MacNiven v. Westmoreland and Tax Advice Using 'Purposive Textualism' to Deal with Tax Shelters and Promote Legitimate Tax Advice

64 Pages Posted: 5 Sep 2009

See all articles by Scott A. Schumacher

Scott A. Schumacher

University of Washington - School of Law

Date Written: September 1, 2009


The last few years have seen a flurry of activity aimed at the tax shelter industry. Beginning with the “covered opinion” rules of Treasury Circular 230 in 2005, the government has adopted several changes to the standards applicable to tax advice, all in an effort stop abusive tax shelters. Most recently, both Congress (in 2007) and Treasury (in 2008) have revised the standards applicable to tax advice to require that a position have a “more likely than not” chance of succeeding on the merits, or the position must be disclosed to the IRS. While the government’s desire for reform is understandable, these changes will not stop abusive shelters and will make giving legitimate tax advice more difficult. Moreover, these changes will also not succeed in what should be their ultimate goal - providing guidance for distinguishing between legitimate tax planning and abusive tax avoidance.

My thesis in this Article is that whatever rules Congress, Treasury, and the courts employ, these rules should be designed to encourage tax advice and to encourage that the advice given is proper. Our tax system is based on voluntary compliance, which requires a well-informed and well-advised citizenry. The recent amendments will, I fear, stifle tax advice, including legitimate advice. By the same token, the overly-aggressive prior standard for tax advice of “realistic possibility of success” encouraged hyper-textualism and led too many advisors and their clients to review a position on a “can I get away with this” analysis, rather than an honest attempt to comply with the law.

The standard that I propose is what I refer to as “purposive textualism” and is taken from the British House of Lords’ opinion by Lord Hoffmann in MacNiven v. Westmoreland. Under the MacNiven analysis, one must analyze the “constructive purpose” of the tax statute and then determine whether the relevant provision of statute, upon its true construction, applies to the facts at issue. While the House of Lords referred to this standard as “purposive construction,” the standard is more akin to the modern textualism that looks at the purpose of the statute in the context that Congress (or Parliament) enacted it. In my view, the MacNiven formulation gives us the most principled basis for determining what is an abusive tax shelter and what is legitimate tax planning. It is also a workable construction for tax advisers. It is my hope that a discussion of the MacNiven opinion will offer a different perspective on the issue of tax shelters and tax advice and bring a fresh debate to these issues.

Keywords: tax shelters, ethics, textualism

JEL Classification: H20, H26, H29

Suggested Citation

Schumacher, Scott A., MacNiven v. Westmoreland and Tax Advice Using 'Purposive Textualism' to Deal with Tax Shelters and Promote Legitimate Tax Advice (September 1, 2009). Marquette Law Review, Vol. 92, No. 33, 2008, Available at SSRN:

Scott A. Schumacher (Contact Author)

University of Washington - School of Law ( email )

William H. Gates Hall
Box 353020
Seattle, WA 98105-3020
United States


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