Sixth Circuit: IRS, unlike Caligula, cannot punish under unproclaimed law

Judge Jeffrey Sutton, writing for a Sixth Circuit panel, reverses a Tax Court ruling in an opinion beginning thus:

Caligula posted the tax laws in such fine print and so high that his subjects could not read them. Suetonius, The Twelve Caesars, bk. 4, para. 41 (Robert Graves, trans., 1957). That’s not a good idea, we can all agree. How can citizens comply with what they can’t see? And how can anyone assess the tax collector’s exercise of power in that setting? The Internal Revenue Code improves matters in one sense, as it is accessible to everyone with the time and patience to pore over its provisions.

In today’s case, however, the Commissioner of the Internal Revenue Service denied relief to a set of taxpayers who complied in full with the printed and accessible words of the tax laws. The Benenson family, to its good fortune, had the time and patience (and money) to understand how a complex set of tax provisions could lower its taxes.

And taking issue with the IRS Commissioner’s decision to disallow the use of two Congressionally approved devices, the Roth IRA and DISC (domestic international sales corporation), in a way said to trigger the so-called substance-over-form doctrine:

Each word of the “substance-over-form doctrine,” at least as the Commissioner has used it here, should give pause. If the government can undo transactions that the terms of the Code expressly authorize, it’s fair to ask what the point of making these terms accessible to the taxpayer and binding on the tax collector is. “Form” is “substance” when it comes to law. The words of law (its form) determine content (its substance). How odd, then, to permit the tax collector to reverse the sequence—to allow him to determine the substance of a law and to make it govern “over” the written form of the law—and to call it a “doctrine” no less.

[Summa Holdings v. Commissioner of Internal Revenue via Paul Caron/TaxProf]


  • How odd. A decision actually citing the legislation in question. Would that other circuits follow this example.

  • The IRS commissioner tried to close a loophole being used beyond what Congress intended. I believe Congress could give him that power (though, as the court noted, they have not yet done so). The IRS might be given an equity power to demand an amendment to the return, but not to seek penalties.

    • The problem with your reasoning is that the Sixth Circuit said that the people in this case used the law for the exact purpose and the way that Congress intended.

      We have a choice of either electing representatives who decide the laws or letting those representatives be overruled by a non-elected official.

      I’ll take the former.

  • I’ve always thought of the term “loophole” as just a pejorative way of saying “something the law allows that I don’t think the law should allow.” If Congress didn’t “intend” the conduct in this case, then shouldn’t have written the law to allow it; intent is generally irrelevant if the text is unambiguous (short of something extreme like an obviously missing “not”).

    • “You shall commit adultery”
      Sixth Commandment, according to the “Sinner’s Bible”

      • Similarly, if there was a printer’s error in typesetting the Congressional Record post-enactment, that was not intended by Congress.

        But if Congress had voted on that specific edition of the Sixth Commandment, they would have intended to enact it. Neglecting to actually read what you vote on doesn’t count as an excuse.