Formalism in the Tax Law
Chicago Law Review, Vol. 66, Summer 1999
Posted: 16 Nov 1999
This paper considers the use of so-called "anti-abuse rules" in the tax law. Anti-abuse rules are standards that override the otherwise applicable rules. They allow the government and only the government to override the literal words of a statute or regulation to require a reasonable tax result. The government may apply an anti-abuse rule if the taxpayer enters into or structures a transaction with a principal purpose of reducing tax liabilities contrary to the purposes of the statute or regulation, even if the transaction otherwise literally complies with the rules.
The most important feature of anti-abuse rules is their substitution of standards for rules. The paper argues that standards provide a trade-off with a more traditional rule-bound approach to the tax law. The argument is that, at least in the tax law, rules must be systematically more complex than standards. Tax rules must be highly complex because mistaxation of even a rare transaction allows taxpayers to structure transactions to take advantage of the result. With rules, uncommon transactions become common. Standards allow the tax law to be less complex than rules because they need not specify in advance the results of uncommon transactions. Uncommon transactions stay that way. The trade-off is that standards are less certain than rules.
Note: This is a description of the paper and not the actual abstract.
JEL Classification: H26
Suggested Citation: Suggested Citation