Thursday, July 21, 2005


Make Way! Fool Rushing In

On the 17th, Kreig Mitchell had a posting entitled The Case for the Internal Revenue Code. Mitchell takes issue with the concept that the Internal Revenue Code is overly complex or obscure. In summary, he concludes:
Having spent countless hours poring through the Code and the Regulations, I can tell you that our Code is not too complex. Our Code is clear, simple, and well organized given what it was designed to do. We should not complain about the Code; we should complain about the Treasury Regulations.
On the 20th, Profession James Maule responded to Mitchell's comments in a posting entitled The Code is Simple? NOT! In that posting, Maule concludes:
If the Code were so clear and simple as [Mitchell] contends, things such as Tax Management portfolios would not be necessary. Now, it could be that all the rest of us are lacking some special skill or insight, but I guarantee you there are times I read a Code provision, especially one recently enacted or amended, scratch my head (maybe that's why I'm losing my hair), read it again, read it to myself out loud, try to rewrite it, and sometimes begin inventing words to describe the poor quality of the provision.

And eventually along come the technical corrections. I wonder why those are necessary, he asks sarcastically.

Sorry, [Mitchell], on this one I flat out disagree. Even accepting the substantive mess that it has to reflect, the Code is not as well organized or drafted as it could be. After all, I think my translations are far less convoluted. I'll let the practitioners score that assertion.
Today, Mitchell responded. I think that his comments were a little too ad hominem for my taste. (And remember: I'm the guy who refers to those who oppose his positions on estate tax repeal and the gutting of the Social Security system as knaves and fools. Thus, it can be reasonably assumed that I have a high ad hominem threshold.) However, let me add a few observations to the debate.

At the outset, I happen to agree with Mitchell that the Code is fairly well organized. I would go further and even argue that the organization of the Code has a certain elegance about it. I also agree with Mitchell that the organization of the regulations is both haphazard and marked by significant gaps.

That having been said, however, the Code's draftsmanship leaves a great deal to be desired. Here, Maule has it correct: All too often, the writing is murky to the point of being totally opaque. I suspect that there are a number of reasons for this.

First, the Code is not a single document. It is an ongoing, dynamic document, built up layer by layer via successive amendatory enactments, many of them drafted in the wee hours of the morning. Under the circumstances, it is not surprising that there are numerous apparent conflicts between certain sections and downright incomprehensibly drafted provisions.

Second, the Code is a product of political give and take. As a consequence, virtually every general rule is followed by exceptions placed in the Code to address specific situtations. These specific exceptions can be either problems, real or imagined, by particular industries or businesses or ways to avoid the application of the general rules to broad classes of taxpayers. (As examples of the latter, consider the many provisions that do not apply to smaller transactions, the exemption of certain loans from the imputed interest rules, for instance.)

Third, at least with respect to income tax, what is being taxed is an intellectual concept. That is, while most of our clients understand income to mean the cash that they receive for their labor or when they sell assets, as any reasonably bright law student should be able to tell you, the concept of income is far broader than that. The fact that we are taxing a concept results in practical drafting difficulties in tacking down with precision when and how this rather elusive concept is taxed. The differential rates of tax imposed on different types of income only ratchet up these drafting problems.

Fourth, while I agree with Mitchell concerning the arrangement of the regulations, the more recently drafted regulations ("recent" in this context meaning those drafted in the last 15 years or so) are generally quite helpful in illuminating the relevant Code provisions. Of course, there are too many instances when Code provisions are not addressed in regulations.

Could the Code (and, here, I actually mean both the Code and the regulations) be drafted more clearly? Certainly. However to do so, the drafting process would have to take place in some arena where all participants are pledged only to make the Code clearer and not to make any substantive change in the law. This could occur, but only if the participants belong to a prietly caste who agreed to have their meetings on Mars with all communication with Earth cut off while they deliberate. (Sounds like the premise for an unlikely Twilight Zone episode.)

So who's right? On one hand, my experience with state statutes of various sorts leads me to side with Mitchell. By comparison with these statutes (other than Uniform Acts which tend to be well-drafted), the Code is a model of clarity.

On the other hand, I spent three hours today on a project where I had to cite chapter and verse with respect to the the tax treatment of non-resident aliens with respect to certain transactions in the U.S. The question was simple and the answer should have jumped out at me. It didn't. The reason that it didn't was that the Code in this area is at its cryptic best (or worse, depending on your point of view). In other words, there is a good case to be made for Maule's conclusion.

Where do I stand? A place in which I rarely reside--the middle.

1 comment:

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