Gitlitz was decided two decades ago, and its practical import was rapidly nullified when Congress amended the statute to remove the glitch in the statute Congress originally enacted. That being so, is Gitlitz worth our time and thought today? Yes, it is. In Gitlitz, the Supreme Court reminded us that the constitutional separation of powers principle is for the long term and should not be eroded by yielding to temptations of the moment.
My respect for Professor Calvin Johnson is great, but so is my conviction that, in this instance, his view is unwise. I say this for four reasons: (1) Gitlitz was not an aberration: it was and is solidly in the jurisprudential mainstream; (2) a general judicial power to correct statutory mistakes would erode the constitutional primacy of Congress in taxation; (3) there is no legal foundation for a general judicial power to correct errors in tax statutes; and (4) no reasonable, judicially manageable standard has been offered by which to operate a general judicial power to correct tax statutory mistakes.
I. Gitlitz in the Judicial Mainstream
Professor Calvin Johnson expresses incredulity that any court could possibly have held as the Supreme Court did in Gitlitz. Such amazement misses both the point of the decision and current trends in statutory interpretation. Of course, Professor Calvin Johnson is correct that it was undesirable as a matter of policy for the Gitlitz taxpayers to get a double tax loss benefit. The Supreme Court, however, was not the author of that mistaken largesse. Congress was. Gitlitz did not endorse the policy wisdom of the outcome; instead, the Gitlitz holding reaffirms the oft given teaching that when Congress’s poor drafting results in bad policy, it is up to Congress to fix the error it created and constitutionally illegitimate for the courts to rewrite the statute. The Gitlitz majority acknowledged the government’s argument that the taxpayers would have a double benefit but found the “plain language” of the statute to be controlling.1
Gitlitz was an 8-to-1 decision that cut across ideological lines. The eight included liberal justices Stevens, Souter, and Ginsburg. Only Justice Breyer dissented. His dissent did not claim for the courts authority to revise mistakes in statutes. His arguments—unpersuasive to all his colleagues—involved statutory construction, not statutory revision. The Court heard Gitlitz because the lower courts were divided as to the issue. For example, in one of the cases, the Eleventh Circuit court came to the same conclusion as the eight-justice Gitlitz majority and for the same reason: it concluded that “although the tax treatment urged by the taxpayer seems contrary to the Code’s spirit, it is dictated by the Code’s plain language.”2 The fact that the lower courts were divided shows that the approach of the Gitlitz majority was not some inconceivable, unimaginable bolt-from-the-blue. Moreover, as the Court noted, “[t]he Commissioner has altered his arguments throughout the course of this litigation.”3 This vacillation is additional evidence that Gitlitz was not an easy, “government must win” case.
Gitlitz has considerable company in Supreme Court jurisprudence. There’s nothing odd about this approach. Are there instances in which the courts have played loosely with the language and structure of statutes? Yes.4 However, the predominant approach of the Supreme Court has been, and certainly it is now, to adhere to statutory language when it is plain.5 In essential respects, Gitlitz resembles Hanover Bank, in which Chief Justice Warren, writing on behalf of a unanimous Court, stated:
Under such circumstance [that is, plain statutory language] we are not at liberty, notwithstanding the apparent tax-saving windfall bestowed upon taxpayers, to add to or alter the words employed [by Congress] to effect a purpose which does not appear on the face of the statute.6
Similarly, in Korell, Chief Justice Vinson’s opinion for the Court acknowledged that an unwarranted loss of government revenue might occur but nonetheless held for the taxpayer because “we cannot reject the clear and precise avenue of expression actually adopted by the Congress.”7 Numerous similar Supreme Court tax decisions come to mind. Before Gitlitz, such decisions include Consumer Life in 19778 and Badaracco in 1984.9 After Gitlitz, they include Boulware in 200810 and Hall in 2012.11
This approach is not unique to tax cases. It is consistent with the Court’s usual (though not invariable) adherence to plain statutory text in cases of all types. It is now accepted by justices of all ideological stripes that external indicators of legislative intent may be considered, if at all, only to clarify ambiguous statutes, not to “cloud statutory text that is clear.”12
Bob Jones is a leading case in which the Court applied a tax statute purposively, not textually. The stakes in Bob Jones and Gitlitz are of fundamentally different orders, however, and the cases are readily distinguishable. In Bob Jones, the Court upheld the IRS’s revocation of tax exemptions of schools practicing racial discrimination. The Court stated that, to qualify for tax exemption, an “institution’s purpose must not be so at odds with the common community conscience as to undermine any public benefit that might otherwise be conferred,” and it added “there can no longer be any doubt that racial discrimination in education violates deeply and widely accepted views of elementary justice.”13 That sets the bar high, requiring a finding that “there is no doubt that the organization’s activities violate fundamental public policy.”14 The government’s “fundamental, overriding interest in eradicating racial discrimination in education”15 rises to this level. Needless to say, the Gitlitz issue (the creation of a duplicated loss by inappropriately increasing basis when debt is forgiven) has no similar claim on the national conscience.
When courts have been bold enough to gloss plain-on-their-face statutes, the results often have been regrettable. An example is the famous (or infamous) Corn Products decision. The Court agreed with the IRS and denied capital gains treatment, relying not on the statute as written but on a general sense of what the Court thought Congress was trying to accomplish. Later taxpayers then exploited that notion to convert capital losses into ordinary losses, depleting federal revenue for a third of a century until the Court “clarified” (actually, retreated from) the Corn Products opinion.16
Professor Calvin Johnson invokes the “economic substance” line of cases as supportive of his preferred approach, but they do not support the idea that courts can fix statutory errors. These cases do not stand for a general judicial power of statutory correction. Instead, the Supreme Court emphasized in such cases that the taxpayer had not done what the statute commanded17 or, in fact, had done nothing of substance at all.18 In short, the Supreme Court’s nearly unanimous Gitlitz decision was not some “off the wall” “who’d a thunk it” head-scratcher. In holding that courts may not revise clear statutes, Gitlitz was solidly mainstream jurisprudence.
II. Erosion of Congressional Primacy in Tax
Professor Calvin Johnson criticizes the Gitlitz Court for “shifting the blame” to Congress. He overlooks the fact that it is the Constitution that fixes on Congress the authority—and thus the responsibility—of prescribing our tax rules. Article I, section 8 of the Constitution commits to Congress the “Power To lay and collect Taxes.” Thus, the Supreme Court has recognized that “[t]axation is a legislative function, and Congress … is the sole organ for levying taxes.”19 Giving courts the power to impose higher tax liability than the statute provides would mean that Congress no longer is this “sole organ.”
Although Professor Calvin Johnson acknowledges congressional primacy in principle, his approach would subvert it in practice. He would constrain courts from correcting deliberate policy choices by Congress, even if those choices were unwise. Yet he would allow courts to revise statutes to correct unintended mistakes. This might sound like a minor shift of power from Congress to the courts. It is not. It is potentially a vast shift. Many, if not most, unfortunate policy consequences are the result of inadvertence, not calculated stupidity.20 That means that Professor Calvin Johnson’s approach would sanction judicial correction not rarely but frequently. The wound to Congress’s constitutional primacy in tax would be deep.
III. No Legal Foundation
Given Congress’s authority as the “sole organ” constitutionally empowered to impose tax, a general judicial power to correct mistakes in tax statutes—especially pro-taxpayer mistakes—must be set on a solid legal foundation.21 There are only two possibilities: (1) that Congress delegated such a power to the courts or (2) that such a power inheres in the judicial function of interpretation.
Delegation does not work. Professor Calvin Johnson writes that “Congress needs intelligent application of the tax law by Treasury and courts” because Congress can’t anticipate all problems. That’s why the courts have allowed Congress to delegate lawmaking power. But, under delegation doctrine, there are two problems with the above-quoted contention.
First, Congress has not made a delegation of power to the courts to rewrite tax statutes. Delegation may be express or implied. Congress has expressly delegated some lawmaking power in tax to the Treasury,22 but Congress has not expressly delegated such power to the courts. Moreover, any notion of implied delegation runs smack into Chevron and related deference doctrine cases, which are predicated upon the idea that statutory silence implies delegation of gap-filling authority to the relevant agency (here, the Treasury), not to the courts.23
Second, we all can agree that “intelligent application” of a statute is desirable. But Professor Calvin Johnson’s approach to Gitlitz is not “application” of the statute. Instead, it is rewriting the statute. It is fundamental that the exercise of delegated power must remain within the ambit of the delegation.24 Congress often enacts specific-authority delegations empowering Treasury to add to the statute.25 In rare instances, Congress even, by express delegation, allows Treasury to promulgate regulations changing the statutory result.26 But, absent such an express delegation, a Treasury regulation changing the statute is invalid.27 That is so where Congress has made a delegation of lawmaking power. Thus, it must assuredly be so when Congress has made no delegation at all, as it has not to courts.
B. Statutory Interpretation Function
The statutory interpretation function also does not provide the necessary legitimating principle. We saw in Part I that contemporary interpretation doctrine disclaims any general power of statutory revision. Recognized doctrinal exceptions do not extend far enough to authorize such a power.
For instance, there is the “scrivener’s error” doctrine. That is a very limited doctrine applicable to obvious ministerial slips such as omitting a “not” or misspelling a statutory term, not to failures to anticipate the policy consequences of the statute Congress drafted and enacted.28
There also is the “absurd results” exception, but it too is limited. For example, in one case, a statute created seemingly unintended, unjustifiable, but not unconstitutional disparate treatment. Nonetheless, the Supreme Court applied the statute according to its terms. It stated: “the words of the statute being clear … the remedy lies with Congress and not with the courts. [The courts’] duty is simply to enforce the law as it is written.”29 The Supreme Court “rarely invokes [an absurdity] test to override unambiguous legislation.”30 This caution is well founded. The line separating “absurd” from “strange but not absurd” is notoriously hard to draw. Absurdity takes on an “eye of the beholder” quality that too readily slips into “I, according to my personal constellation of values, think this is a bad idea. Therefore it’s absurd.” The temptation is apparent, and the consequent threat to the allocation of powers made by the Constitution is ever present.31
Professor Calvin Johnson argues that ambiguities are construed against the taxpayer when they are seeking recognition of a loophole. But, once again, this nostrum does not fit Gitlitz. Eight of the nine justices did not see the statute at issue as ambiguous but rather as having a plain meaning. The authorities cited in Part I above forbid judicial rewriting of such a statute.
IV. No Judicially Manageable Standard
Erosion of separation of powers grows if there is no workable, reasonable limit on the power of correction given to the courts. There must be some definable, operable standard by which “mistakes” are identified, something more than “I know it when I see it.” Professor Calvin Johnson, I believe, offers two candidate standards : (1) it is a mistake if the result deviates from the established principles and policies embedded in the Internal Revenue Code, and (2) it is more likely to be a correctible mistake if the statute lowers tax liability than if it increases tax liability. Neither of these is satisfactory.
As to the first candidate, I am sad to admit that the current Code lacks any set of overarching principles that is so comprehensive and is so consistently adhered to by Congress that courts could confidently declare “this is a mistake authorizing judicial rewriting of the statute.” Many of us were drawn to tax because we thought it possessed a fair degree of conceptual consistency and rigor. If there ever was such a Golden Age, it is, alas, far in the past. For example, at a broad level, we still speak of the “income” tax, but that is largely out of habit. Our current “income” tax is a roughly equal mix of conceptually incompatible consumption tax and income tax principles.32
Taking one step down from that broad level, consider Subchapter K governing income taxation of partners. The Subchapter K rules are a mishmash of entity and aggregate principles and of contradictory “give partnerships choice so they’ll have flexibility, but don’t give them choice because that permits abuse” rules and exceptions. The “Intent of subchapter K” assertions in the partnership “Anti-abuse rule”33 reflect litigation bootstrapping rather than objectivity.34 Closer to the mark is the Tax Court’s lament about the “distressingly complex and confusing nature of [Subchapter K provisions that] present[s] a formidable obstacle to the comprehension [even by persons] with many years of experience in the tax field.”35
At yet more specific levels, stimulus provisions, tax expenditures, and political pay-off provisions multiply in the Code year by year. Most of us bemoan the deterioration of the tax legislative process and bridle at the sloppiness and incongruities of major tax changes made in the last several decades. Nostalgia for a real or fictional Golden Age of tax coherence should not blind the eye of reality. “The Code treats lots of categories of economically similar behavior differently.”36 That being so, a “consistent with established principles of taxation” standard could mean almost anything a judge wants it to mean. It is neither a judicially manageable standard nor a check on potential judicial willfulness.
Absent from Professor Calvin Johnson’s prescription are compelling reasons to believe that courts would choose wisely in annulling or rewriting tax statutes were they given general authority to cancel tax statute mistakes. Much of the time of tax commentators is devoted to criticizing and lamenting tax decisions by the courts.37 Does our sense of history fill us with confidence that courts would perspicaciously detect and sagely correct “mistakes” in tax statutes?
If the first candidate standard is bad, the second is worse. The idea that courts should rewrite a statute more readily when mistakes cause revenues to decrease than when they cause them to increase is actually frightening. How does this pro-government bias embody “equal justice under the law”? Even the IRS views its function as to “hew to the law and the recognized standards of legal construction … with strict impartiality as between the taxpayer and the Government.”38 What could be more destructive of taxpayer morale and compliance than a doctrine that tells taxpayers that the deck is stacked against them?
The rationale Professor Calvin Johnson offers for pro-government bias is that it is politically easier for Congress to cut taxes than to raise them, thus that the favoritism he proposes would balance the scales. But we’re talking here not about general increases of tax rates, which are politically salient, but about closing technical glitches or loopholes. The public does not object to closing loopholes. Congress amended its poorly written statute soon after Gitlitz was decided, and it has done the same sort of thing countless other times when a judicial decision revealed a statutory defect.39
More fundamentally, the suggested favoritism repudiates democracy. If Congress does or does not raise taxes based on popular opinion, that is Congress reflecting the will of the people. That is the political process. That is democracy. Would one say, for instance, that it is easier for legislatures to enact measures to tighten than to loosen animal cruelty laws, thus that the courts, in order to balance the scales, should construe such laws in favor of those who abuse animals? Except where constitutional rights are concerned, it is not the role of the courts to check or balance majority preferences.
Giving courts a general power to rewrite tax statutes perceived to produce unintended unfortunate effects would threaten the separation of powers in order to curb revenue losses that Congress itself has the power to stem by promptly fixing the mess it created. One might think “Gitlitz obviously was a bad decision. Look how fast Congress overturned it.” But the better perspective is that Gitlitz shows the system working the way it should: Congress writes the statute; the Court applies the statute as written; Congress then says “oops” and corrects its error. That’s the system the Constitution created. The Gitlitz Court chose not to reverse the error that Congress made because the Court understood that constitutional legitimacy is more important than temporary and comparatively trivial revenue losses. The Court was right. ■