October 11, 2005
Miers and the Sociology of Tax Shelters
Posted by Victor Fleischer

Paul Caron has noted the involvement of Miers' law firm (while she was co-managing partner) in some shady tax shelters.  Bainbridge thinks it should be a non-issue.  I'm not so sure. 

Three lessons from the tax shelter controversy that we can use to gain insight into Miers, continued below the fold.

1.  Does she really have good judgment?  Non-elitists seem to like the idea of having a regular gal on the court, someone with good business judgment in touch with the regular folks just tryin' to make a buck or two for their family.  Miers' alleged success as a lawyer -- co-managing partner, president of the state bar, White House counsel, etc. -- is not about her legal ability.  It's about her apparent success as a manager of other lawyers.  But even if we are now judging the merits of potential Supreme Court Justices based on her ability to manage rather than her ability to think and write about legal issues, Miers may fail on this sorry metric as well.  Miers either was or should have been aware of her firms' involvement in the tax shelters, and she should be called on to explain her failure to act. 

2.  Forget compromise, stand and fight.  In addition to the shelters mentioned above, Miers counseled Bush to fight rather than settle a claim by the caretaker of a club property. The "Rainbo Club" property arguably qualified for a partial tax exemption for recreational property, at least if one reads the statute literally.  Some might find it unseemly for the rich to engage in aggressive tax planning to minimize the tax liability associated with their consumption activities, and others settled the case to avoid scrutiny.  Miers' instinct was to fight.  This instinct appealed to Bush for fairly obvious reasons.  Pit bull instincts are good in pit bulls and, arguably, in Presidents.  But the instinct is less appealing in a litigator (contrary to popular belief), even less appealing in a transactional lawyer or counselor, and downright appalling in a Supreme Court Justice.  There's a risk that a Justice Miers would be an advocate in search of a cause, a frightened pit bull in search of a target.

3.  Miers will be a literalist.  I have precious little evidence, but when added to all the vague talk that Miers is a "practical" lawyer with "real world experience", etc., I'll go ahead and make a prediction:  Miers will be a literalist when it comes to interpreting statutes. 

The tax shelters provide a nice window into the problem.  As once explained by Taxprof Joe Bankman, there is a split among tax professionals.  Some of us, mostly the tax elitists and the older generation of tax professionals, prefer to interpret statutes with purpose in mind.  And we frequently look to non-literal interpretations of the Code (business purpose doctrine, step transaction, economic substance doctrine, etc.) as a necessary part of tax practice.  Others, especially the younger generation and those trained by or sharing ideologies with the Scalia school of statutory interpretation, prefer the plain meaning approach.  They tend to read the Code literally, and see nothing particularly wrong with tax shelters.  In the two instances we have seen (the CDS shelter and the Rainbo Club property) Miers seems to have voiced no concern about a literal interpretation of the Code. 

Of course, I could be wrong.  Perhaps Miers secretly opposes tax shelters and would apply common law doctrines to trump literal readings of the Code.  But it would be nice to find out more at the confirmation hearings. 

Many Conglomerate readers may find the literal/plain meaning approach to statutory interpretation appealing, and that is a respectable position.  Congress, after all, can amend its statutes to close loopholes.  But literalism has its costs.  It is an approach that is often bad for business law (Enron) and for the tax law in particular.  In tax, it has led to the bizarre situation where tax professionals might go to jail for devising tax shelters that, on the civil liabilty side, at least if they land in the right courtroom with a literalist judge unwilling to apply common law tax doctrines, will be upheld as perfectly legal. 

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