What We Talk About When We Talk About Tax Complexity

Abstract

This essay offers some preliminary evidence of the pervasive influence of legal craft values in partnership taxation. Legal craft values shape our perception of the law, and they shape the law itself, orienting subchapter K toward partnership tax experts with little express appreciation for the costs this craft-based approach imposes on the mainstream of the partnership tax community.

Two recently proposed regulations shed important light on the role of legal craft values in subchapter K. Both proposed regulations address transactions — contributions and distributions — that are common among all partnerships. Yet both regulations are grounded in a shared contradiction. The Treasury designed each of these proposed regulations to ease the compliance and administrative burdens associated with a specific transaction, whether by simplifying the rules or ensuring that they resonate with a particular audience. At the same time, both regulations place a high premium on legal craft values, relying on targeted, technical rules in order to draw a line between permissible and impermissible transactions. Indeed, what is most interesting about these two proposed regulations are the complicated mechanisms, previously elective mechanisms, that the Treasury employs in its efforts to streamline subchapter K, and what those mechanisms signal about the relationship between legal craft values and partnership taxation.

Keywords: Tax, Tax Reform, Partnership Tax, Subchapter K, Tax Complexity, Distributions, Liquidations, Business Entity Tax, Pass-through Tax, Partnership

JEL Classification: K34