Fifth Circuit Claims a Pro-Taxpayer Canon When the Court Should have Interpreted the Exemption in the Statute Fairly or Applied the Anti-Taxpayer Canon (1/27/26)

I posted much of the information in this blog entry at the bottom of the immediately preceding blog: Fifth Circuit Knows a Limited Partner When Reads It (1/24/26; 1/27/26), here. I decided that the information should not be buried in the prior blog but should be lifted into it’s own blog entry. So here it is. For context, yesterday’s blog was about the Fifth Circuit’s opinions in Sirius Solutions, L.L.L.P v. Commissioner, ___ F.4th ___ (5th Cir. 2025), CA5 here and GS here, which held that the limited partner exception in § 1402(a)(13) does not apply to earnings allocated to a nominal limited partner even though providing services to a limited partnership. Please note that I bold-faced exception because that the majority and the dissenting opinions agree it is an exception to the general rule of taxation. (In view of this blog entry, I have eliminated the information from the bottom of the prior blog entry.)

I ask readers to consider seriously footnote 8 of the majority Sirius majority opinion  spanning Slip Op. 23-24):

  n8 Even if the IRS and Tax Court’s arguments had persuasive authority, they would at most establish ambiguity. But that is not enough for the Government’s passive investor rule to prevail. It is a “longstanding canon of construction that if the words of a tax statute are doubtful, the doubt must be resolved against the government and in favor of the taxpayer.” United States v. Marshall, 798 F.3d 296, 318 (5th Cir. 2015) (quotation omitted).

First, Loper Bright claims (I think nonsensically) that courts can always interpret out ambiguity in the statute. See e.g., Chevron, Loper Bright, and Statutory Ambiguity (Federal Tax Procedure Blog 1/8/26; 1/9/26), here.  If there is genuine ambiguity where the court is unable to determine the best interpretation between two or more interpretations within the zone of ambiguity, the court will need a tie-breaker which artificially resolves the ambiguity to decide the case. Chevron offered such a tie-breaker, but Loper Bright rejected Chevron without substituting any other tie-breaker. Of course, the alleged "longstanding canon of construction the majority claims in footnote 8 could supply a tie-breaker in the majority's imagination. I address here the validity of the majority's claim of this "pro-taxpayer" canon of construction.

Canons of statutory construction  are “rules of thumb that help courts determine the meaning of legislation.”  They are said to “limit judicial discretion and render statutory meaning more predictable.”  E.g., Jonathan H. Choi, The Substantive Canons of Tax Law, 72 Stan. L. Rev. 195, 228-229 (2020), here. On the other hand, they are said to be “readily manipulable and [frustrate] the policy preferences of Congress.”  Karl Llewellyn famously observed that “there are two opposing canons on almost every point.”  

A variation on the theme is that maxims, which may function like canons, might be viewed as minims because they reveal so little and are "singularly unhelpful when it comes to deciding cases." United States v. Ingredient Technology Corp., 698 F.2d 88, 94 (2d Cir. 1983)

Professor Choi notes that the opposing canon  (called an anti-taxpayer canon) is to construe exemptions from tax against the taxpayer who cannot show that the statute requires the exemption. (See Choi, pp. 251-254.) Furthermore, Choi notes that the pro-taxpayer canon is not now in vogue. (See Choi, pp. 253-254, quoting Scalia and Garner arguing for applying the fair meaning of statutes; in any event, the anti--taxpayer rule for tax exemptions, "has been sufficiently widely validated and cited that, in my view, its place among the substantive canons is secure" and "the courts have widely embraced this canon." So, the mere fact that the majority felt the need, albeit in a footnote, to use the dubiously applicable pro-taxpayer canon instead of a fair meaning of the statutory exemption or the anti-taxpayer rule, is suspect.

The following is from MS CoPilot, an AI tool (which is consistent with my understand from years of reviewing statutory interpretations of tax statutes):

My prompt:

Please critique the alleged canon of construction that if the words of a tax statute are doubtful, the doubt must be resolved against the government and in favor of the taxpayer..

CoPilot Response:

A thoughtful critique of the so called canon “tax statutes are to be construed against the government and in favor of the taxpayer” reveals that it is far weaker, less coherent, and less defensible than it first appears. In modern doctrine, it is more myth than operative rule. Here’s a structured critique that captures how courts and scholars typically dismantle it.

Critique of the Alleged Canon Favoring Taxpayers in Cases of Doubt

1. It Conflicts With the Basic Rule of Statutory Interpretation

The foundational principle of interpretation is that courts must give effect to the meaning Congress enacted, not the meaning that benefits one party. A canon that automatically resolves ambiguity in favor of taxpayers:

• subordinates statutory meaning to a policy preference,
• creates asymmetry in interpretation, and
• undermines legislative supremacy.

 If Congress wanted a pro taxpayer presumption, it could write one. Courts are not authorized to invent it.

2. It Is Historically Overstated

Although older cases occasionally recited the maxim, they did so:

• in dicta,
• in highly penal tax contexts, or
• before the modern administrative state existed.

By the mid 20th century, the Supreme Court repeatedly clarified that the government against taxpayer canon is not a general rule. Instead, the Court emphasized that tax statutes are interpreted like any other statute—according to text, structure, and purpose.

3. It Is Inconsistent With the Rule of Lenity

Some defenders try to analogize the canon to the criminal rule of lenity. But lenity applies only when:

• a statute imposes criminal penalties, and
• after all interpretive tools fail. 

Tax statutes often impose civil obligations, not criminal punishment. Extending lenity style reasoning to ordinary tax provisions would distort the tax code and create unjustified windfalls.

4. It Undermines Coherence in the Tax Code

The Internal Revenue Code is a highly integrated system. Favoring taxpayers whenever ambiguity exists would:

• create systemic revenue losses,
• encourage strategic ambiguity arguments,
• distort interlocking provisions, and
• pfroduce inconsistent treatment across similarly situated taxpayers.

 canon that systematically biases interpretation in one direction is incompatible with a code designed to operate as a unified whole. 

5. It Encourages Judicial Policymaking

A rule that says “when in doubt, favor the taxpayer” invites judges to:

•  manufacture doubt,
• avoid hard interpretive work, and
• substitute their own policy preferences for Congress’s.

This is especially problematic in tax law, where Congress often drafts with technical precision and expects courts to respect the statutory scheme.

6. It Is Incompatible With Modern Interpretive Methodology

Under contemporary interpretive theory—textualist, purposivist, or probabilist—courts are expected to:

• examine all relevant evidence,
• identify all plausible meanings, and
• select the best or most probable meaning.

A categorical pro taxpayer canon short circuits that process. It effectively says: “If you’re unsure, stop analyzing and pick the taxpayer’s reading.” That is the opposite of what modern interpretation demands.

7. Courts Have Largely Abandoned It

The Supreme Court now routinely states:

• Tax statutes are interpreted like any other statute.
• Ambiguity is resolved through ordinary interpretive tools, not taxpayer favoritism.
• Only penal tax statutes (e.g., criminal tax evasion) may trigger lenity.

In practice, the canon is almost never outcome determinative.

Bottom Line

The alleged canon that “doubtful tax statutes must be construed against the government” is:

• historically overstated,
• methodologically unsound,
• in tension with legislative supremacy, and
• largely abandoned in modern doctrine.

It survives mostly as a rhetorical flourish, not a genuine interpretive rule.