Sunday, February 15, 2009
Timothy Deering (J.D. 2009, Cardozo) has published Note, A Taxing Statute: Costly Conjuncts and Their Logical Fallout, 7 Cardozo Pub. L. Pol'y & Ethics J. 207 (2008). Here is the Introduction:
Taxpayers may have felt surprised to find that the IRS was offering them all a special, one-time refund via their 2006 federal income tax returns. Even more surprising, perhaps, was that the refund in question constituted “the most wide-reaching in IRS history.” It should come as no surprise, of course, that the IRS did not offer the refund out of the goodness of its heart; the decision instead followed a string of court defeats regarding the statutory interpretation that undergirded the tax.
Starting in 1966, the IRS levied a 3% excise tax on telephone calls under 26 U.S.C. §§ 4251-54, which tax particular communications services. Section 4251 defines such services to include toll telephone services, which § 4252 delimits by relying partly on factors affecting the toll charge. Telecommunications companies, however, control such factors, and over time they developed changes to their billing practices that allowed their clients to challenge whether § 4252 encompassed their services at all. Although the IRS won the first such challenge at the district level, eventually all five circuit courts of appeals that heard the matter ruled against the IRS before it capitulated.
Courts that heard the matter faced several questions of law, including the construction of the term “and,” deference to a previous IRS revenue ruling, the meaning of “varies,” and whether the provisions taxing wide-area telephone services and local telephone services were applicable. Eventually all five circuits resolved the questions similarly. This Note argues that the circuits used questionable reasoning to construct the conjunction “and,” albeit arriving at the correct conclusion on that issue, and that the circuits implicitly defined the term “varies” incorrectly. Part I discusses the statute's history and introduces the cases' main issues. Part II focuses on the conjunctive issue and identifies how the courts' ad hoc approach created unfortunate propositions that could adversely impact future cases. Part III reviews the interpretation of “varies,” arguing that the courts artificially constricted its definition to arrive at an erroneous result that led the government to lose a significant revenue stream. Part IV surveys how the cases might impact future statutory construction. The conclusion identifies possible responses that either future courts or the IRS could take to contain or rectify the misconstruction of “and” and “varies.”