December 11, 2019

December 11, 2019

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December 10, 2019

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December 09, 2019

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Statutory Interpretation and TCJA

INTRODUCTION

As a result of the passage of the 2017 Tax Cut and Jobs Act (“TCJA”),1 tools and techniques of statutory construction might soon become more significant in tax disputes. Under the accustomed tools of statutory construction, the TCJA can present significant challenges both for taxpayers who seek to interpret the statute and those who become entangled in controversy with the IRS.

This article identifies several of those challenges and offers some observations and potential solutions in the context of a statutory provision for which the Treasury Department has not yet issued regulations or other administrative guidance. The topic of TCJA interpretation in the context of agency guidance2 is sufficiently complex that it merits, we believe, a separate, forthcoming article.

IDENTIFIED ISSUES WITH THE TCJA

The TCJA is accurately viewed as the most significant revision to the Internal Revenue Code since the Tax Reform Act of 1986. Significant tax legislation, however, typically “has the benefit of multiple iterations and extensive congressional discussion.” Congress passed the TCJA less than two months after its introduction in the House of Representatives.

Practitioners and commentators quickly pointed out areas that were ambiguous or could lead to apparently unintended consequences.3 Senators “responsible for drafting” the bill felt it appropriate to write the Department of the Treasury to “clarify the congressional intent” of TCJA.4 The Congressional “Blue Book” on the statute, in a development unprecedented in the experience of the authors, identified approximately 80 areas where further “technical correction may be needed to carry out [Congressional] intent.”5 Some statutory areas have become troublesome even before the IRS conducts any audit of the relevant tax years; almost certainly other disputes will doubtless arise after audit activity begins.

Because of the effective dates of various provisions, Treasury has been unable to issue guidance soon enough to correct many difficulties.6 Similarly, there is no indication that technical corrections legislation is close at hand. Given the dates for many 2018 returns, corporations will need to make decisions about the proper application of the TCJA. Many of these decisions, often made under significant uncertainty, are likely to generate controversies with the IRS. Even if the question does not result in a dispute with the IRS, any taxpayer who makes a judgment on the statute engages at some level in statutory construction, with the possibility that the attendant uncertainty might extend to financial statement reporting.

Statutory interpretation has always been a special province of the courts. Therefore, taxpayers seeking to interpret a provision or defend their interpretation should focus on how courts would apply their methods of statutory construction to resolve these questions.

GENERAL PRINCIPLES OF STATUTORY CONSTRUCTION

A Cautionary Tale

Statutory interpretation presents complex legal issues. Because appellate courts look at such issues without deference to a lower court’s findings, appeals become both more likely and more subject to uncertainty. Therefore, a taxpayer would be well-advised to consider the extent to which arguments regarding the construction of a statute should be presented to reflect the likely approach of a Court of Appeals or other tribunal experienced in statutory interpretation.

A good example arises in a case litigated by one of the authors, in which the lower court and appellate court came to diametrically opposed views, reflecting their varying choice of interpretative technique. In The Limited, the case turned on whether a related-party credit card company was “carrying on the banking business” under section 956, which would exempt the taxpayer from Subpart F.7 The Tax Court, finding no definition of the phrase in the Internal Revenue Code, looked to the legislative history, and after extensive analysis, interpreted the phrase to include only banking services that facilitate U.S. business activities of CFCs.8

The Circuit Court took a simpler approach. Although the phrase was undefined, it was “not necessary to look beyond [its] ordinary meaning.” The court then corroborated its interpretation by using the canon construction noscitur a sociis, which “directs us to look to accompanying words.”9

The case serves as a lesson for a point made by the Ninth Circuit in its Xilinx reversal of the Tax Court: “[A]s every judge knows, the canons of construction are many and their interaction complex.”10 Any taxpayer’s strategy must address not only how to win the fight on applying a specific technique of statutory interpretation, but also how to defend the broader, threshold question of choosing the most appropriate interpretative technique that is to be applied.

B. The Overall Approach

Despite the welter of tools to assist in statutory construction, a sound analysis should continually measure its progress and results against the overall approach of statutory construction — making the appropriate choice of interpretative tools, and using the appropriate sequence to apply those tools. This is, after all, the mistake that the Sixth Circuit flagged in The Limited, and it has arisen in other Court of Appeals decisions reversing the Tax Court.11

To our minds, a good articulation of the overall approach came from the Tax Court, clearly mindful of where an appeal would lie. A taxpayer would be well-advised to construct a similar formulation for its case with the relevant Court of Appeals in mind:

The Fifth Circuit follows the usual rules: If the statute is plain and unambiguous, we stop. United States v. Shabazz, 633 F.3d 342, 345 (5th Cir. 2011). We assume the statute was written as Congress intended. Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992). It is the text, not the legislative history, that is the most reliable indicator of Congress’s intent. Marques v. Lynch, 834 F.3d 549, 553 (5th Cir. 2016); Martinez v. Mukasey, 519 F.3d 532, 543 (5th Cir. 2008). If there is ambiguity and it’s necessary to resort to legislative history, we do so with caution. Burlington N. & Santa Fe Ry. Co. v. Bhd. of Maint. of Way Emps., 286 F.3d 803, 805 (5th Cir. 2002); Boureslan v. Aramco, 857 F.2d 1014, 1018 (5th Cir. 1988).12

Experience has shown that, quite frequently, the real debate in a judge’s mind is not how to use the technique a taxpayer proposes, but rather whether to use that technique at all. It is essential for a taxpayer to deal decisively with the threshold question of why a court (or other decision-maker) should respect a taxpayer’s choice among the three broad possibilities to statutory interpretation in the absence of, or prior to, administrative guidance: (1) stick with the plain language, (2) use certain rules called “canons” of construction to interpret the statute, or (3) turn to legislative history and other sources outside the statute, known as “extrinsic aids.”

INTRINSIC SOURCES

Plain Meaning Rule

The purpose of all statutory interpretation approaches is to discern the intention of the legislature in passing its legislation.13 That interpretation begins with statutory language.14 The meaning of a statute “must, in the first instance, be sought in the language in which the act is framed, and if that is plain, and if the law is within the constitutional authority of the lawmaking body which passed it, the sole function of the courts is to enforce it according to its terms.”15

The apparent conceptual starkness of this plain meaning rule, however, can be deceptive. It is often the case that “[w]hether or not words of a statute are clear is itself not always clear.”16 For one thing, in deciding whether the language is plain, courts “must read the words in their context and with a view to their place in the overall statutory scheme.17 This admonition is important because, without proper preparation, a litigant could find its “plain meaning” argument unseated by a more complex, counter “plain meaning” argument reflecting such “context” and “the overall statutory scheme.”18

It is crucial to bear in mind that even when a court determines that a statute’s language is “clear and unambiguous,” the court may either overtly or silently consider other aids to statutory construction. Therefore, even for a provision that has a clear discerned “plain meaning,” a taxpayer should assess the aids to interpretation that are used for situations in which it is not so easy to discern any plain meaning.

B. Canons of Statutory Construction

Beyond the plain meaning rule, other “canons” of construction provide assistance on how to interpret a statutory provision. As in all areas of statutory construction, whether to use or not use such a canon is left to the judgment of the decision-maker. The canons of statutory construction are not binding, mandatory rules; instead, they serve as “guides” that can be “overcome” by other evidence of legislative intent.19 In a dispute over a statute, a taxpayer must offer these canons with some care. The indiscriminate use of such canons can lead to a mere “battle of the maxims,” which can then cause a court to construct its own analysis entirely anew.20

C. A Starting Canon: In Favor of the Taxpayer

The general canon of construction is that statutes imposing a tax are interpreted liberally (in favor of the taxpayer).21 This canon is, of course, important because of its obvious, overall application to matters concerning the Internal Revenue Code. This canon serves as a starting point for statutory analysis.

There are, however, notable qualifications. First, this canon yields to the also “familiar” rule that “an income tax deduction is a matter of legislative grace and that the burden of clearly showing the right to the claimed deduction is on the taxpayer.”22 Second, as taxpayers would expect, this canon is subject to some nuanced limitations, and it does not confer a taxpayer victory with every ambiguous statute.23 Third, although this canon has been cited in dozens of opinions issued by Courts of Appeals and District Courts, we are unable to find a citation by the Tax Court,24 perhaps suggesting that the Tax Court finds it relatively less useful as a canon. Fourth, at least one court believes that this canon is a “presumption”, and it should not be used until after all other aids.25

Even with these limitations, the consequences of this maxim can be transformative. For example, in reversing the Tax Court in The Limited, the canon was crucial to the appellate court’s reversal: “Before the Tax Court read in the complex business-facilitation requirement, it should have instead relied on another principle of statutory interpretation — statutes imposing a tax should be interpreted liberally in favor of the taxpayer.”26

D. Use of Dictionary Definitions

The starting point for statutory interpretation is the “fundamental canon of statutory construction” that, “unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.”27 In the search for such ordinary and common meaning, courts frequently turn to dictionary definitions. Generally, judges view these references as mere confirmation of customary language and common understandings of words, rather than as extra-textual material.28 Courts will often follow a dictionary definition unless Congress has provided an alternative definition.29 Further, courts attempt to consider dictionary definitions that are contemporaneous to the time the statute was enacted.30

Taxpayers should be aware that courts may well object to the use of dictionaries to support plain meaning where a litigant attempts to use those dictionary definitions to create more ambiguity. One of the more forceful objections was in an en banc opinion of the Fifth Circuit. The Court noted the extensive ability to manufacture ambiguity: Because most words have “secondary and tertiary meanings ... essentially every non-technical word in every statute would have the potential of being ambiguous.”31 Courts have also expressed caution in other circumstances because dictionaries lack any sense of how each word is used, and therefore a litigant should anticipate this concern.32 Finally, a Tax Court opinion has pointed out that major dictionaries have different “flavors” and therefore might be more or less suited to a task at hand.33 Therefore, a taxpayer attempting to use dictionary definitions should be aware that, despite the power of plain meaning and courts’ frequent use of dictionaries to resolve that plain meaning, a dictionary rule does not have unlimited power.34

The Specific over the General

Another canon of statutory construction is that “a specific statute controls over a general one without regard to priority of enactment.”35 For the TCJA, this canon can have recurrent relevant both because the 2017 legislation purports to override prior provisions and concepts that were not removed from the Internal Revenue Code, and because the TCJA itself might generate disagreement over the extent to which its specific terms supersede its more general terms.

The specific-over-general canon is so venerable that 130 years ago it was already a “familiar” rule:

It is an old and familiar rule that “where there is, in the same statute, a particular enactment, and also a general one, which, in its most comprehensive sense, would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.36

This canon applies without regard to which provision was enacted first and subsequently.37 Perhaps its “most frequent[ ]” application is the conflict between “a general permission or prohibition [and] ... a specific prohibition or permission,” but it also applies to the conflict between a “general authorization and a more limited, specific authorization.”38

It is useful to bear in mind these two applications for conceptual and strategic reasons. If a prohibition conflicts with permission (or the inverse), then the specific-over-general is used to avoid contradiction. If, however, a general prohibition conflicts with a specific prohibition, then the canon “avoids not contradiction but the superfluity of a specific provision that is swallowed by the general one.”39 A 2015 Circuit Court opinion demonstrates the fatal disconnect that can arise when a taxpayer pursues the “no contradiction” strategy and the court formulates the issue as a question of “superfluity.”40

Courts have also attempted to avoid application of the specific-over-general canon by reading of either or both of the statutory provisions in a way that avoids conflict and therefore avoids application of the canon.41 Courts might, therefore, impose high standards on a taxpayer seeking to use this canon by requiring a manifest demonstration that there is a conflict.42 Courts have avoided statutory conflict by distinguishing statutory provisions at high conceptual levels.43 Therefore, taxpayers would be well-advised to explore and exhaust all possibilities for reconciling the two apparently conflicting provisions.

Ejusdem Generis

Related to the specific-over-general is the canon of ejusdem generis, which can support a narrow reading of a facially broad term. “Under the principle of ejusdem generis, when a general term follows a specific one, the general term should be understood as a reference to subjects akin to the one with specific enumeration.”44 A long-standing example of the canon in tax law is the interpretation of the general term in “fire, storm, shipwreck, or other casualty.”45 Under ejusdem generis, the omnibus phrase “other casualty” is “restricted to things of the same kind or quality as those specifically enumerated.”46 Courts, therefore, have interpreted “other casualty” narrowly to mean “a loss proximately caused by a sudden, unexpected or unusual event” and to exclude “progressive deterioration of property through a steadily operating cause.”47

A taxpayer who attempts to apply ejusdem generis should be aware of several pitfalls. First, a taxpayer must demonstrate that there is an actual “enumeration.” Courts have declined to apply the canon when there is no “list” of items:

[T]he principle of [is] a fancy way of saying that where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned. But section 468 doesn't have a list — it just says “taxpayer”. Without a generis, there is no ejusdem and this canon likewise cannot help us.48

Second, a taxpayer must demonstrate that the phrase in question is actually more general than the others. Therefore, in interpreting Section 172(f), a District Court found that the doctrine did not apply to the three phrases, “tort liability, product liability, and other liability arising out of federal or state law” because “the statutory and tort liability classes contain an actual delay restriction not required for product liability expenses.”49

Third, a taxpayer must demonstrate a conceptually sound method to demonstrate an interrelationship within the “list.” In Tax Analysts v. Internal Revenue Service, the D.C. Circuit analyzed the breadth of the term “data” under section 6103(b)(2) by first noting that other, specific information was “of the same character, that is, unique to a particular taxpayer.”50 The Court then found that “data” cannot include legal analyses and conclusions in a Field Service Advice because a legal interpretation should apply to all similarly situated taxpayers.51

Noscitur A Sociis (“Known by Associates”)

The Latin phrase noscitur a sociis, “translated as ‘it is known by its associates’ ... counsels lawyers reading statutes that a word may be known by the company it keeps.”52 Therefore, when words “are associated in a context suggesting that the words have something in common, they should be assigned a permissible meaning that makes them similar.”53 For example, in Jarecki v. G.D. Searle & Co., the Supreme Court used noscitur a sociis to interpret the term “discovery” in a provision that imposed tax on “[i]ncome resulting from exploration, discovery, or prospecting.”54 Although “discovery” is a broad term that in other contexts could include geographical and scientific discoveries, the term’s association with “exploration” and “prospecting” suggested a narrower statutory meaning of “discovery of mineral resources.”55

The canon of noscitur a sociis is less persuasive to courts where they feel that it is in essence used to elide multiple statutory terms into one. Therefore, where a taxpayer attempted to argue that “agency or instrumentality” meant branches of a government because the phrase appeared in the same clause as “political subdivision,” the Tax Court rejected the argument. The court found that noscitur a sociis is “properly applied to limit the scope of a potentially broad statutory term, not to render that term altogether superfluous.”56

Expressio Unius

The principle of expressio unius est exclusio alterius,57 stands for the proposition that “[w]here Congress explicitly enumerates certain exceptions ... additional exceptions are not to be implied, in the absence of evidence of a contrary legislative intent.”58 Therefore, in examining possible exceptions to the definition of “gross receipts” in Section 41, the Tax Court used expressio unius to observe that “the sole statutory exclusion from that definition (‘returns and allowances’)” and then decline to exclude nonsales income.59

There are two notable qualifications. First, it does not apply to every statutory listing; it applies only when the statute identifies “a series of two or more terms or things that should be understood to go hand in hand,” thus raising the inference that a similar unlisted term was deliberately excluded.60 Second, in keeping with courts’ frequent statements about an aversion to rigid rules of statutory interpretation, courts will not apply this canon if the result “is contrary to all other textual and contextual evidence of congressional intent.”61

Surplusage

Under the surplusage canon of statutory interpretation, courts attempt to give effect to every provision Congress has enacted.62 This “cardinal principle” of statutory construction intends for courts avoid an interpretation of a clause or word that would make other provisions of the statute inconsistent, meaningless, or superfluous.63 Therefore, the First Circuit interpreted the phrase “active conduct” in section 936 so that the word “active” did not become surplusage when paired with the word “conduct.” Viewed in this light, the phrase meant “something more than simply a minimal level of involvement in the process of conducting a trade or business.”64

Any taxpayer who tries to use the surplusage canon in an issue regarding the TCJA should keep in mind several conditions that often accompany the canon. First, as with other aids to statutory interpretation, the canon “is not an absolute rule,” and “assists only where a competing interpretation gives effect to every clause and word of a statute.”65 Unless a taxpayer is able to provide a competing explanation, a court will not “rescue one sentence from surplusage” when that reading would frustrate other relevant provisions.66 Taxpayers, therefore, need to consider carefully the sometimes hazy interaction of different provisions of not only the TCJA but also the entire Internal Revenue Code.

Second (and related to the first), the canon against surplusage is more likely to be useful where it appears that two provisions are in conflict with another because this interpretative rule urges judges to read both provisions in harmony. Therefore, the Circuit Court reversed the Tax Court to hold that a literal interpretation of a closing agreement phrase “for all Federal income tax purposes” would render surplusage the provisions of the closing agreement that “lists the transaction’s tax implications in considerable detail.”67 Such conflicts may occur more frequently within the statutory provisions enacted by the TCJA.

Third, in the context of the surplusage canon, a few dissents have cautioned against over-reading the statute if the statute was enacted in haste. The reasoning relied on the courts’ desire and obligation to implement the underlying Congressional purpose:

“If the history of a statute’s enactment reveals that Congress indeed labored arduously over each choice of word and each comma, then it is likewise proper for us to analyze each word and comma with precision. But when the legislative history shows that a provision was injected into the bill at the tail end of the process, and that Congress made no apparent effort to remove every phrase the new amendment may have rendered superfluous, we only frustrate Congress’ goals by holding its word up to microscopic scrutiny.”68

For the TCJA, Congress had less than two months to “labor[] arduously over each choice of word and comma.” Although it is arguable that there is more latitude for deviating from the statutory language, we see no real current precedent. Instead, the courts might consider the invitation under the “absurdity doctrine,” which we describe below.69

EXTRINSIC SOURCES

“Extrinsic sources” are typically described as tools of statutory interpretation that draw on materials outside of the statute itself.70 Virtually all courts state that they consult such extrinsic aids only when the statute is unclear. However, a familiarity and a willingness to press extrinsic aids is crucial for multiple reasons. First, experience in the courtroom and with IRS administrative counsel has shown that even an apparently “unambiguous” statute loses that clarity after a serious inspection is brought to bear. As the U.S. Court of Claims observed regarding the elusiveness of such a plain meaning:

We further believe that the “normal understanding of the bare language” that is entitled to prevail does not necessarily exclude all possibility of an alternative reading that refined and subtle legal analysis might invent. Ambiguity in a statute, regulation, or contract, necessitating resort to legislative history and other extrinsic aids, normally means two or more alternative readings, all having some claim to respect and none leading to absurd results.71

Second, despite any generalized expressions that courts should look no further if the statute is unambiguous on its face, courts often at least consider extrinsic aids. In general, tax litigators understand that courts and other decision-makers have an understandable desire at least to consider various sources in order to determine if they are relevant:

As for the propriety of using legislative history at all, common sense suggests that inquiry benefits from reviewing additional information, rather than ignoring it. As Chief Justice Marshall put it, “[w]here the mind labours to discover the design of the legislature, it seizes everything from which aid can be derived.”72

Third, courts can be extremely flexible in consulting extrinsic aids, and this flexibility may well come to bear in questions regarding the TCJA. Typically, in a piece of significant tax legislation, the tax-writing committees in both the House and Senate would hold extended hearings. Each of those committees would typically prepare one or more reports explaining the bases for its recommendations and its understanding about a bill’s nature and effect. Only then would the legislation proceed to the Conference Committee, which would, in turn, create its own report.

For the TCJA, however, many of these resources are not available. There are no published committee hearings; the House and Senate both voted on legislation before any committee print; there is one committee report by the House-Senate Conference;73 and there is a Blue Book. Perhaps with so little to choose from, courts may be a bit more wide-ranging in their consultation of extrinsic aids outside of these resources.74 In this regard, it should be noted, that there are no formal restrictions on the extrinsic aids that a court can review and rely upon.75

With these atmospherics of the TCJA in mind, we consider how courts typically view various extrinsic sources.

The TCJA Conference Report

Generally speaking, the most favored extrinsic aid is a conference report. As the Tax Court noted in a recent opinion involving statutory construction: “The most enlightening source of legislative history is generally a committee report, particularly a conference committee report, which we have identified as among the most authoritative and reliable materials of legislative history.”76 Courts conclude that indications of congressional intent contained in a conference committee report deserve a high place among extrinsic aids used by courts because “the conference report represents the final statement of terms agreed to by both houses, [and] next to the statute itself it is the most persuasive evidence of congressional intent.”77 With that in mind, we review several considerations that seem likely to be pertinent in disputes over the interpretation of provisions in the TCJA.

First, it hardly needs mentioning that a court will not resort to a conference report unless the statutory language is ambiguous.78 Therefore, even where a conference report clearly supported the government’s position, the court nevertheless held for the taxpayer because the statutory language was unambiguous: “[Congress] easily could have inserted the same phrasing that was used in the conference report into the statutory text.”79 Therefore, if a taxpayer wishes to include a conference report among the items to be considered, it is crucial that the argument first establish that the wording of the statute is ambiguous.

Second, in order to induce a court to follow a conference report, a party typically must demonstrate that its proposed use of the conference report is consistent with the statute itself and does not contravene its terms. Therefore, for example, a court accepted a conference reports’ use of a similar phrase when the court found the conference report “buttresse[d]” its use of a dictionary meaning.80 Sometimes it is sufficient for a taxpayer to demonstrate that its use of the conference report is consistent with the “general purpose” and the “context of the statutory scheme as a whole” of the statute.81 By contrast, when the Tax Court believed neither party in its courtroom had established a link between the words of the statute and their readings of the conference report, the Tax Court rejected both litigants’ interpretation of the statute, embarked on an entirely new construction, and assured itself of its new interpretation in light of the fact that the conference report no longer contradicted the statutory language but instead made “perfect sense.”82

Third, courts are more likely to rely on a conference report when it expressly states the reason for the statutory provision or how that provision is to be interpreted.83 Courts similarly expect a taxpayer’s use of a conference report be consistent with any related parts of the statute84 or consistent with other parts of the conference report.85

The TCJA Bluebook

Another extrinsic aid available for statutory interpretation of the TCJA is the so-called Bluebook.86 Courts have a long and varied history with the Bluebook. In the 2013 case of Woods v. Commissioner, the Supreme Court resolved a split among the Circuits about the appropriate use of the Bluebook, and found that the status of a Bluebook was akin to a law review article rather than a conference report.87 Earlier approaches consistent with Woods are useful in delineating the boundaries of that case; they have found the Bluebook is “entitled to respect,” or “at least instructive.”88 In a tax world after Woods, a Bluebook is valuable where it is generally consistent with other legislative history. Where there is no corroboration of the Bluebook in the actual legislative history or the statute, courts are usually inclined to give it less weight in determining congressional intent.89

Taken together and read consistently with Woods, these authorities already contain a fair amount of flexibility regarding courts’ use of the Bluebook. With the TCJA, courts may use that flexibility with a somewhat more generous cast if the question involves an ambiguous statutory provision and there is little other guidance available. Certainly in any dispute that has not reached a litigation phase (i.e., the taxpayer is dealing with IRS administrative attorneys), it seems useful for a taxpayer to note that IRS penalty regulations provide that Bluebooks should be considered in assessing substantial authority.90

Statements/Testimony of Legislators

The sponsors of the TCJA have offered statements as to their views of the legislation. For example, after the statute’s enactment, Senators who were “responsible for drafting [the TCJA]” articulated reasons for key provisions in the TCJA in a letter to Treasury cited above.91

Generally, courts seem to view sponsors’ post-enactment statements as merely “a somewhat useful piece of legislative history.”92 Courts have expressed reluctance to rely too much on such statements for a number of reasons. A great many reported opinions involved the remark of a single sponsor.93 Courts have found that the connection can be fairly tenuous between a single individual and finally enacted legislation: “The remarks of a single legislator, even the sponsor, are not controlling in analyzing legislative history.”94 Therefore, to the extent that a taxpayer wishes to rely on such statements, the taxpayer should attempt to neutralize this concern by a demonstration of consistency among the sponsor statements.

In Estate of Egger v. Commissioner, the Tax Court rejected a sponsor’s statement for the additional reason that it was at odds with long-standing judicial interpretations of the relevant provision.95 Therefore, to the extent a taxpayer can demonstrate that the relevant sponsor statements are consistent with the structure and operation of other parts of TCJA (including any consistency with a committee report),96 a court may be more inclined to give weight to those statements.

Egger is also useful because there the Tax Court objected to the use of a sponsor’s statement that was out of alignment with “the congressional zeitgeist.”97 In Egger, the zeitgeist involved long-standing Congressional concerns regarding large concentrations of wealth in a few families. The Tax Court rejected the sponsor’s statements because they “fl[ew] in the face” of that zeitgeist.98 Therefore, it seems appropriate for a litigant seeking to use remarks by any sponsor(s) to determine any relevant zeitgeist of the TCJA and align the statements with it.

 Drafting Errors

As used in this article, cases about “drafting errors” involve a statute that is admittedly unambiguous, but the results seem out of step with common sense. Courts are not often moved by such an argument.

One example is the Supreme Court’s reaction to an apparent error in creating a filing deadline of “prior to” December 31. When a land user filed on December 31, thereby missing the deadline, it argued that the government itself had for a time applied the provision liberally and had interpreted it quite flexibly. The land user also pointed to the irrationally of requiring property holders to file by one day before the end of the year, rather than by the end of the year itself, which created “a trap for the unwary.” The Court rejected these arguments:

But the fact that Congress might have acted with greater clarity or foresight does not give courts a carte blanche to redraft statutes in an effort to achieve that which Congress is perceived to have failed to do. There is a basic difference between filling a gap left by Congress’ silence and rewriting rules that Congress has affirmatively and specifically enacted. Nor is the Judiciary licensed to attempt to soften the clear import of Congress’ chosen words whenever a court believes those words lead to a harsh result.99

Anomalies and Absurdities

Related to drafting errors is a category that we call “anomalies and abusurdities.” This category is intended to encompass situations in which fairly clear statutory language nevertheless leads to a result that can be variously described as either anomalous or absurd. As we shall see, the distinction is crucial.

Generally, if an anomalous result is required by unambiguous statutory language, courts have reasoned that “any anomaly is attributable to Congress and thus beyond our power to correct.”100 Courts generally adhere to this approach even where it seems to conflict with evidence introduced by a litigant that Congress might well have intended otherwise: Even where the legislative history “strongly hint[ed]” that an “anomalous” result was “not the purpose Congress had in mind,” a court will follow unambiguous statutory language.101

By contrast, courts will reinterpret an unambiguous statute “where a plain language interpretation of a statute would lead to an absurd outcome which Congress clearly could not have intended.”102 This willingness is based on the “well-established” proposition that courts have an “obligation to avoid adopting statutory constructions with absurd results.”103 The potential and limitations of this absurdity rule are suggested in a discussion by the Tenth Circuit:

However, the absurdity rule is a tool to be used to carry out Congress’ intent — not to override it. Indeed, subject to constitutional limitations, Congress is free to enact any number of foolish statutes. Therefore, it is only where we are convinced that Congress, not the court, could not have intended such a result will we apply the absurdity exception.104

It, therefore, becomes highly relevant, if a litigant seeks to use the absurdity rule, to distinguish convincingly between outcomes that are “absurd” and results that are merely “anomalous.” A description of the distinction was provided by Judge Wisdom in a decision by the Fifth Circuit to follow a statute to an anomalous result: The provision did not yield a result “so absurd as to shock the general moral or common sense.”105 Similarly, the Tax Court drew a line between the two camps: one in which a result was admittedly harsh and at odds with subsequent Congressional enactment, and the other in which the result was “so contrary to perceived social values that Congress could not have intended it.”106

The lesson of these cases is that although the TCJA may in some instances produce unexpected results, a taxpayer should assess whether that result passes the threshold from anomaly to absurdity. And regardless of how manifest such an absurdity might be, a taxpayer would be well-advised to rely other approaches as well to carry its point.

CONCLUSION

Arguing statutory interpretation for TCJA will likely be complex because of the ambitious scope of the statute, the large number of already identified problematic areas, and the absence of some of the traditional extrinsic aids to interpretation. The tools and techniques of statutory construction, however, will remain the same. Therefore, a careful study of the applicability, strengths and weakness of these tools and techniques can yield an effective strategy to pursue the matter.

 

1. The term “TCJA” is technically a misnomer. The statute’s title is “Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” See Pub.L. 115-97, 115th Congress (Dec. 22, 2017). For ease of readability, this article uses what appears to be the statute’s most common designation, TCJA.

2. All section references in this article are to the Internal Revenue Code of 1986 as amended through October 31, 2019, except where noted otherwise.

3. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

4. The letters and reports of the Tax Section of the New York State Bar Association seem a good barometer of the level of practitioners’ concerns on the interpretative difficulties from the TCJA. A casual review of those materials for 2018 reveals a high level of concern. See, e.g., Report No. 1387 p.2 (Feb. 2, 2018) (new section 864(c)(8) is “ambiguous in many respects”; requests “immediate guidance”); Report No. 1388 (Feb. 6, 2018) p.8 & n.13, passim (section 965 “ambiguous, at best”; requests guidance in multiple areas); Report 1392, Transmittal Letter (Mar. 23, 2018) p. 2 (“uncertainty regarding Congressional intent” in section 199A, identifies “technical ambiguities within the statute”; requests “immediate guidance”); Report No. 1393, Transmittal Letter (Mar. 28, 2018) p.1 (request for guidance under section 163(j) to resolve “several technical and interpretive questions”); Report No. 1394, Transmittal Letter (May 4, 2018) (with respect to section 78, “particularly urgent” need to address “uncertainty” that impedes companies’ quarterly GAAP reporting; requests guidance); Report No. 1399 (Sep. 4, 2019) p.1 (requests for guidance in multiple areas arising from “fundamental question” under section 250 of “what should or should not be ‘foreign-derived’ ”); Report No. 1402, Transmittal Letter (Oct. 11, 2018) p.2 (uncertainty in treatment of previously taxed income because of “alternative possibilities of Congressional intent”; proposes various guidance); Report No. 1404 (Oct. 25, 2019) (section 245A “ambiguous” in certain areas; requests guidance).

5. Letter to Mnuchin and Kautter from Hatch (Aug. 16, 2018), available on U.S. Senate Committee on Finance Website.

6. See Joint Committee on Taxation, GENERAL EXPLANATION OF PUBLIC LAW 115-97 (JCS-1-18) (Dec. 2018). Such types of statements start at approximately page 37 (note 118) and continue throughout the publication.

7. Section 7805(b)(2) explicitly holds that any regulation promulgated within 18 months of a statute’s enactment has retroactive application to the date of enactment.

8. The Limited, Inc. v. Commissioner, 113 T.C. 169, 185-86 (1999).

9. The Limited, Inc. v. Commissioner, 113 T.C. at 186.

10. The Limited, Inc. v. Commissioner, 286 F.3d 324 (6th Cir. 2002).

11. Xilinx v. Comissioner, 598 F.3d 1191 (9th Cir. 2010).

12. Bornstein v. Commissioner, 919 F.3d 746, 752 (2d Cir. 2019) (reversing Tax Court’s finding of “unambiguous” language; instead, court “must (as usual) interpret the relevant words not in a vacuum, but with reference to the statutory context, structure, history, and purpose”) (internal quotation marks omitted); BNSF Railway Co. v. United States, 775 F.3d 743, 752 (5th Cir. 2015) (reversing District Court’s determination that “money remuneration” had an “ordinary, common-sense definition”; instead, court must look to interpretative aids); BMC Software v. Commissioner, 780 F.3d 669, 676 (5th Cir. 2015) (reversing Tax Court misreading “plain language” of statute); The Limited, 386 F.3d at 335 (reversing Tax Court for “race[ ] to the legislative history” and “fail[ure] to interpret the plain language”).

13. Gregory v. Commissioner, 149 T.C. 43, 48-49 (2017).

14. Lamie v. United States Trustee, 540 U.S. 526, 534 (2004).

15. Exxon Mobil Corp. v. Allapattah Services, Inc., 454 U.S. 546, 568 (2005); Norfolk Dredging Co. v. United States, 375 F.3d 1106, 1110 (Fed. Cir. 2004) (citing Williams v. Taylor, 529 U.S. 420, 431 (2000)).

16. Caminetti v. United States, 242 U.S. 470, 485 (1917); see also Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984) (“If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”).

17. Texas State Commission for the Blind v. United States, 796 F.2d 400, 406 (Fed. Cir. 1986) (en banc).

18. King v. Burwell, 135 S. Ct. 2480, 2489 (2015) (internal quotation marks omitted).

19. Utility Air Regulatory Group, 573 U. S. 302, 320 (2014) (internal quotation marks omitted). An example of this reversal of fortune is New York and Presbyterian Hospital v. United States, 881 F.3d 877 (Fed. Cir. 2018). The Federal Circuit reversed the Court of Federal Claims’ plain meaning reading of “indemnify” with the Circuit’s own plain meaning, finding that other Internal Revenue Code provisions “inform [the Court’s] interpretation of” the plain meaning. Id. at 886.

20. Chickasaw Nations v. United States, 534 U.S. 84, 94 (2001); Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001) (“Canons of construction need not be conclusive.”); AD Global Fund v. United States, 67 Fed. Cl. 657, 671 (2005) (“These canons are not binding, mandatory rules; instead, they serve as guides that ‘need not be conclusive.”), aff’d, 481 F.3d 1351 (Fed. Cir. 2007).

21. See Hemenway v. Peabody Coal, 159 F.3d 255, 264 (7th Cir. 1998) (“Thus we arrive at the battle of maxims — and what an unedifying spectacle it is when each side lobs volleys with its own legal canons.”).

22. See Porter v. Commissioner, 288 U.S. 436, 442 (1933) (“the familiar rule that tax laws are to be construed liberally in favor of taxpayers”); Weingarden v. Commissioner, 825 F.2d 1027, 1029 (6th Cir.1987) (“The general canon of construction is that statutes imposing a tax are interpreted liberally (in favor of the taxpayer).”); Holmes Limestone Co. v. United States, 946 F. Supp. 1310, 1319 (N.D. Ohio 1996), aff’d No. 97-3075, 1998 WL 773890 (6th Cir. Oct. 15, 1998) . CfIrwin v. Gavit, 268 U.S. 161, 168 (1925) (maxim of liberal construction “is not a reason for creating a doubt or for exaggerating one”).

23. INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992) (internal quotations omitted).

24. White v. United States, 305 U.S. 281, 292 (1938) (“We are not impressed by the argument that, as the question here decided is doubtful, all doubts should be resolved in favor of the taxpayer.”); Internal Revenue Service v. Worldcom, 723 F.3d 346, 363 (2d Cir. 2013) (“validity has been called into question”).

25. See, e.g., Exxon Mobil Corp. v. Commissioner, 689 F.3d 191, 199 (2d Cir. 2012) (“where the words [of a tax statute] are doubtful, the doubt must be resolved against the government and in favor of the taxpayer”) (internal quotation marks omitted); The Limited, 286 F.3d at 332 Duke Energy Natural Gas Corp. v. Commissioner, 172 F.3d 1255, 1260 n.7 (10th Cir. 1999) (“if doubt exists as to the construction of a taxing statute, the doubt should be resolved in favor of the taxpayer”) (quotations and citation omitted), nonacq., 1999-2 C.B. xvi (IRS Acq. 1999). We have found one instance in which the predecessor to the Tax Court, the Board of Tax Appeals, cited this canon. Guggenheim v. Commissioner, 24 B.T.A. 1181 (1931), rev’d sub nom. Guggenheim v. Commissioner, 58 F.2d 188 (2d Cir. 1932), rev’d sub nom. Burnet v. Guggenheim, 288 U.S. 280, 285 (1933) (“A statute will be construed in such a way as to avoid unnecessary hardship when its meaning is uncertain.”). See Santa Fe Pacific Gold Company v. Commissioner, 130 T.C. 299, 310 (2008) (“Petitioner next argues that ambiguous statutes must be resolved against the drafter, in this case the Government. However, this canon of statutory construction applies only where statutes are ambiguous.”).

26. Although many or most courts consider this type of presumption a statute-based presumption and employ it before legislative history, the Court of Federal Claims has reversed this order. AD Global Fund, 67 Fed. Cl. at 652 (2005) (“Although the court recognizes that other courts have employed presumptions as part of the plain-meaning analysis, the court deems that it is appropriate to use such a presumption after consulting the legislative history.”).

27. The Limited, 286 F.3d at 335; id. at 332 (presumption used in “[s]etting the tone for our statutory analysis”).

28. Sebelius v. Cloer , 569 U.S. 369, 376 (2013) (“unless otherwise defined, statutory terms are generally interpreted in accordance with their ordinary meaning”) (internal quotation marks omitted); Perrin v. United States, 444 U.S. 37, 42 (1979) (“we look to the ordinary meaning of the term ‘bribery’ at the time Congress enacted the statute in 1961”).

29. See, e.g., Rousey v. Jacoway, 544 U.S. 320, 326 (2005) (“common understanding” of terms determined by dictionary definition); Metro One Telecommunications, Inc. v. Commissioner, 704 F.3d 1057, 1061 (9th Cir. 2012) (“To ascertain the plain meaning of terms, we may consult the definitions of those terms in popular dictionaries.”); Dobra v. Commissioner, 111 T.C. 339, 346 (1998) (definition of “home” based on its ordinary meaning in dictionary).

30. Pittston Coal Group v. Sebben, 488 U.S. 105, 113, 115 n.2 (1988) (using dictionary definitions).

31. St. Francis College v. Al-Khazraji, 481 U.S. 604, 610-11 (1987); New York and Presbyterian Hospital v. United States, 881 F.3d 877, 883 (Fed. Cir. 2018) (“contemporaneous dictionaries support ... the plain meaning”); Union Pacific Railroad Company v. United States, 865 F.3d 1045, 1049 (8th Cir. 2017), cert. denied sub nom., United States v. Union Pacific Railroad Co., 138 S. Ct. 2709 (2018).

32. BNSF Railway Co. v. United States, 775 F.3d 743, 752 (5th Cir. 2015) (en banc).

33. Suesz v. Med-1 Sols, 757 F.3d 636, 643 (7th Cir. 2014) (en banc) (“Dictionaries can be useful in interpreting statutes, but judges and lawyers must take care not to ‘overread’ what dictionaries tell us.”) (citation omitted); United States v. Costello, 666 F.3d 1040, 1044 (7th Cir. 2012) (“Dictionary definitions are acontextual, whereas the meaning of sentences depends critically on context.”).

34. Armstrong v. Commissioner, 139 T.C. 468, 508 n.11 (2012) (Webster’s Third “widely regarded as a ‘descriptive’ dictionary” and American Heritage is “prescriptive” [i.e., “emphasizing the ‘proper’ use of words”); noting debate whether description approach is more appropriate dictionary approach]), aff’d, 745 F.3d 890 (8th Cir. 2014).

35. Although statutory interpretation has changed in some important respects over the decades, a good use of the dictionary rule was provided by Judge Hand: “[I]t is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.” Cabell v. Markham, 148 F.2d 737, 739 (2d Cir. 1945), aff’d, 326 U.S. 404 (1945).

36. Bulova Watch Co. v. United States, 365 U.S. 753, 758 (1961).

37. United States v. Chase, 135 U.S. 255, 260 (1890). Examples of the Tax Court’s application of Chase can be found in cases citing Essenfeld v. Commissioner, 37 T.C. 117, 122 (1961) (“a specific statutory enactment takes precedence over one more general even if the latter might otherwise appear to govern”; relying on Chase), aff’d, 311 F.2d 208 (2d Cir. 1962).

38. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 645 (2012). See Graev v. Commissioner, 149 T.C. 485, 522 (2017) (using RadLAX formulation to analyze this canon).

39. RadLAX Gateway Hotel, 566 U.S. at 645 (quoting Varity Corp. v. Howe, 516 U.S. 489, 519 (1996) (Thomas, J., dissenting)). The conflict can also arise, of course, between a general prohibition and a more limited, specific prohibition.

40. Id. at 645-46 (applying Ginsberg & Sons, Inc. v. Popkin, 285 U.S. 204, 208 (1932)).

41. Mitchell v. Commissioner, 775 F.3d 1243 (10th Cir. 2015) (taxpayer “asks us to read [Provision One] as an exception to [Provision Two]”; but even assuming “general applicability” of Provision One, court was required “to prevent the requirement [in Provision Two] from becoming meaningless”).

42. See Estate of Flanigan v. Commissioner, 743 F.2d 1526, 1532-33 [54 AFTR2d 84-6518] (11th Cir. 1984).

43. Grossman v. United States, 57 Ct. Cl. 319 (2003) (“By conveniently skipping to the second step [i.e., the canon] before applying the first [i.e., the conflict], plaintiffs essentially transform this canon from a scalpel into a meat axe, giving it considerably more sway than is appropriate.”).

44. E.g., Pappas v. Commissioner, 78 T.C. 1078, 1086 (1982) (“Section 1031 is a nonrecognition provision. It provides that gain or loss realized on certain exchanges will not be recognized. Section 741 is a characterization provision. It provides that a partnership interest is to be treated as a capital asset ...”).

45. Brogan v. United States, 522 U.S. 398, 403 n.2 (1998) (internal citations omitted).

46. Section 165(c)(3). The provision was previously in Section 23(e)(3) of the Internal Revenue Code of 1939, and prior to that section 214(a)(6) of the Revenue Act of 1918. Two of the earliest uses of ejusdem generis for this provision are Shearer v. Anderson, 16 F.2d 995, 996 (2d Cir. 1927) (damage from wreck of automobile overturning on icy road is one from other casualty, analogous to shipwreck) and Hughes v. Commissioner, 1 B.T.A. 944, 946 (1925) (seizure of liquors by revenue agents is “not such casualty as is contemplated”).

47. Appleman v. United States, 338 F.2d 729, 730 (7th Circ. 1964).

48. Id. (collecting cases).

49. Gregory v. Commissioner, 149 T.C. at 53.

50. Host Marriott Corp. v. United States, 113 F.Supp2d 790, 794 (D.C. Md. 2000), aff’d, 267 F.3d 363 (4th Cir. 2001). We find the case interesting because, demonstrating the nuances at work for both sides, the Tax Court and Ninth Circuit reached the opposite conclusion. Sealy v. Commissioner, 107 T.C. 177, 184 (1996), aff’d, 171 F.3d 655 (9th Cir. 1999).

51. 117 F.3d 607, 614 (D.C. Cir. 1997).

52. Id. (legal interpretation from IRS “should apply to all other taxpayers ... similarly situated”).

53. Graham County Soil & Water Conservation Dist. v. United States, 559 U.S. 280, 287 (2010) (citations and internal quotation marks omitted).

54. Our Country Home Enterprises, Inc. v. Commissioner, 855 F.3d 773, 786 (7th Cir. 2017) (quoting Antonin Scalia & Bryan Garner, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 195 (2012)).

55. 367 U.S. 303, 307 (1961).

56. Id. at 307-08.

57. Guardian Industries Corp. v. Commissioner, 143 T.C. 1, 15 (2014).

58. The expression translates literally as “the expression of one is the exclusion of another.”

59. United States v. Smith, 499 U.S. 160, 167 (1991) (quoting Andrus v. Glover Construction Co., 446 U.S. 608, 616-617 (1980)); see also Catterall v. Commissioner, 68 T.C. 413, 421 (1977) (“if a statute specifies certain exceptions to a general rule, an intention to exclude any further exceptions may be inferred”), aff’d sub nom. Vorbleski v. Commissioner, 589 F.2d 123 (3d Cir. 1978).

60. Hewlett Packard v. Commissioner, 139 T.C. 255, 269 (2012), aff'd, 875 F.3d 494 (9th Cir. 2017).

61. Chevron U.S.A., Inc. v. Echazabal, 536 U.S. 73, 81 (2002); United States v. City of New York, 359 F.3d 83, 98 (2d Cir. 2004); Anderson v. Commissioner, 123 T.C. 219, ___ (2004), aff’d, 137 F. App’x 373 (1st Cir. 2005).

62. Rand v. Commissioner, 141 T.C. 376, 387-88 (2013) (citing Burns v. United States, 501 U.S. 129, 136 (1991) and Neuberger v. Commissioner, 311 U.S. 83, 88 (1940)).

63. United States v. Menasche, 348 U.S. 528, 538-539 (1955) (“The cardinal principle of statutory construction is to save and not to destroy.”) (quoting National Labor Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 30 (1937)). Rand v. Commissioner, 141 TC 376, 390 (2013). The principle has been articulated as early as Marbury v. Madison. 5 U.S. (1 Cranch) 137, 174 (1803) (“It cannot be presumed that any clause in the constitution is intended to be without effect; and therefore such a construction is inadmissible, unless the words require it.”).

64. See Duncan v. Walker, 533 U.S. 167, 174.

65. Medchem v. Commissioner, 295 F.3d 118, 126 (1st Cir. 2002).

66. Marx v. General Revenue Corp., 568 U.S. 371, 385 (2013) (emphasis added) (internal quotation marks and citations omitted).

67. Ford v. United States, 768 F.3d 580, 592 (7th Cir. 2014) (citing Lamie v. United States Trustee, 540 U.S. at 536 (“preference for avoiding surplusage constructions is not absolute” and should be abandoned where it would lead to inconsistency within statute)).

68. See BMC Software v. Commissioner, 780 F.3d 669, 676 (5th Cir. 2015) (“If the parties agreed, in the boilerplate provision, to treat the accounts receivable as retroactive indebtedness for all Federal tax purposes, then these additional provisions would be surplusage.” (emphasis in original)).

69. Church of Scientology of Calif. v. Internal Revenue Service, 792 F.2d 153, 172 (DC Cir. 1986) (Wald, J., dissenting), aff’d., 484 U.S. 9 (1987). The implications of adopting such a doctrine are touched upon in a holding by the Second Circuit that parts of section 337(c)(2) were “useless surplusage.” J. C. Penny v. Commissioner, 312 F.2d 65, 72 (2d Cir. 1962).

70. See infra at [TAN 100].

71. Khan v. United States, 548 F.3d 549, 556 (7th Cir. 2008) (discussing use of “extrinsic sources such as legislative history”). The Supreme Court recently referred to this material as “extra-textual evidence.” NLRB v. SW General, Inc., 137 S.Ct. 929, 942 (2017). We recognize that some courts use the phrase to encompass legal maxims and the like, rather than evidence arising outside of the statute. Commissioner v. Miller, 914 F.2d 586 (4th Cir. 1990) (extrinsic aid of “well-recognized, even venerable principle” of narrow construction of exclusions to income). We use the phrase to mean sources of additional evidence outside the statute.

72. Hart v. United States, 585 F.2d 1025, 1028 (Ct. Cl. 1978); Cherokee Nation of Oklahoma v. United States, 73 Fed. Cl. 467, 476 (2006).

73. Wisconsin Public Intervenor v. Mortier, 501 U.S. 597, 612 n.41 (1991) (citing Marshall, J. in United States v. Fisher, 6 U.S. (2 Cranch) 358, 386 (1805).

74. Tax Cut and Jobs Act, Conference Report to Accompany H.R. 1, Report 115-446, 115th Congress, 1st Session (Dec. 15, 2017).

75. For example, the courts have variously used reports from the Congressional Budget Office and from the Taxpayer Advocate. See, e.g., Yari v. Commisioner, 143 T.C. 157, 166 (2014) (using Taxpayer Advocate material), aff’d, 669 F. App’x 489 (9th Cir. 2016); National Australian Bank v. United States, 55 Fed. Cl. 782, 785 (2003) (citing “tax experts” from, inter alia, Congressional Budget Office and Comptroller General regarding their interpretation of the statute in projecting revenue), aff’d, 452 F.3d 1321 (Fed. Cir. 2006).

76. AD Global Fund, LLC v. United States, 67 Fed. Cl. at 678-91 (analyzing and weighing history before, during, and after legislative debate; proposal from President; reports of American Bar Association and American Law Institute; and text and history of predecessor statutes).

77. Williams v. Commissioner, 151 T.C. No. 1, at *5 (2018) (internal quotation marks omitted); see Chandler v. Roudebush, 425 U.S. 840, 858 (1976) (“most helpful” indicator of congressional intent is conference report). It seems that then-judge Kavanaugh expressed a contrary view in his book review of Judge Katzmann’s Judging Statutes. See Kavanaugh, Fixing Statutory Interpretation, 129 HARVARD L.REV. 2118, 2124 (“committee reports are not necessarily reliable guides” in interpreting statutes).

78. RJR Nabisco v. United States, 955 F.2d 1457, 1462 (11th Cir. 1992) (insertion in original); Demby v. Schweiker, 671 F.2d 507, 510 (D.C. Cir. 1981) (“next to the statute itself [Conference Report] is the most persuasive evidence of congressional intent”).

79. United States v. Daas, 198 F.3d 1167, 1174 (9th Cir. 1999) (“If the statute is ambiguous — and only then — courts may look to its legislative history for evidence of congressional intent.”); see Caltex Oil Venture v. Commissioner, 138 T.C. 18, 34 (2012) (“It is well settled that where a statute is ambiguous, we may look to legislative history to ascertain its meaning” (citing Burlington N.R.R. v. Okla. Tax Comm’n, 481 U.S. 454, 461 (1987)).

80. Highmark, Inc. v. United States, 78 Fed. Cl. 146, 149 (2007).

81. Bell Atlantic Corp. v. United States, 224 F.3d 220, 224 (3d Cir. 2000).

82. Yarish v. Commissioner, 139 T.C. 290, 296 (2012).

83. Garber Industries Holding Co., Inc. v. Commissioner, 124 T.C. 1, 14 (2005), aff’d, 435 F.3d 555 (5th Cir. 2006). In re Burns, 887 F.2d 1541, 1548 n.7 (11th Cir. 1541) (“even a conference report cannot overrule the clear direction of the statute itself”), (citing Aloha Airlines v. Director of Taxation, 464 U.S. 7, 12 (1983)).

84. Fort Howard Co. v. Commissioner, 103 T.C. 345, 353 (1994) (conference report stated congressional intent that provision “be construed broadly”). See Ordlock v. Commissioner, 126 T.C. 47, 55 (2006) (relying on House Report because it was “pertinent” to provision’s “original intent”).

85. Estate of Smith, Sr. v. United States, 103 Fed. Cl. 533, 557 (Fed. Cl. 2012).

86. Sunoco, Inc. v. United States, 908 F.3d 710, 718 (Fed. Cir. 2018) (“other relevant portions of the Conference Report belie Sunoco’s position”), cert. denied, No. 18-1474 (U.S. Oct. 7, 2019).

87. Generally, at the end of each Congress, the Joint Committee Staff, in consultation with the staffs of the House Committee on Ways and Means and the Senate Committee on Finance, prepare explanations of the enacted tax legislation. https://www.jct.gov/publications.html?func=select&id=9

88. See United States v. Woods, 571 U.S. 31, 48 (2013) (“the Blue Book, like a law review article, may be relevant to the extent it is persuasive”).

89. Todd v. Commissioner, 862 F2.d 540, 542 (5th Cir. 1988) (“compelling contemporary indication of the intended effect of the statute”); Redlark v. Commissioner, 106 T.C. 31, 45 (1996) (“entitled to respect”; if no corroboration in “actual legislative history,” court “shall not hesitate to disregard [it]”), rev’d, 141 F.3d 936 (9th Cir. 1998) (Bluebook “at least instructive as to the reasonableness of an agency’s interpretation of a facially ambiguous statute”). But see Federal Nat’l Mortgage Ass’n v. United States, 379 F.3d 1303, 1309 (Fed. Cir. 2004) (“As a post-enactment explanation, the Blue Book interpretation is entitled to little weight”; court’s conclusion consistent with Bluebook); Lenz v. Commissioner, 101 T.C. 260, 267 (1993) (Bluebook “is not authoritative where, as in the instant case, it has no support in the statute itself”).

90. See Exxon Mobil Corp. v. Commissioner, 689 F.2d 191, 201 (2d Cir. 2012) (collecting precedent); Zinniel v. Commissioner, 89 T.C. 357, 367 (1987) (Bluebook “does not directly represent the views of the legislators or an explanation available to them when acting on the bill”) (internal quotation marks and citations omitted).

91. Treas. Reg. section 1.6662-4(d)(2)(iii) (“Blue Book” listed “authority for purposes of determining whether there is substantial authority”).

92. See supra, note 4.

93. In re Burns, 887 F.2d 1541, 1549 (11th Cir. 1989).

94. Ibid. (collecting cases).

95. Chrysler Corp. v. Brown, 441 U.S. 281, 311 (1979).

96. Estate of Egger v. Commissioner, 89 T.C. 726, 734 (1987) (sponsor remarks rejected in light of “long established judicial interpretation” and absence of “some discussion of the point in the Committee Reports”).

97. Id. at 734-35.

98. Id. at 734.

99. United States v. Locke, 471 U.S. 84, 95 (1985) (internal quotation marks and citations omitted).

100. Hotze v. Burwell, 784 F.3d 984, 998 (5th Cir. 2015) (internal quotation marks omitted), cert. denied, 136 S.Ct. 1165 (2016).

101. Billings v. Commissioner, 127 T.C. 7, ___. Notably, the Ninth and Eight Circuits followed the same statutory language. Commissioner v. Ewing, 439 F.3d 1009, 1014 (9th Cir. 2006) (reversing a holding that “simply has written the language out of the statute”); Bartman v. Commissioner, 446 F.3d 785, 787 (8th Cir. 2006) (agreeing with Ninth Circuit in Ewing). Although Congress subsequently amended the relevant statute, we believe that these cases are nevertheless instructional in courts’ attitudes towards the type of “anomalous” results we envision in this article.

102. In re McGough, 737 F.3d 1268, 1276 (10th Cir.2013).

103. Public Citizen v. Department of Justice, 491 U.S. 440, 454-455 (1990).

104. In re McGough, 737 F.3d 1268, 1276 (10th Cir. 2013) (internal quotations and citations omitted).

105. King Ranch, Inc. v. United States, 946 F.3d 35 (5th Cir. 1991) (Wisdom, J.) (internal quotations omitted)

106. Yari v. Commissioner, 143 T.C. at 169 n.10. Even where the legislative history convinces a court that the statute is at odds with apparent legislative intent, the Tax Court will still uphold the statute as written, unless it produces an “absurd result.” Gregory v. Commissioner, 149 T.C. 43 (2017) (Lauber, J., concurring).

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Cabell Chinnis Tax Audit Attorney Mayer Brown
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Cabell Chinnis specializes in audits and Appeals. In addition, he counsels tax exempt entities on a full range of matters, including their organization, operation and sponsorship. Cabell began his nearly 30-year career by serving as a judicial clerk at the US Supreme Court for The Hon. Louis F Powell, Jr. 

He has obtained speedy and favorable results by identifying key issues in the case and resolving them. He also has significant experience in advance pricing agreements, tax treaties and transfer pricing issues.

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Joel Williamson is a co-leader of Mayer Brown's Tax Controversy practice. He has litigated over 60 tax cases which have resulted in judicial opinions. He has been consistently ranked as a top tier lawyer by leading rating services such as Chambers, Legal 500 and International Tax Review. Joel was inducted into the prestigious Legal 500 Hall of Fame in March, 2017. 

Joel Williamson is widely acknowledged as one of the nation's leading tax attorneys and litigators. He has litigated over 60 tax cases. His unprecedented experience includes the trial of seven major IRC 482 transfer pricing cases, including Eli Lilly, G.D. Searle, Westreco (Nestlé), Seagate Technology, National SemiconductorUnited Parcel Service and Eaton CorporationEaton, which also involved the cancellation of two Advanced Pricing Agreements, was decided by the US Tax Court on July 26, 2017, and resulted in a rare 100% transfer pricing taxpayer victory. Recently, Joel served as trial counsel in the Guidant LLC and Eaton cases, each involving IRC 482 issues. Joel has also litigated numerous cases involving economic substance of transactions, including the United Parcel Service case noted above, as well as the Saba Partnership (Brunswick) case, and Mukerji (Comdisco), an important test case for tax-advantaged computer leasing transactions involving Comdisco. More recently, Joel litigated ConEd which involved an international Lease-In-Lease-Out transaction and Flextronics which involved an international merger and acquisition transaction. Both ConEd and Flextronics witnessed IRS arguments of economic substance and generic tax doctrines including substance over form and step transaction. Recently, Joel litigated Exelon which involved a like-exchange of utility assets that the IRS challenged on economic substance and substance over form grounds.

In the international tax area, Joel has litigated Subpart F, constructive triangular dividend, R&D Moratorium, Brazilian and other foreign tax credit for banks, including Bankers Trust and Riggs Bank, as well as Iranian loss investment in U.S. property (IRC 956) and foreign-versus-domestic-source income (IRC 863(b)) questions. He has litigated two significant captive insurance cases involving Humana, Inc. and Gulf Oil Corporation. In addition, Joel has litigated IRC 338 corporate acquisition related issues, including goodwill, intangible and inventory valuations and second-tier allocations involving Nestlé's acquisition of Carnation.

Joel litigated the Tribune Company case, which dealt with whether a divestiture of a subsidiary qualified as a tax-free corporate reorganization. He has litigated significant tax accounting issues, including unbilled revenue and cap interest rate loan questions. Joel has also litigated significant procedural questions, including the proper role of IRS trial counsel in the audit examination process. He is also experienced in summons enforcement actions for both foreign and domestic records. 

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