Thursday, April 26, 2018
William B. Barker (Penn State), The Disconnect Between Tax Concepts and the World of Fact: State Law as the Gatekeeper, 57 Washburn L.J. 129 (2018):
Because private law establishes a system that makes economic enterprise possible, one ordinarily can presume that taxpayers chose a particular legal form in order to achieve fairly well-understood economic effects. Where legislatures decide to impose different tax consequences on the basis of different economic consequences, it is logical that the legislature would often use a shorthand reference to private law categories due to their usual economic consequences. Sometimes, however, private law can be out of sync with important aspects of economic and social conditions that may be critical to the goals of taxation. After all, private law assessment is only one perspective on human activity. On its own, private law can hardly provide comprehensive knowledge of the full richness of human activity which may be necessary for fair and equitable taxation. Tax interpretation has other non-legal sources of knowledge available which can complete the picture more in accord with policies and goals of tax incidence. In part, these differences in private and tax law’s objectives can be seen by observing how the interpretation and application of tax concepts to the facts of the taxpayer’s situation demonstrates that tax law shifts between accurate and inaccurate depictions of economic conditions.
This paper will analyze this phenomenon by exploring the role legal form plays in the cognitive structure, the legal method, and the reasoned explanations of tax law’s interactions with factual conditions. This analysis will show the consequences of shifting between abstract and mediated legal reasoning dependent on legal form and practical and immediate legal reasoning dependent on fact and the interdependence of tax law and socio-economic conditions. Where the legal form created by taxpayers lacks economic or social relevancy, that legal form contradicts the underlying rationale of tax legislation, and it should not be followed blindly. Thus, the disconnect between tax concepts and economic reality is not inevitable. This paper will examine how interpretation in tax law can and does break away from the dominance of private law considerations.