Bret Wells (Houston) and Reuven Avi-Yonah (Michigan) have a new paper posted on SSRN, Textualism, Absurd Anomalies, and Tax Logic. Here’s the abstract:

In Section 61(a), Congress set forth the edict that, except as otherwise provided, gross income means “all income from whatever source derived.” The tautological edict found in Section 61(a) (which is copied from the Sixteenth Amendment) sets forth a core organizing logic for how one should approach the interpretation of the income tax laws in ambiguous situations, namely that gross income means all income, except where Congress expressly and affirmative evidences an intent to provide a tax subsidy for some reason grounded in the political economy. Unanticipated loopholes are textually disallowed with tautological force. The Supreme Court has used the flush language of Section 61(a) as the foundational authority for its outworking of important judicial doctrines to eradicate tax loopholes that might otherwise have existed via unforeseen glitches. That approach is necessary for the income tax to achieve its intent of taxing based on ability to pay and thereby reducing inequality.

And yet, a disturbing recent trend of judicial decisions undercuts this history and tradition for how the internal revenue code has been interpreted in ambiguous situations. These recent cases have  a common thread: they each in their own way proclaim that they are applying a plain textual reading of particular statutes in isolation and claim that the tax loopholes that are exposed can only be fixed by further actions on the part of Congress. These recent dubious decisions have also invalidated Treasury regulations that have interpreted away these glitches, so they have the further negative consequence of denying agency authority to interpret the income tax laws to prevent unanticipated tax shelter outcomes. These decisions endorse absurd outcomes and reward aggressive taxpayer behavior in contravention to the best reading of the income tax laws and the intent of Congress in enacting Section 61. This article argues that this current judicial trend represents a repudiation of the text, history and tradition for how ambiguities are to be resolved and as such represents a dangerous threat to appropriate tax administration and undermines the entire income tax.