I start with Roger John Traynor. Traynor's Wikipiedia entry is here. Wikipedia reports that Traynor "is widely considered to be one of the most creative and influential judges as well as legal scholars of his time." Some other items from Wikipedia:
- At Boalt Hall of UC Berkeley, Traynor wrote groundbreaking articles on taxation, while serving as editor-in-chief of the California Law Review, and became a full-time professor in 1936.
- Traynor took leave from Boalt Hall "in 1937 to help the Treasury Department draft the Revenue Act of 1938."
Traynor wrote another law review article from his work on the 1938 Revenue Act: Roger John Traynor, Administrative and Judicial Procedure for Federal Income, Estate, and Gift Taxes-A Criticism and a Proposal, 38 Colum. L. Rev. 1393 (1938). Unfortunately, I do not have a link to the article. I obtained a copy from HeinOnLine, here. But retrieving the article requires subscriptions. I obtained my copy from the UVA Law Library, but I don't think I am authorized to post it, so I just have to leave readers to their own resources to obtain a copy if they are interested.
Traynor surveys some big issues with tax administration and tax procedure, many of which are still with us today. I will discuss and quote some of this article:
1. Traynor laments the process of self-assessment, examination, notice of deficiency, litigation (Board of Tax Appeals (now Tax Court) and district and Claims Court and Courts of Appeals) and how inefficient it is when the taxpayer starts off with all of the relevant facts (certainly as compared with the IRS) which, if the IRS is to protect the revenue, the IRS must learn afresh and may not learn at all. Traynor is armed with a lot of statistics to back up his arguments. He proposes a procedure that would force the taxpayer to divulge facts earlier in the process (and be limited to the facts so divulged) so that the IRS can make decisions on the basis of those facts (unless the IRS contests them) and the taxpayer then limited to the record presented to the IRS rather than having de novo review. (Of course, that happens in the refund suit via the required claim for refund and variance doctrine, but Tax Court litigation in deficiency cases is de novo.)
2. Traynor also laments the "Inefficiency of Present Methods of Judicial Review." One target is multiple venues for tax litigation. Some quotes (pp. 1403-1405) (some footnotes omitted):
There is no essential difference between the issues in a petition contesting a deficiency and in a suit involving a claim for refund where deficiency and claim relate to the same item. There is, therefore, no rational basis for having one type of case heard by the Board of Tax Appeals and the other by the District Courts or the Court of Claims. Inasmuch as the Board was established to provide a forum technically skilled in the intricate problems arising under the tax laws, it is inconsistent to continue the present system of permitting some of these cases to be decided by courts less familiar with these problems. The retention of jurisdiction in the District Courts and the Court of Claims has made it impossible to obtain uniformity of decision in tax cases. Instead of being a tribunal to whom both taxpayers and the Commissioner could look for authoritative guidance, the Board is merely one of 87 tax tribunals of original jurisdiction whose decisions have equal rank as precedents. A dissatisfied taxpayer can generally choose amongst three forums to review the Commissioner's action-the Board, the District Court, and the Court of Claims. Well-informed tax counsel can calculate the possibilities of a reversal of that action by scanning the earlier decisions of these tribunals, considering their personnel, and [*1404] weighing the tendencies, mental traits, and prejudices of their members in the hope of finding one which will reverse the Commissioner.
The multifarious nature of the present system of recovery by suit for refund itself has resulted in a hodge-podge of suits against collectors in the District Courts, suits against the United States in the District Courts, suits against the United States in the Court of Claims, and proceedings against the Commissioner in the Board of Tax Appeals. Approximately 40 percent of the refund cases filed in the District Courts are suits against the collector. Yet this antiquated procedure described by the Supreme Court as "an anomalous relic of bygone modes of thought" n22 -- has no present justification, for the right to sue the United States and the authority of the Board to find overpayments afford adequate remedies. n23 The need for such an action having passed, common sense would dictate its discontinuance today.3. Traynor laments the multiple appellate venues for tax cases and proposes a single appellate venue. Traynor was not alone among the giants in tax law proposing a single appellate venue. Some excerpts (pp. 1407-1411, footnotes omitted)
n22 George Moore Ice Cream Company v. Rose, 289 U. S. 373, 382 (1933).
n23 Ibid.; cf. Anniston Mfg. Co. v. Davis, 301 U.S. 337, 341-343 (1937). The continued existence of the right of action against the collector is responsible for considerable confusion in this field. It has been held by the Supreme Court that, as the action against the collector is a personal one against a private individual, a final judgment on the merits in favor of the collector does not bar a second suit against the United States in the Court of Claims. Sage v. United States, 250 U. S. 33 (1919). Also, in Bankers Pocahontas Coal Co. v. Burnet, 287 U. S. 308 (1932), it was held that a decision in favor of the taxpayer in a suit against the collector did not furnish the basis for a plea of res adjudicata by the taxpayer in a later action against the Commissioner or the United States. In Tait v. Western Maryland Ry., 289 U. S. 620 (1933), however, the Court held that a proceeding against the Commissioner could form the basis of a res adjudicata plea in later suits against the United States and a collector. This subject is considered in PAUL, SELECTED STUDIES IN FEDERAL TAXATION, Second Series (1938) 120-127. See also Western Maryland Ry. v. United States, 23 F. Supp. 554 (D. Md. 1938). In Pacific Mills v. Kenefick (C. C. A. 1st, 1938) a second examination of the taxpayer's books was denied under § 1105 of the Revenue Act of 1926 where the Commissioner desired to check the books to ascertain if a tax liability existed which would be claimed as an offset in a pending suit by the taxpayer against a collector. The court stressed the fact that the Commissioner was not a party to the litigation and could not use his powers of examination to aid the collector.
This system of appellate review has rendered burdensome and difficult the work of both the Commissioner and the Board. Subject to eleven masters, the Board is without authoritative guidance whenever the masters disagree or only some have spoken. The Circuit Court of Appeals for the Second Circuit rules that a certain transaction is taxable, reversing the Board's decision on the point. How should the Board rule in the next case before it if an appeal from its decision in that case would lie to the Circuit Court of Appeals for the Fourth Circuit? Or suppose the Circuit Courts of Appeals for the First and Third Circuits speak and give conflicting oracles. The authoritative decisions pull both ways; to which tug shall the Board respond? In some instances where several petitions are consolidated and treated in one opinion by the Board of Tax Appeals, the appeals thereafter taken by the petitioners or the Commissioner are to different 'Circuit Courts of Appeals. And the problem does not stop at the actual decisions of the appellate courts, for in addition there are the congeries of dicta, implications, reasoning, and points of view under which the Board must function.
In addition to the decisions of the Board of Tax Appeals, the Circuit Courts of Appeals also review the decisions of the Federal District Courts in refund cases. But, as the decisions of the Circuit Courts of Appeals are in turn subject to review by the Supreme Court, finality is impossible until that Court decides the issue. Years may elapse meanwhile, for the Supreme Court will rarely grant certiorari to review a decision of a Circuit Court of Appeals in the absence of a conflict among the Circuit Courts. Further, a decision of one of the Circuit Courts of Appeals and a denial of certiorari by the Supreme Court together do not settle an issue. If the taxpayer is the defeated party, other tax- [*1409] payers in different circuits are still free to litigate the same question. If the Commissioner is the defeated party, he cannot afford to abide by the decision of one Circuit Court of Appeals, but must, if possible, forthwith litigate the issue in other circuits in the hope of developing promptly a conflict on which the Supreme Court will pronounce its judgment. Failure so to litigate further would endanger the collection of the revenues, for there are numerous instances in which the Supreme Court has denied certiorari in a particular case, and then years later, when a conflict arose, has considered the issue and reached a result contrary to that of the Circuit Court of Appeals in the earlier case in which certiorari had been denied.
Moreover, it is well worth the effort patiently to try one Circuit Court of Appeals after another in the hope of creating a disagreement, as eventual conflicts in decision are frequent, even after several Circuit Courts of Appeals have reached the same result. 35 Or it may happen, [*1410] because of the vagaries of tax law, that another taxpayer years later may urge in another Circuit Court of Appeals the very contention which the Commissioner was unsuccessfully advancing in a prior case. If this taxpayer eventually wins in the Supreme Court, thus indicating that the Commissioner was legally correct in the first case and surrendered too soon, millions of dollars in revenue may be lost in the interval. Many times the Commissioner, after losing an important issue in one circuit, may find that for years there are no cases in other circuits [*1411] wherein he can test the issue further and perhaps engender the conflict necessary to obtain authoritative determination by the Supreme Court. How should he administer the law in the interim? Congress is reluctant to legislate in such matters unless there is a Supreme Court decision, or a number of lower court decisions, adverse to the Commissioner's interpretation of the law. The extensive and carefully planned campaign of litigation which the Commissioner is thus forced to conduct produces an unfavorable reaction among many taxpayers, who regard such continuous litigation as an attempt to administer the revenue acts contrary to the law.
The present system of appellate review of Board decisions is an open invitation to litigation. Tax law differs from circuit to circuit until the Supreme Court decides the issue. But as the average case takes nine years before decision by the Supreme Court, the result is the virtual nullification for nearly a decade, in many instances, of the mandate set forth in Article II, Section 8 of the Constitution, that "All duties, imposts and excises shall be uniform throughout the United States."Now, for the detour to provide an anecdote from my personal experience with the mitigation provisions of the Code. In my Federal Tax Procedure Book, I discuss the Solicitor General's role in tax cases. The Solicitor General handles Government cases before the Supreme Court and various other matters. At the time, the SG was Erwin Griswold, himself a giant in the tax law, having taught tax law at Harvard Law School and been Dean of Harvard Law School. After noting the Supreme Court's lack of enthusiasm for tax cases, I offer the following anecdote:
The SG's understanding of the limits of the Supreme Court's interest in tax cases was illustrated to me when I was a relatively fledgling lawyer in the Appellate Section. I handled and lost a case in a court of appeals where there was in my judgment a clear conflict among the circuits and the Government was clearly right (in my view). The issue involved the application of the mitigation provisions of the Code designed to mitigate the harsh effects of the statute of limitations. (I cover the mitigation provisions at pp. ___ ff.) Suffice it to say at this point that the mitigation provisions have a threshold complexity that courts and many practitioner find daunting but, when understood, are logical and beautiful. In any event, as I said, there did appear to be a conflict among the circuits and, at the time, a conflict was almost guaranteed certiorari material. I therefore recommended that the United States seek certiorari in the case. The SG (Dean Griswold whom I mentioned in two paragraphs up) himself nixed the recommendation, noting in handwriting on my recommendation that (and this is a paraphrase but pretty close to the actual quote) “We can't take a mitigation case to the Supreme Court, for they will never understand it.”
Addendum 8/26/23:
I just ran across this discussion of Traynor's tax interest in Mirit Eyal Cohen, Preventive Tax Policy: Chief Justice Roger J.Traynor's Tax Philosophy, 59 Hastings L.J. 977, 877-881 (2008) (footnotes omitted).
However, few are aware of Roger J. Traynor's contributions to the field of tax law, where, through academic, administrative, and judicial service, he developed valuable principles that still prevail today. At the University of California at Berkeley, Traynor discovered his passion for tax law, and inspired his students to take this path in their professional careers. As an administrator, Traynor served California's tax system tremendously by shaping some of today's most important local tax acts, which were adopted by other states and countries.' Later on, Traynor [*878] became an expert consultant to the Treasury and participated in drafting major federal tax legislation. As a California Supreme Court justice, Traynor wrote decisions in the field of state tax law that remain good law, and provide guidance for complicated issues including, for example, computing estate tax marital deductions, and the earnings and profits of corporations. What would be surprising to many people, however, would be to learn of Traynor's partnership and important work with Stanley S. Surrey, one of "our nation's foremost authorities on federal tax law," and "the leading proponent of tax reform" during his life.
Surrey was the ultimate tax professor and a "True Public Servant," as a Harvard law dean and tax professor once said. In 1933, he joined the New Deal administration and established himself as a highly ranked legal counsel at the Treasury Department. In 1951, he joined the Harvard Law School faculty, where he remained an active member for thirty years while continuing to serve as a consultant to the United States Government and as an advisor at the United Nations on international tax projects. However, his best known and most important [*879] work was formulating the tax expenditure concept. As assistant secretary for tax policy in the Treasury Department, Surrey promoted the legislation establishing today's tax expenditures section of the government's budget. The tax expenditures section enumerates incentives provided through the tax system, thus emphasizing their oversized component of the income tax system. His aim was to raise public awareness of the extent to which the government subsidizes certain activities through the tax code. After his retirement, Surrey continued to update and publish volumes of his famous textbooks on taxation, such as "Federal Income Taxation: Cases and Materials"" and "Federal Wealth Transfer Taxation: Cases and Materials," casebook that continue to be widely used by tax educators.
Little is known about the strong bond between Traynor and Surrey, who both commenced their careers in the tax law field, and have had an enduring impact on the American tax system. Traynor collaborated with Surrey during President Roosevelt's second term, towards the end of the Great Depression, when the top marginal tax rate climbed back to its World War I-era maximum of 78%. The high marginal tax rates intensified the friction between taxpayers and the government, boosted litigation, and multiplied the number of tax disputes.
At this crucial juncture in the late 193Os, Traynor and Surrey called for a substantial transformation of existing mechanisms for settling tax disputes. During these years, an overload of tax litigation had created inequities that increased the public's discomfort with the tax system. The Bureau of Internal Revenue labored under the burden of individual and corporate tax disputes. When Congress established the U.S. Board of Tax Appeals ("the Board") in the Revenue Act of 1924, it initially considered it a technical, tax expert tribunal within the the Bureau of [*880] Internal Revenue, a branch of the Treasury Department, which would later be renamed the Internal Revenue Service. The Board was designed to serve as a professional mediator between taxpayers and the Bureau of Internal Revenue, rather than to function as a court. However, the absence of filing fees prompted taxpayers to take their disputes to the Board. Traynor and Surrey demonstrated that on average, it took the Board three years to issue a decision. Most of the cases involved a relatively small dollar amount and a focus on questions of fact, which for the most part could have been resolved more quickly, and at lower expense, through administrative measures rather than the adversarial judicial procedures of the Board.
Traynor and Surrey criticized this inefficient system of adjudication and proposed ways to minimize litigation through what they called a "preventive tax policy" which was "designed to prevent controversies from arising" and, where they could not be prevented, "to reduce the area in which they occur." Their idea of preventive tax policy entailed reducing the complexity of the tax code and improving the administrative resolution of tax cases, thereby minimizing disputes over tax matters. They called for more flexibility of the tax system by decentralizing the administrative and judicial systems into more divisions and granting them more authority in cases of income, estate, and gift tax. Traynor and Surrey contended that the dispute resolution process had lost its effectiveness and clarity due to complexity added by judicial interpretation. "Too much law," they said, caused taxpayers to seek out expensive legal advice in order to "thread their way through the complicated maze of tax law." Another aspect of Traynor and Surrey's proposal was to limit appellate reviews and institute a single court of tax appeals in various locations.
Ultimately, Traynor was appointed to the judicial bench, eventually becoming Chief Justice of the Supreme Court of California, while Surrey excelled in Harvard's faculty and in the executive branch as Assistant Legislative Counsel to the United States Treasury. However, when they [*881] proposed their preventive tax policy, they were both Treasury consultants. This Article will explore the joint project of these extraordinary men in its historical context and its implementation in Traynor's adjudication of tax disputes. Through legal-historical analysis, this Article also examines the taxpayer-government relationship in view of changes in politics, economics, and culture in the interwar years.
The tax policy community continues to debate questions concerning the scope and nature of tax law, and the role of the judiciary and administrative agencies in its development. Thus, it is important to study the objectives of the individuals who helped to shape tax laws in order to continue this legislative chain of intent. Traynor and Surrey's idea of preventive tax policy was instrumental in shaping our current tax system. The introduction of a closing agreement for a future transaction, and today's private letter ruling, originated as a result of their proposal. Their suggestion to create a single court of tax appeals continues to be deliberated. Their philosophy can serve today as a valuable guide for reducing the complexity and vagueness inherent in our tax system, and for improving the relationship between taxpayers and the government.
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