Monday, June 15, 2020
Susan C. Morse (Texas) presented Modern Custom In Tax as part of the Indiana/Leeds Summer Zoom Tax Workshop Series hosted by Leandra Lederman (Indiana) and Leopoldo Parada (Leeds):
Sometimes we think of custom as old news. But instead custom is alive and well. In nearly every area of modern life, including tax, it provides rules that people follow, unless and until positive law requires otherwise. Tax customs generally arise when private ordering responds to positive tax law. This happens in markets, in the programming of machines, and in compliance advisors’ practices. One example is the historic rule of thumb that valued startup company preferred and common stock using a 10:1 ratio. This custom supported low compensation income inclusions for company founders.
The fact that tax customs are the on-the-ground reality of tax law means that legal scholars and legal policymakers can and should assess these customs. This is a legal process question about institutional competence. When can tax custom competently make the rules that people follow? When, in contrast, should institutions of positive law intervene?
Several methods of analysis can help assess tax customs. These include alignment with positive law, policy preference, efficiency, consent, democracy, procedure and transparency.