

Thanks to Neal for alerting us to a recent episode of Radiolab, which discusses a real life legal issue involving Marvel characters, including the X-Men, the Fantastic Four, and Spider-Man (although the episode focuses on the X-Men).

In brief: Attorneys for a company that imported Marvel character action figures noticed that imported dolls were subject to a higher tax than toys, per the Harmonized Tariff Schedule.  More importantly, dolls were distinguished from toys by “representing only human beings and parts and accessories thereof.”  The company sued for a declaration that the action figures did not represent human beings and so should be classified as toys, subject to the significantly lower tax.  Ultimately the Court of International Trade agreed with the company and held that mutants, the Fantastic Four and related villains, and Spider-Man and related villains were all non-human.  Toy Biz, Inc. v. United States, 248 F.Supp.2d 1234 (Ct. Int’l Trade 2003).

The case actually went on for several years, and some earlier decisions in the case were also reported: Toy Biz, Inc. v. United States, 123 F.Supp.2d 646 (Ct. Int’l Trade 2000); Toy Biz, Inc. v. United States, 132 F.Supp.2d 17 (Ct. Int’l Trade 2001); Toy Biz, Inc. v. United States, 219 F.Supp.2d 1289 (Ct. Int’l Trade 2002).  The 2001 opinion shows that Toy Biz was not universally successful: a Silver Samurai figure was held to be a doll, for example.

A final note: the Harmonized Tariff Schedule has since been changed to eliminate the distinction between dolls and other toys, which are now in the same category.

Update: Thank to Stephen for alerting us to the related case of Kamar Int’l v. United States, 10 C.I.T. 658 (Ct. Int’l Trade 1986).  That case dealt with whether E.T. the Extraterrestrial dolls represented an “animate” object, which would result in a lower tax rate than for toys in general (the customs classifications have changed a lot over the years, apparently).   The Court of International Trade agreed with the plaintiff, despite the United States’ arguments that E.T. was a fictional alien and thus not an animate object.  The Court cited as precedent the classification of Star Wars toys as toy figures of animate objects because “as depicted in the movie Star Wars they are living beings endowed with animal life.”  Kamar, 10 C.I.T. at 661.

The Court’s analysis (and the analysis in the Marvel toy cases) shows that sometimes the courts have to look to the “subjective characteristics of mythical or fictitious characters” in order to classify them properly.  It’s almost too bad the distinction between human and non-human toys was abolished, otherwise somebody at Customs could get paid to “research the subjective characteristics of fictitious characters” (aka “read comic books and watch movies”).  Sounds like a pretty nice job to me!

Superman: Grounded Vol. 1

Superman: Grounded is a twelve-issue story written by J. Michael Straczynski which took up Superman # 700-712. Issues 700-706 have been released in hardcover, with 707-712 scheduled to be released next month. The basic premise of the story is that in the aftermath of the 100 Minute War, in which New Krypton is destroyed, Superman is feeling disconnected from the average American, and really just Earth in general. He gets… uncharacteristcally mopey and philosophical, and the series raises a number of the most interesting and pervasive philosophical and ethical issues with the concept of superheroes, though it fails to come up with anything like adequate answers for any of them.

This isn’t going to be a particularly long post, but there were a number of minor legal issues, most of which we’ve talked about previously, that come up in the course of the story. Continue reading