Thursday, December 17, 2020
Point: Calvin H. Johnson (Texas), The Supreme Court’s Statutory Interpretation in Gitlitz: A Failed Approach to Interpretation and a Bad Decision, 40 ABA Tax Times (Fall 2020):
The Supreme Court’s decision in Gitlitz v. Commissioner is an irresponsible decision disrupting the logic of tax for the benefit only of abuse. In Gitlitz the Supreme Court gave the equivalent of a double deduction, both an appropriate exclusion of cancellation of indebtedness income for an insolvent Subchapter S corporation and also an inappropriate increase in shareholder basis. The combination of the exclusion and shareholder basis generated a tax loss that had no economic substance, a loss that in Judge Posner’s wonderful phrase “did not impinge on the world.” ...
The approach in Gitlitz allowing an absurd tax deduction shows a hostility to the tax system that is inappropriate for a court in its role as a faithful servant. There are fundamental principles underlying the tax law, including antagonism to double deductions and deduction of phantom losses. The Supreme Court has a duty to interpret tax law in favor of coherent principle, and Gitlitz violates fundamental principle.
Counterpoint: Steve Johnson (Florida State), The Constitution Is More Important than a Few Tax Dollars Squandered by Congress: Gitlitz Was Correctly Decided, 40 ABA Tax Times (Fall 2020):
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practical import was rapidly nullified when Congress amended the statute to remove the glitch in the statute Congress originally enacted.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.