Rodriguez, Tucker, and the Dangers of Textualism

12 Pages Posted: 8 Nov 2022 Last revised: 7 Dec 2022

Date Written: October 20, 2022


The Supreme Court is increasingly turning toward textualism in interpreting statutes. This is part of its general hostility toward judge made law, as evidenced for example by its recent unanimous decision in Rodriguez that there should be no federal common law except in extraordinary circumstances. Textualism poses a particular danger in the tax context because the statute is so complicated and so lends itself to manipulation that courts have since the 1930s used a variety of judge-made legal doctrines to prevent such results. The classic Gregory v Helvering case from 1935 involved just such a case: the literal application of the Code resulted in a clear departure from congressional intent and it was therefore struck down by the Court.

However, this line of cases is now under attack. Part of the problem stems from the Court itself. In its misguided Frank Lyon opinion from 1978, the Court shifted the focus from congressional intent to the intent of the taxpayer. This led lower courts to develop the economic substance doctrine with its two prongs, the objective prong (did the transaction have a non-tax purpose) and the subjective prong (did the taxpayer have a non-tax purpose). Congress codified the doctrine in 2010 to resolve a circuit split about whether both prongs needed to be met, but also stated that codification was not meant to change previous law.

Now taxpayer advocates are hoping to use this statement and the new textualism to overturn decades of precedent. In Tucker, they argued that the Fifth Circuit was wrong in using economic substance to strike down a KPMG tax shelter that relied on a mechanical application of tax rules. The taxpayer argued that economic substance can only be used if the law is ambiguous. Where there is no ambiguity, textualism requires applying the law as written even if it produces a manifestly absurd result that Congress never contemplated, and even if it lacks economic substance.

The Court denied certiorari, but the litigation will no doubt continue, because economic substance is commonly used to strike down tax shelters. In fact, the problem goes deeper than that, because the tax shelter in Tucker was devised to meet both prongs of economic substance, and this is a common attribute of shelters. Thus, even if the Court finds that the doctrine as codified strikes down a shelter, there will be further attempts to uphold them based on textualism. Ultimately textualism upholds the shelters as long as the law is clear and relying on economic substance may not help because the transactions can be structured to appear to have substance. The only solution is to go back to Gregory, reject textualism, and strike down the shelters based on purposivism, which in the tax shelter context produces clear results.

Keywords: Rodriguez, Tucker, textualism, tax shelters, economic substance

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S., Rodriguez, Tucker, and the Dangers of Textualism (October 20, 2022). U of Michigan Public Law Research Paper No. 22-052, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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