• The Rule of Law as a Law of Standards: Interpreting the Internal Revenue Code

      Abreu, Alice G.; Greenstein, Richard K. (2015-01)
      Although fields of law ordinarily comprise both rules and standards, and foundational tax scholars such as Professors Surrey, Warren, and Bittker understood the importance of standards in tax law, many tax scholars and professionals have come to regard federal tax law as “the paradigmatic system of rules.” The vision of tax-as-rules is particularly alluring because rules have been associated with rule-of-law values, and it seems that the rule of law might be especially important in the field of taxation. The rule of law constrains the coercive power of government, and perhaps few powers are viewed with as much suspicion as the taxing power. Our claim that the existence of many rules in the tax law does not dictate the interpretation of all tax formulations as rules seems to threaten critical rule-of-law values. Nevertheless, we believe with Surrey and Warren that tax, like other areas of law, can flourish only if the IRS and the courts are able to respond to “unforeseen cases as they arise” and that this flexibility demands that many Code provisions be interpreted as standards. We also believe that this use of standards does not threaten rule-of-law values. In this essay we defend both propositions. To do so we engage pointedly with Professor Larry Zelenak’s critique of the position we took in our earlier article, Defining Income, where we claimed that the category of “gross income” in the Internal Revenue Code is best understood as a standard, not a rule. In Custom and the Rule of Law in the Administration of the Income Tax, Professor Zelenak worried that our position threatened the rule of law by “stretch[ing] beyond the breaking point” the concept of interpretation. This essay, which elaborates the argument made in Defining Income, engages directly with Professor Zelenak’s critique and further develops our position that although there are both correct and incorrect interpretations, interpreting a legal formulation as a flexible standard rather than a rigid rule is not lawless. Like Professor Zelenak, we draw on examples from the world of corporate taxation, including iconic cases such as Gregory v. Helvering, as well as more recent controversial pronouncements such as Notice 2008-83, in which the IRS concluded that section 382 did not apply to banks, only to be sharply rebuked by Congress.
    • The U.S. Taxpayer Bill of Rights: Window Dressing or Expression of Justice?

      Abreu, Alice G.; Greenstein, Richard K. (2018)
      The subject of taxpayer rights is receiving increasing attention worldwide. Tax scholars, practitioners, and administrators are grappling with the challenges of delivering on the promise of taxpayer rights, the benefits of success, and the price of failure. Nevertheless, a fundamental question has escaped pointed examination: What does the concept of taxpayer rights offer? In this paper we suggest an answer to that question. Our focus is the U. S. Taxpayer Bill of Rights (TBOR). At first blush, the TBOR may seem to be no more than window dressing because it does not codify legal remedies for violations of the enumerated taxpayer rights. Nevertheless, we argue that by its explicit use of the language of rights and by its adoption by the IRS and enactment by Congress, the TBOR generates a powerful normative force that supports enforcement. That force, in turn, can change the behavior of the IRS toward taxpayers and support calls for Congress, Treasury, or the courts to fashion legal remedies. Put differently, there is strong reason to predict that the adoption and enactment of the TBOR will make the administration of the tax law more just. Our format is a bit unconventional. What follows is a dialogue in which we ask and answer challenging questions. We believe this format clarifies the fundamental issues raised by the concept of taxpayer rights and best illuminates some of the tensions generated.
    • Untangling Tax Reforms: Simple Taxes, Complex Choices

      Abreu, Alice G. (1996)
      This Article applies concepts of empowerment to two tax reform proposals: The Freedom and Fairness Restoration Act of 1995 (Armey Flat Tax) and the USA Tax Act of 1995 (Nunn-Domenici Tax). The concepts of "avoidance power," the power to avoid the imposition of taxes, and "burden power," the power to shift the economic burden that taxes impose, are both analyzed in the context of these tax proposals. The author considers the degree of avoidance and burden power conferred by each proposal, and concludes with some observations regarding the values implicated by the distribution of power each proposal would produce.
    • Winner-Take-All Markets: Easing the Case for Progressive Taxation

      McMahon, Martin J., Jr.; Abreu, Alice G. (1998)
      In this article Professors McMahon and Abreu examine data on changes in the distribution of income and show that those changes increasingly reflect a winner-take-all pattern in which economic rewards are increasingly skewed toward those at the top 1% of the income distribution. These changes in the distribution of income invite a re-examination of the arguments for progressive taxation, not because they strengthen the case for redistribution, but because they reflect a market in which progressive taxation is more efficient than proportional taxation. By analyzing the data on the distribution of income and constructing a model that reflects that distribution and makes conservative assumptions about the diminishing marginal utility of money, the article shows that the classic equity/efficiency trade-off is the product of an incrementalist distribution of income. The more the distribution of income reflects a winner take-all society, the more efficient progressive taxation becomes. Thus, we no longer have to choose between equity and efficiency because in a society with a winner take-all distribution of income, progressive taxation can give us both. This project addresses the design of the rate structure only, taking as its starting point a base like the one employed by the current income tax system. Work currently in progress will consider the implications of the shifts in the distribution of income for the definition of the tax base and, specifically, for the taxation of income from capital.