Custom-tailored Law: When Statutory Interpretation Meets the Internal Revenue Code

• Publication year: 2021
• Citation: Vol. 97

97 Nebraska L. Rev. 1118. Custom-Tailored Law: When Statutory Interpretation Meets the Internal Revenue Code

Custom-Tailored Law: When Statutory Interpretation Meets the Internal Revenue Code

Michelle M. Kwon(fn*)

ABSTRACT

When it comes to statutory interpretation, the traditional approaches fail to consider how the laws being interpreted by the courts were actually made. Instead, they tend to presume a uniform lawmaking process. In reality, the lawmaking process tends to be highly variable, both among, and even within, different areas of law. Traditional interpretive approaches also fail to consider the actual institutional capabilities of Congress or the courts. Textualist approaches give primacy to the words that Congress chose. By doing so, they implicitly assume that legislators accurately constructed the statutory text but pay no attention to whether the actual lawmaking process was reliable or trustworthy. By contrast, purposivist approaches idealize the role of judges by assuming they have the capacity to uncover the purposes that motivated lawmakers to enact what they did. But whether judges indeed have the capacity to discern Congress's intent might be influenced by whether the interpreters are subject-matter specialists or generalists. In short, the traditional approaches are unsuccessful to the extent they fail to account for the quality of statutory texts or the quality of courts interpreting those texts.

One-size-fits-all approaches might cause judges to fall short in fulfilling their role to accurately interpret statutory text as faithful agents of Congress. The faithful-agent model assumes that the role of courts, as agents of Congress, is to interpret statutory text to reflect congressional intent. This model gives lawmaking deference to Congress consistent with the Constitution's separation of powers. Failing to place

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what Congress said into the context of what it actually did could hinder judges from accurately interpreting laws consistent with Congress's intent. Likewise, ignoring the expertise of courts considering the meaning of statutory texts might result in imprecise or incomplete interpretations.

Although scholars have recognized that ready-made interpretative approaches, like ready-made clothing, might be a poor fit, this Article is the first to apply these insights to tax law by exploring the suitability of a custom-tailored interpretive doctrine specifically for the Internal Revenue Code, arguably the mother of all statutory regimes. In so doing, this Article finds that tax seems to be especially well-suited to a bespoke statutory interpretive approach, with experts involved in conceptualizing and writing tax laws as well as a specialized Tax Court with national jurisdiction interpreting the laws. This Article contends that when courts interpret federal tax laws, they should explicitly and consistently take account of these unique characteristics.

TABLE OF CONTENTS

I. Introduction .......................................... 1120

II. The Current Environment ............................. 1124
A. Traditional Off-the-Rack Interpretive Theories ..... 1124
B. Customized Interpretive Approaches: A Review of the Literature ..................................... 1128

III. Urging a Tax-Specific Interpretive Doctrine ............ 1132
A. Tax Is a Mature Area of Law ...................... 1132
1. Tax-Specific Substantive Canons ............... 1133
a. Income .................................... 1135
b. Deductions, Exemptions, and Credits ....... 1137
2. Common Law Anti-Abuse Doctrines ............ 1139
3. Whole-Code Structural Canon .................. 1145
4. Tax Logic ...................................... 1146
B. Anatomy of Tax Legislative Process ................ 1146
C. Role and Influence of the Tax Court ............... 1149
1. Specialist and Generalist Judges' Differing Approaches to Statutory Interpretation ......... 1150
2. Tax Court's Independence: Marching to Its Own Beat ........................................... 1155
a. Tax Court Is a National Trial Court ........ 1155
b. Effect of Tax Court's Expertise on Its Independence .............................. 1157
3. Informal Influence and Downward Deference . . . 1162
4. Duty to the Tax System ....................... 1164

IV. Conclusion ............................................ 1166

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I. INTRODUCTION

The Supreme Court recently signaled that tools of statutory interpretation should reflect how Congress actually writes laws. The case in question, King v. Burwell, involved a challenge to the premium tax credit provision of the Affordable Care Act (ACA).(fn1) The tax credit helps qualifying taxpayers with the costs of health insurance premiums.(fn2) The statutory language that explains the amount of the credit refers to enrollment in an insurance plan "through an Exchange established by the State."(fn3) The term "Exchange" refers to the marketplaces where people can purchase health insurance.(fn4) Generally speaking, states can operate their own marketplaces or they instead can use the marketplace administered by the federal government.(fn5)

The taxpayers who brought the case were in the unusual posture of arguing against their entitlement to tax credits.(fn6) If they qualified for the tax credit, they would be required to purchase health insurance or become subject to a penalty payable to the Internal Revenue Service.(fn7) Without the tax credit, they would be exempt from the requirement to purchase health insurance because the cost would be more than 8% of their income.(fn8) In making their argument, the taxpayers urged the Court to apply the canon against surplusage, which gives effect to all the words of a statutory provision.(fn9) Otherwise, they argued, the language Congress chose would be meaningless.(fn10) Their contention was that the phrase "Exchange established by the State" resolved the case in their favor because they lived in states with federal exchanges.(fn11)

Despite the taxpayers' efforts, which were supported by the seemingly clear language of the statute, the Court found that the tax credit

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was not limited to taxpayers in states with state exchanges.(fn12) The Court expressly refused to apply the canon against surplusage because Congress wrote the ACA "behind closed doors" using unconventional processes that curtailed "care and deliberation."(fn13) As discussed later in this Article, these processes, while politically expedient, may have discouraged meaningful legislative deliberation and transparency.(fn14) Congress's lack of care and diligence in drafting the statute caused the Court to question the quality of the legal text and ultimately to ignore the words as written.(fn15)

Taking account of the process by which laws are actually enacted, as the Court did in King v. Burwell, is at odds with the predominant statutory interpretive approaches. Traditionally there were two rival approaches: textualism and purposivism.(fn16) As these terms suggest, and at the risk of oversimplifying, textualists unravel what the drafters said by giving primacy to the words of the statute. By contrast, purposivists interpret laws to further purposes that reasonably might have motivated the legislation.(fn17) More recently, textualism and purposivism have blended into a third school of statutory interpretation referred to as "new textualism" or "structural textualism," which is a sort of constrained purposivism.(fn18)

The traditional interpretive approaches are built on idealized assumptions.(fn19) Textualist approaches, by emphasizing the words that Congress chose, in general idealize the capacities of legislators in

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crafting the legal text. By contrast, purposivist approaches idealize the capacities of judges by assuming they have the capability to discover the purposes that motivated lawmakers to enact what they did. But the traditional approaches fail to consider the actual institutional capabilities of Congress or the courts. For example, none of the traditional approaches consider the legislator's actual level of drafting expertise or the legislative body's quality of deliberation so long as a law was duly enacted.(fn20) Thus, unlike regulations from administrative agencies, which may receive judicial deference only if the agency follows the prescribed notice and comment procedures in the Administrative Procedure Act, Congress does not have to justify its statutory lawmaking process.(fn21) The predominant approaches also tend to presume a uniform lawmaking process. But, in reality, there is great variability in the lawmaking process for which the predominant approaches to statutory interpretation fail to account. For example, much of the development of legislative proposals and the drafting work occurs in subject-specific congressional committees, which subscribe to their own sets of policies and procedures.(fn22) Yet current interpretive approaches all but ignore this variability.

Scholars have recognized that ready-made interpretative approaches, like ready-made clothing, might be a poor fit.(fn23) This Article is the first to apply these insights to tax law by exploring the suitability of a custom-tailored interpretive doctrine specifically for the Internal Revenue Code, which is arguably the mother of all statutory regimes.(fn24) It is the contention of this Article that several unique characteristics of the tax legislative process should explicitly and consistently be taken account of by courts when they interpret federal tax law. A customized approach would...