We do not consider Woods’ arguments based on legislative history. Whether or not legislative history is ever relevant, it need not be consulted when, as here, the statutory text is unambiguous. Mohamad v. Palestinian Authority, 566 U. S. ___, ___, 132 S. Ct. 1702, 1709, 182 L. Ed. 2d 720 (2012). Nor do we evaluate the claim that application of the penalty to legal rather than factual misrepresentations is a recent innovation. An agency’s failure to assert a power, even if prolonged, cannot alter the plain meaning of a statute.The question I address today is whether Justice Scalia smuggled some legislative history into his opinion and that smuggled history did affect his decision? I think the answer to that question is yes. Readers should know that my answer is an inference of a fact and not necessarily proof of a fact. So, I state the basis for my inference.
After Justice Scalia states the facts and the procedural posture, he opens his legal analysis "with a brief explanation of the statutory scheme for dealing with partnership-related tax matters." Then in very few words, he states the purpose for the TEFRA partnership rules for unified audits and litigation:
A partnership does not pay federal income taxes; instead, its taxable income and losses pass through to the partners. 26 U. S. C. § 701. A partnership must report its tax items on an information return, § 6031(a), and the partners must report their distributive shares of the partnership’s tax items on their own individual returns, §§ 702, 704.
Before 1982, the IRS had no way of correcting errors on a partnership’s return in a single, unified proceeding. Instead, tax matters pertaining to all the members of a partnership were dealt with just like tax matters pertaining only to a single taxpayer: through deficiency proceedings at the individual-taxpayer level. See generally §§6211-6216 (2006 ed. and Supp. V). Deficiency proceedings require the IRS to issue a separate notice of deficiency to each taxpayer, §6212(a) (2006 ed.), who can file a petition in the Tax Court disputing the alleged deficiency before paying it, § 6213(a). Having to use deficiency proceedings for partnership-related tax matters led to duplicative proceedings and the potential for inconsistent treatment of partners in the same partnership. Congress addressed those difficulties by enacting the Tax Treatment of Partnership Items Act of 1982, as Title IV of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). 96 Stat. 648 (codified as amended at 26 U. S. C. §§ 6221-6232 (2006 ed. and Supp. V)).
Under TEFRA, partnership-related tax matters are addressed in two stages. First, the IRS must initiate proceedings at the partnership level to adjust “partnership items,” those relevant to the partnership as a whole. §§ 6221, 6231(a)(3). It must issue an FPAA notifying the partners of any adjustments to partnership items, § 6223(a)(2), and the partners may seek judicial review of those adjustments, § 6226(a)-(b). Once the adjustments to partnership items have become final, the IRS may undertake further proceedings at the partner level to make any resulting “computational adjustments” in the tax liability of the individual partners. § 6231(a)(6). Most computational adjustments may be directly assessed against the partners, bypassing deficiency proceedings and permitting the partners to challenge the assessments only in post-payment refund actions. § 6230(a)(1), (c). Deficiency proceedings are still required, however, for certain computational adjustments that are attributable to “affected items,” that is, items that are affected by (but are not themselves) partnership items. §§ 6230(a)(2)(A)(i), 6231(a)(5).This is a good summary. Last night, in my Tax Procedure review class prior to examination, I strongly urged the class to study the Woods opinion for the background and the specific holdings.
I don't know Justice Scalia's source(s) for the summary, but I doubt that it was just from a review of the statutory text of the Code provisions he cites. I suspect that his ultimate source (direct or indirect) for the design and purpose of the TEFRA partnership provisions was legislative history. You will recall that in real legislative history for complex multi-faceted statutory text, the Ways & Means Committee and the Senate Finance Committees state what the law is, what the perceived problem or deficiency in the law is, and describe both the overall solution and address the specifics of the statutory text actually approved by their respective committees. When a complex solution and statutory text for a complex solution are enacted, the starting point as Justice Scalia notes is to understand the problem and the intended solution that was enacted. The source for that information is, well, the legislative history. That legislative history and indicated purpose have informed virtually all of the discussion and application of these provisions, and I don't think Justice Scalia was insulated from it. I doubt that Justice Scalia (or his clerk) could have written the quoted part of the opinion if all they had was the bare statutory text. What pulls it all together and makes it understandable is the legislative history.
Yet Justice Scalia wants us at the same time to take seriously his claim in this instance that legislative history did not inform and animate his decision. I just don't buy it. The statements quoted above -- which I believe are animated by the legislative history -- weighed heavily into Justice Scalia's resolution of the two issues decision in the Woods opinion.
Let's look at another part of his opinion to see if he does it again. In resolving the threshold jurisdictional question, Justice Scalia brings to bear the general purpose of TEFRA as stated above. Justice Scalia states twice that the partnership level determination of penalties as to which there might be partner level defenses is "provisional." Although not spelled out specifically, the TEFRA provisions as amended in 1997 to make penalties determinable at the partnership level permit a partner level refund remedy because the partner will not get a notice of deficiency as to the penalty. This provisional solution was not part of the original TEFRA provisions, but is consistent with the purpose of the TEFRA provisions to force as many determinations as possible into a single partnership proceeding. And, how do we know the purpose of the 1997 amendment and its consistency with the overall purpose of the TEFRA unified proceeding requirements -- well, we can study the statute to discern by some speculation the purpose or we can read the legislative history and not have to speculate.
And, I think the same process infected the penalty interpretation. Did he look solely to the text to discern a legislative purpose which tilted the interpretation of the text or was that exercised informed in some way by the purpose of the particular penalty provision? I suspect that the legislative purpose enriched his understanding of the text, even though he does not cite it and would probably deny that it influenced him in any way.
All of which is to say that the two issues resolved in the opinion is, from this perspective, consistent with the legislative history. If that is so, why not say it. And, if it is not consistent with the legislative history, why not say that also but then state in a straight-forward manner that, despite the inconsistency, the words and plain meaning of the words of the statute must control?
I know the mantra that legislative history are words often crafted and understood by only a few members of Congress or even members the committees that write the legislative (actually the staffs write the legislative history). While it certainly happens that pet interpretations are smuggled into the legislative history, that, I don't think, is as reason to throw the baby out with the bath water. It may not be conclusive, but it is not irrelevant. And, at a minimum, a statutory reading that does conflict with the legislative history might permit a fair reader to perceive some ambiguity in the actual text so that Chevron regulations might resolve the ambiguity. I know that statement may sound a bit counterintuitive, but I said it and I am sticking to it.