A Rare Sighting Of A Common Statutory Species

Drafting errors happen all the time in legislation, and unintended drafting slips in highly technical fields, like tax, are even more common. Usually, courts pretend that these mistakes were made on purpose to carry out legislative intent and do the best that they can under the circumstances.

Only in a rare case is a drafting error identified, the person responsible for the drafting error located, and the error admitted. But, Prof. James Edward Maule recently found one in Sections 121 and 163(h) of the Internal Revenue Code, where dollar limits on tax breaks intended to apply once to married couples mistakenly assume that married individuals are a single taxpayer for tax purposes, and directed his full wrath at the institutional changes that have made drafting errors more likely. (Another fairly famous drafting error involved two amendments to the federal death penalty statute made in different parts of the same omnibus law that were ambiguous when both made at the same time, even though each one was clear individually.)

Maule also cites interesting unpublished student research showing that the frequency with which technical corrections must be enacted to fix tax laws is correlated strongly with the experience of the assigned Joint Tax Committee staffer assigned to the original drafting of the law. This result is unsurprising, but not easy to spot statistically, and technical corrections bill approach was a clever way of finding this trend.

Having interned for a member of Congress on the Ways and Means Committee, and seen drafting in the Colorado General Assembly (which is more professional than many state legislatures) up close, and having had a government professor who started his class entitled "Congress" with a book on tax lobbying, I am rather more sympathetic than Professor Maule to the staff involved in the process.

The principals in legislative drafting (i.e. the elected legislators) rarely have, and generally are not expected to have, the kind of academic preparation that an excellent tax student should. Neither are their chief agents. The prime qualifications for staffers of individual legislators are political, not academic. Legislative staffers are expected to be quick studies, but not to have encyclopedic knowledge of all areas (or even any areas) of the law.

So, the people calling the shots are rarely fully aware of the problems they are getting into as they craft the deal. This is particularly true, even in private practice contract drafting, in tax sensitive deals. Partnership tax law is particularly prone to defy client expectations. Partnership tax law makes a strong, legally important distinction between allocations of profits and losses, and distributions of property from the partnership to partners. Business people who are tax professionals, even sophisticated venture capital investors with M.B.A.'s, often have a very hard time separating the ideas conceptually. As a result, deals that seem very straight forward on the back of a napkin, can be ambiguous when it comes time to draft a partnership agreement in a tax sensitive way.

Moreover, the cognitive style that favors precision in drafting is not always mated to the kind of mind that sees the forest of implications that a tax code amendment may have outside its immediate surroundings. Drafting is harder than it seems in twenty-twenty hindsight when a particular set of facts casts a lack of specificity or clarity into bold relief. Tax code amendments are frequently drafted with only one set of facts in mind, without much attention to how the text could be read in other circumstances. Indeed, many tax code provisions are utterly incomprehensible until you understand the unexplained underlying transactions that they are designed to address.

It doesn't help that American statutory drafting generally is not particularly systematic by international standards. American statutes are mostly written with an eye towards practioners who will cherry pick a sentence or two, rather than having overarching definitions and unacknowledged cross-references. American laws are more collections of little statutes, than they are comprehensive codes, a tendency that carries over even into the tax code.

Professor Maule states with authority that "it has been proposed that the drafters assumed that married individuals filing jointly become one taxpayer for federal income tax purposes. That, of course, is not the case." In other words, married individuals filing jointly are not actually one taxpayer for federal income tax purposes, something that is certainly true most of the time. But, I am rather more skeptical that there is one overarching and universal defintion of much of anything "for federal income tax purposes." It is not at all uncommon for a single concept, like "corporate control" or "dependent," to have multiple express statutory definitions in different parts of the Internal Revenue Code for extended periods of time. Tax reform advocates are forever identifying these false friends as important sources of complexity in the tax code. It is hardly a stretch to suggest that a concept as widely used as what constitutes a "taxpayer" might have multiple implicit definitions when used in different places for different federal income tax purposes. Indeed, as the "error" identified in this case suggests, in order to carry out legislative intent, it may be necessary to interpret the same language in this novel drafted by committee differently in different places. What is implied by pure logic often makes bad law.

One of the first lessons you learn drafting legislation, contracts and settlement agreements is that it is easy to go awry by going beyond what has been expressly agreed. If you take steps to embellish a deal during drafting, it often comes back to bite you, even if it seemed to be merely a technical correction. Tax and spending legislation, furthermore, particularly in the kind of legislation that draws dollar limit lines, is typically the subject of negotiation until the very last minute and its passage, ready for prime time or not, is often critical to the ongoing functioning of the Republic.

Upsetting compromises carefully crafted to reach sufficient agreement of interested lobbyists, members and senior staff of those members for reasons of potential drafting ambiguity (often after many other technical flaws have already been purged) takes more clout than is available to a junior committee staffer, even if a problem is identified. An inability to correct problems even when identified, discourages staffers from rigorously identifying every problem. There are plenty of lobbyists charged with doing that. And, of course, many laws that are drafted end up dying without being enacted anyway.

Another reason that tax statutes are prone to these kinds of technical issues is that they are prone to Congressional micro-management. While independent agencies in technical fields like securities law and environmental law are given vast authority to engage in quasi-legislative regulatory drafting, regulatory tax drafters at the Internal Revenue Code are given less free rein than the roughly five tax code sized volume of their work product would suggest. Most tax regulations stick to fine interpretive questions and tax regulations tend to be heavy on near verbatim restatements of the statutes and legislative committee comments themselves. There are rare exceptions, like the "check a box" regulations that ground the current tax classification rules of limited liability companies and similar entities. But, these are the rare exceptions that prove the rule.

Treasury officials who are charged with administering tax laws have far less participation in the tax statute drafting process than their counterparts in countries with a parliamentary system of democratic government. The Treasury, collectively, may get more respect on Capital Hill than a mere rank and file member of Congress, but the Treasury does not necessarily get much more input than a knowledgable subcommittee chair on the House Ways and Means Committee, or U.S. Senate Finance Committee, or senior staffers on the Joint Tax Committee. Ordinary tax practioners have even less of a say in the process -- and are less well equipped to participate in Congressional statute drafting than they are to participate in the regulatory drafting process.

As a result, administration is less important in statutory drafting than the question of distributive politics and appearances. For example, the phase out of personal exemptions for high income taxpayers (called the Pease Amendment for the Congressman for whom I interned), makes all sorts of political sense, even though there are far less administratively complex ways to arrive at almost the same distributive outcome, such as tweaking the tax bracket cutoffs. The psychological effort of taking away a tax benefit from someone is more important politically than the amount of revenue the provision actually generates.

The best solution, perhaps, might be an institutional one. Perhaps, courts ought to have the power to certify questions of statutory interpretation to legislative bodies with the authority to change the statutes in response for future cases, just as federal courts refer unsettled questions of state law to the supreme court of that state. This is particularly true in the case of the Tax Court, which is, after all, an "Article I" court, situated in the legislative branch, rather than an "Article III" court situated in the judicial branch.