Essay by Hoffman Fuller
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.
This aphorism from the pen of Judge Learned Hand is probably the most often-quoted text in the literature of taxation. It is usually followed by acknowledgment that the taxpayer in the case actually lost, with Judge Hand further remarking that a melody is more than the notes, and the meaning of a statute must be understood in light of its purpose. The Supreme Court agreed with the Second Circuit that the transaction in question, though cast in the form of a reorganization, was no more than a distribution having the effect of a dividend. The rule disregarding tax avoidance motive was irrelevant, said the Court, because the transaction was outside the intent of the statute.
This early case was a forerunner of many in which courts would disavow any concern for tax avoidance intent, focusing instead on concepts such as business purpose, step transactions, form over substance, sham transactions, and economic effect—all more or less explicit in the opinions. These doctrines, embodied in statute, regulations, and case law, have served to guard against the schemes of tax avoiders. They have all been infused with specific meaning in their various applications over the years. It is an anomaly that the concept of tax avoidance itself remains amorphous. A substantial literature has been created on the subject, but the term resists specific definition. In this respect, it is like the concept of tax reform, a phrase that is bandied about endlessly, meaning nothing more than whatever changes in tax law the speaker happens to favor.
About the Author
Hoffman Fuller. Professor of Law, Tulane Law School.
Citation
70 Tul. L. Rev. 2103 (1996)