Knowing even a substantial portion of the Internal Revenue Code of 1954 is a major achievement. Divining how the courts might react to a complex tax transaction is also terribly difficult, but for this ability lawyers are often well-rewarded on earth. The tools of this esoteric trade include a mass of interpretative rules of a most uncertain nature, as sophisticated tax advisors are well aware. This article discusses the application and limits of a litany of the interpretative rules. The rules are frequently applicable outside the tax field, but the following study is confined to their application to tax decisions. If the tone of the article seems mocking or irreverent, that tone is ultimately unintended. Judges, including those on our United States Supreme Court, face a dismal flood of overwhelmingly complex tax cases which must in fact be decided; and the decisions frequently require makeweights or ready-made rationales for reaching a particular result. The major villain in this story is Congress, with its specialized committees which fail to consider fully or explain the purposes of complicated legislation. Lesser villains might include those members of the legal and accounting professions who structure transactions laden with doubt but know that there is a slight chance of prevailing or of forcing the government to accept an economically sound settlement. Furthermore, there is always the possibility that the Internal Revenue Service's audit personnel may not discover the issue in the first place.
The rules discussed in this article were selected either because they are particularly pervasive (reenactment, traps for the unwary, and the presumptive correctness of regulations) or because they reflect curious judicial attitudes towards the treatment of complex tax matters (respect for legislated conditions, placement of the burden on the draftsman, and symmetry). As a final matter, the article suggests several proposals for reforming some or all of the interpretative rules.
Richard A. Westin, Dubious Interpretative Rules for Construing Federal Taxing Statutes, 17 Wake Forest L. Rev. 1 (1981).