Tax Law and Business Organization Strategy

Government Attitude on Tax Planning

The other day I received my annual invitation to attend the Meadows Collier Conference in Dallas. I have a scheduling conflict. So, I won't be able to attend this year's program. But there was something that caught my eye. The very first item on the program's agenda is something called "Tax Planning Under Attack." That item starts out with this description:

The IRS' aggressive examination and litigation tactics essentially take the position that if a transaction included tax planning, the tax benefits of that planning should not be sustained.

This statement actually made me feel better because I was afraid I was becoming paranoid in my views of, and experience with, the IRS. Instead it simply confirms the old adage: Just because you're paranoid doesn't mean they're not out to get you.

However, this statement also made me feel worse, more than it made me feel better, because of the concern it raises not only for my profession as a tax planner, but also for the state of our country and it's taxpayers. When I was in law school, my tax professors, on practically the first day of class, would quote the highly respected and erudite Learned Hand:

.   .   .   a transaction, otherwise within an exception of the tax law, does not lose its immunity, because it is actuated by a desire to avoid, or, if one choose, to evade, taxation. Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes. Gregory v. Helvering, 69 F. 2d at 810 (2d Cir 1934)

While not quite so artfully stated, the U.S. Supreme Court affirmed Learned Hand's statement regarding tax planning in the appeal of Judge Hand's decision:

The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. Gregory v. Helvering 293 U.S. at 469 (1935). 

When the government begins to disregard these long-held principles of tax planning, we should all be wary. Not many taxpayers have the resources to fight off the resources that the government can bring to bear on a single taxpayer, especially if those resources come in the form of criminal accusations -- criminal accusations in situations that a few years ago would have been civil audits. Let us hope that this trend can and will be reversed.

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