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Federal Income Tax
University of California, Hastings School of Law
Morse, Susan C.

Morse_Federal Income Tax_Spring2014

I. Legislative Process

v Art. 1 § 7 à Tax legislation must originate in House of Reps

Budget Resolution


Individual member may introduce à House Ways & Means Committee à Rules Committee (main vetogate) à Floor debate & Amendments à Vote à If approved, Senate considers bill


Individual member may introduce à Senate Finance Committee (can amend HB) à Filibuster (main vetogate) à Substitute bill à Cloture vote à Floor debate & Amendments à Vote à If approved, goes to Conference Committee

§ Senate Finance Committee responsible for tax legislation

§ Filibuster

o Senate rule so Senate can take it away by majority

o Extended debate w/intention of killing a bill or forcing substantial changes in it

§ Takes 60 votes to close debate and move forward

Conference Committee

Reaches compromise on provisions that vary b/t H & S à House passes Conference Report Text (can’t be amended) à Senate passes Conference Report Text (can’t be amended) à President must sign or veto (presentment requirement) à Sign = Law à Veto = Can be overridden by 2/3 vote

§ Conference committees can’t change text in significant ways otherwise bill subject to a point of order (objection on the floor)

Specific Rules that Limit Tax Legislation in Congress

§ Points of Order

o Senate:

§ If legislation that would cut taxes below level specified in budget resolution, can be blocked by any member who raises a “point of order”

· Can be overcome by a supermajority vote (60/100) BUT a minority (41 senators) can block them

o House:

§ Doesn’t constrain activity in House vs. Senate b/c Rules Cte can waive it

§ Pay-As-You-Go (PAYGO) – BIG gatekeeper and JCT = a PAYGO player

o Senate:

§ All tax cuts / spending increases must be offset by other tax increases and spending cuts, respectively. If tax cuts not offset, subject to point of order

o House: Let PAYGO rule lapse in 2011

v Legislative Process Affects Legislative History

1. Textualists à Look at text of statute on its face (Scalia)

a. Use tools of statutory construction

b. Criticism à Think judges incapable of using leg history or manipulate it to coincide w/own ideas

2. Purposivists à Look at legislative history to determine intent

3. Finding Legislative Intent

a. Leg history / Committee reports

i. Cte Reports > Author stmts / Hearing witness stmts / Post-enactment history

ii. Eskridge à Reports most recent in time best indicator of leg history b/c it reflects compromises and helps you understand process

iii. Schmalbeck à Earliest reports most valuable

iv. When to choose early report

1. If it had in-depth explanation of a provision and a later report didn’t do a thorough job of addressing same provision

a. Implicit assumption is that later discussions weren’t contrary to earlier explanation or reasoning; BUT may not be able to confirm that

II. Statutory Interpretation

1. Textual = Plain/dictionary meaning

a. Ejusdem generis à Consider what specific word has in common w/general word

b. Espressio unius est exclusio alterius

i. Specific items listed implied anything not listed to not be included

ii. “Including” à NOT drafted to exclude other things

iii. “Except” à IS drafted to exclude everything else

iv. In tension w/Ejusdem generis

2. Substantive – presumption

a. Ex: Rule of Lenity

b. Tax statutes construed against gov’t? No – rejected in White v. US

3. Reference canons

a. Stare decisis

i. Home Concrete regarding “omit” – showed lack of gap in statute

b. Legislative history à Main source of purpose-based interpretation

III. Administrative Process

1. Administrative Procedure Act (APA) – Rulemaking and Procedure

a. Agencies = 4th branch

i. Congress à Creates and influences how they behave

ii. EB à Soft pressure (news cycle/spin) and hard law (OIRA and appoint heads of agencies)

iii. Judiciary à Constitutional review & judicial review of deference to agency decisions

b. APA designed to recognize the legislative/adjudicative roles of agencies and executive dep’ts and rein in bureaucratic state w/judicial review

2. Case-by-case adjudication – “Orders” § 554

a. Imposes certain procedural due process requirements on the agency (§554(c))

i. Ex: Goldberg v. Kelly confirms this and shows there’s constitutional recourse and JB keeps agencies in their confines

b. Examples within IRS:

i. Private Letter Ruling (PLR)

ii. Technical Advice Memorandum (TAM)

1. Taxpayer letter in response to auditor letter (bad letter)

iii. Audit/Settlement

iv. Appeals

c. Puzzle:

i. Procedures listed above d

regs à Skidmore [We don’t have Chevron deference to a case of either one but it’s conceivable court would apply Chevron deference to a longstanding proposed reg, but case law isn’t settled on this]

2. RR

3. RP

4. Notice

5. C-b-c-adj (PLR, TAM, Audit/Settlement & Appeal) à Go through analysis; Press release / GCM à Skidmore (unless some unusual indication of force-of-law that wasn’t present in facts of Mead)

Policy Arguments For / Against Chevron Deference



1. Democratic legitimacy for agencies à Must recognize politicized and complex nature of interpretive Q’s agencies deal with and they’re better situation to answer them since they’re accountable thru Pres.

2. Uniformity of fed law

3. Congressional intent à Whenever statutory ambiguity, Congress intends to delegate interpretive Q to agency’ Critics à Not every instance of ambiguity signals intent to delegate interpretive power to admin agencies

4. Institutional competence à Agency’s group of ppl who share norms, values and routines; Agency expertise; Don’t want to ossify them (give them certainty regs will hold)

5. Life is complicated à Have to be practical – Can’t re-write every reg

6. If IRB guidance can’t bind TP’s actions w/force of law then IRS loses important tax enforcement tool

7. Court’s opinion in Mead encourages agencies to use the more transparent and inclusive notice-and-comment procedures set out by APA

1. If IRG guidance leads to penalties for noncompliance then TPs may be concerned w/lack of public input in promulgation of such guidance

Tax Cases about Deference

1. Mayo

a. Apply Chevron to interpretive (IRC § 7805(a)) & legislative notice-and-comment tax regs

b. First time Chevron deference applied to a Treasury reg