Notice & Comment

How Silicon Valley Expanded the Judicial Power

For about the last 30 years, the tax community has hotly debated the propriety of increased judicial lawmaking in the tax shelter area. District and appellate courts routinely decide federal tax cases without interpreting or even citing a single income tax statute, and they sometimes openly dismiss legislative enactments as meaningless “details.” Only rarely will a court acknowledge that their practices in this regard are “somewhat disturbing” and that judges should not have “the power to rewrite laws enacted by Congress and the President.”

A recent Tax Court case, CNT v. Commissioner, offers a novel defense of the judiciary’s rapidly expanding lawmaking in the tax area. According to the court, “social, technological, economic, and political changes all occur far more rapidly now than in the days of Blackstone or even Holmes,” and “common law principles should coalesce more swiftly in this environment.”

This is one of the most bizarre statements I have ever read in a judicial opinion. I am at a loss to understand what the computing power of an iPhone has to do with whether courts enjoy the authority to displace legislative enactments. State courts enjoy some power to fashion substantive common law rules, but the Constitution has always conferred the legislative and taxing powers to Congress.

If you take an originalist approach, then the scope of the Article III “judicial power” remains constrained by the phrase’s public meaning at the time of its ratification and does not depend on the latest Silicon Valley gizmo. If you take a living constitutionalist approach, you would presumably alter the scope of the judicial power only to account for changes in the legal landscape (e.g., to take into account the ever-growing administrative state, as in Schor). I have never understood living constitutionalists to say that the powers conferred under the Constitution depend on the current speed of a Google search.

I don’t mean to pick on the Tax Court for its silly statement about technology and judicial lawmaking. But dubious reasoning permeates the lower courts’ approach in the tax shelter area and I thought the weird statement in CNT nicely epitomizes what’s going on here. I suspect that the Supreme Court will eventually rein the lower courts in, but it may be a while before we see another suitable certiorari petition.

For a scholarly take on my concerns with the lower courts’ lawmaking in the tax shelter area, check out an article I published on the subject or a recent amicus brief that I authored.

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