Brown Reviews Winchester's A Simple Tax Case Complicated By Race

Dorothy Brown (Georgetown; Google Scholar), Capital Gains and Race: Through A Different Lens (reviewing Richard Winchester (Seton Hall, moving to Brooklyn; Google Scholar), A Simple Tax Case Complicated by Race, 21 Pitt. Tax. Rev. 37 (2023)): 

Professor Richard Winchester’s Essay, A Simple Tax Case Complicated by Race, is a very enlightening and quick read. His Essay details a Tax Court decision about whether a sale of land by a real estate developer is eligible for favorable tax treatment. And while most law students who have taken a single individual income tax class would rightly tell us the answer is no, Professor Winchester takes us through an opinion that finds otherwise—because of race! First, a primer for my non-tax-geek readers.

For most of our modern income tax history, the gain applicable to the sale of capital assets like stock or real estate held by investors, has been eligible for a low, preferential tax rate. Sales of inventory, or property “primarily for sale to customers” on the other hand are taxed at the highest ordinary income tax rates available. Real estate developers therefore are selling property they hold for sale to customers and generally ineligible for the lower, preferential tax rate. Except, Tax Court Judge Withey did not get the memo. Why? Professor Winchester argues that it is because of race.

The decision, Pontchartrain Park Homes, Inc. v. CIR, holds that the gain from the sale of real estate by a developer is eligible for the lower preferential tax rate—because the developer was doing something extra risky: building a subdivision of homes for sale to prospective black homebuyers during Jim Crow. ...

Professor Winchester notes the role that race played in the Tax Court opinion. He argues that race made Tax Court Judge Withey interpret the law against precedent and in favor of the white developer’s company that was developing homes for sale to black Americans. Professor Winchester in effect describes the “market risk” discussed in the opinion as a dog whistle for race and notes how the Judge’s assumptions about black homeowners were the ultimate driving factor in his opinion. I might add that the Judge may have also seen PPHI as a sympathetic taxpayer, trying “to do the right thing” and therefore deserving of the capital gain tax break—a tax break that recent Treasury Department research shows is disproportionately received by white Americans. ...

Professor Winchester urges all judges to be aware of and sensitive to any implicit racial bias that might cloud their thinking. Otherwise, there may be more simple cases …“complicated by race.” (P. 47.)

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