The Congressional Research Service has released Judge Sonia Sotomayor: Analysis of Selected Opinions (R40649). Here is the discussion of Judge Sotomayor's tax opinions:
Judge Sotomayor has not written extensively in the area of taxation, and it is not possible to draw conclusions about her judicial philosophy from the tax cases in which she has been involved. One Second Circuit case in which she authored an opinion has received attention, primarily because the Supreme Court, while agreeing with the holding, expressly disagreed with her reasoning.
In that case, William L. Rudkin Testamentary Trust v. Commissioner, [467 F.3d 149 (2d Cir. 2006),] the issue was whether investmentadvice fees incurred by a trust were “costs which are paid or incurred in connection with the administration of the … trust and which would not have been incurred if the property were not held in such trust ….” [§ 67(e).] If so, the fees were fully deductible; if not, they were only partially deductible as miscellaneous itemized deductions. At the time the Second Circuit heard the case, a split had developed among the other circuits. The Sixth Circuit had held the fees were fully deductible, while the Fourth and Federal Circuits reached the opposite conclusion after finding the provision only applied to expenses that were not customarily incurred by individuals.
Writing for the court, Judge Sotomayor agreed with the holding of the Fourth and Federal Circuits, but used a different analysis. Looking at the statute’s plain meaning, she found it only applied to those expenses that could be incurred by an individual. This was an objective inquiry and did not require a subjective determination of whether an individual would have incurred such expenses. The court disagreed with the interpretation by the Fourth and Federal Circuits because it found “nothing in the statute [to] indicate[] that Congress intended the [provision] to give rise to factual disputes about whether an individual asset owner is insufficiently financially savvy or the assets sufficiently large such that he or she unquestionably would have sought investment advice.”
The Supreme Court, in a unanimous decision written by Chief Justice Roberts, affirmed the Second Circuit’s holding, but rejected its reasoning. [Knight v. Commissioner, 128 S. Ct. 782 (2008).] According to the Court, an analysis focusing on whether such fees could have been incurred by an individual “flies in the face of the statutory language” since “the fact that an individual could not do something is one reason he would not, but not the only possible reason.” Congress would have used “could” had it wanted and “[t]he fact that it did not adopt this readily available and apparent alternative strongly supports rejecting the Court of Appeals’ reading.” The Court also concluded that the Second Circuit’s interpretation made part of the statute superfluous. Instead, the Court adopted the analysis of the other circuits, finding the common meaning of the term “would” required a determination as to whether the fees would customarily be incurred if the property was held by an individual. Finding that it was not uncommon for an individual to seek investment advice, the Court held the fees were not fully deductible.
Thus, while both the Second Circuit and Supreme Court held the fees were partially deductible, the Court expressly disavowed Judge Sotomayor’s reasoning and adopted an interpretation that she had explicitly rejected. The case is interesting because both the Second Circuit and Supreme Court performed a straight-forward statutory interpretation analysis, looking only at the plain language of the statute, yet came to different conclusions about what the term "would" meant in the context of the statute. Judge Sotomayor, in writing for the Second Circuit, developed an interpretation—one apparently not pursued by either party before the court or adopted by the other appellate courts—that seemed intended to avoid complexity in the tax statute. The government, in fact, subsequently adopted her analysis before the Supreme Court, characterizing it as the preferred interpretation “because it makes the statute significantly easier to administer.” On the other hand, while her intent was perhaps laudatory, it could be criticized, and was by the Supreme Court, for being inconsistent with the common meanings of the terms in the statute.
See also National Law Journal: Congressional Research Service on Sotomayor: Hard to Categorize.
