Preventive tax policy: Chief justice Roger J. Traynor's tax philosophy

Hastings Law Journal

Volumn 59, Issue 4, 2008, Pages 877-910

  Eyal Cohen, Mirit ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

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EID: 46749155964     PISSN: 00178322     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (343)

1. Adrian A. Kragen, In Memoriam: Roger J. Traynor: Chief Justice Traynor and the Law of Taxation, 5 HASTINGS L.J. 801, 802 (1984).
2. Id. at 801.
3. BEN FIELD, ACTIVISM IN PURSUIT OF THE PUBLIC INTEREST: THE JURISPRUDENCE OF CHIEF JUSTICE ROGER J. TRAYNOR, at XIV (2003).
4. On his academic interest in tax law, see Elizabeth Roth, The Two Voices of Roger Traynor, 27 AM. J. LEGAL HIST. 269, 295 (1983),
5. and James E. Sabine, Taxation: A Delicately Planned Arrangement of Cargo, 53 CAL. L. REV. 173 (1965).
6. Kragen, supra note 1, at 803.
7. See The Townsend Harris Medal, http://www.ccny.cuny.edu/ townsend_harris/awards/s_z.htm (last visited Mar. 17, 2008).
8. Erwin N. Griswold, In Memoriam: Stanley S. Surrey - A True Public Servant, 98 HARV. L. REV. 329, 329, 331 (1984).
9. Stanley Surrey worked in the National Recovery Administration in Washington from 1933 to 1935 and at the National Labor Relations Board from 1935 to 1937. Walter Sterling Surrey, in STANLEY S. SURREY 1910-1984: PROGRAM OF A MEMORIAL SERVICE HELD OCT. 3, 1984 AT MEMORIAL CHURCH, HARVARD UNIVERSITY (1984)
10. [hereinafter SURREY MEMORIAL SERVICE] (on file with author). In those positions, Surrey found a meaningful outlet to improving government policies.
11. Id. The New Deal was also a significant influence on Stanley Surrey.
12. Id.
13. At Harvard, even as professor emeritus. Surrey continued to participate in many projects, such as the Income Tax Project of the American Law Institute. Erwin W. Griswold, in SURREY MEMORIAL SERVICE, supra note 8. He organized the International Program in Taxation at Harvard, produced the World Tax Series, and published various tax books and articles.
14. Id. He was the president of the National Tax Association from 1979 to 1980 and through it published major tax articles.
15. Id. Surrey wrote twenty books and ninety-seven articles, not including legislative records.
16. James Vorenberg, in SURREY MEMORIAL SERVICE, supra note 8.
17. Surrey's contribution to the development of international tax systems was vast. He was instrumental in formulating tax treaties between developed and developing countries, and in developing the new tax system that evolved after World War II. For example, he was responsible for the adoption of Resolution A.3, adopted at the Conference of Punta del Este in 1961, by which member governments of the Organization of American States explicitly endorsed a program to reinforce tax systems. Milton Katz, in SURREY MEMORIAL SERVICE, supra note 8. The Resolution was adopted by "the Pan American Union, the Economic Commission for Latin America, and the Inter-American Development Bank, in cooperation with the Harvard University Law School International Program in Taxation" in August 1961.
18. Id. Between 1949 and 1950, Surrey participated in planning and developing a new tax system for Japan, as a member of the American Tax Mission to Japan.
19. Erwin W. Griswold, in SURREY MEMORIAL SERVICE, supra note 8. Surrey reported his mission was most importantly to devise "a simple and progressive system," which was later acclaimed for "Japan's dazzling economic performance and rapid growth since World War II."
20. Id. (quotations omitted);
21. see also Erwin N. Griswold, In Memoriam: Stanley S. Surrey, 98 HARV. L. REV. 329. 331 (1984).
22. In 1960, he joined his Harvard colleague Oliver Oldman in a research project on the tax system of Argentina. STANLEY S. SURREY & OLIVER OLDMAN, REPORT OF A PRELIMINARY SURVEY OF THE TAX SYSTEM OF ARGENTINA (1960).
23. See generally Stanley Surrey, Tax Expenditures and the Budget, in TAX POLICY AND TAX REFORM, 1961-1969: SELECTED SPEECHES AND TESTIMONY (William F. Hellmuth & Oliver Oldman eds., 1973);
24. Stanley S. Surrey, Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures, 83 HARV. L. REV. 705 (1970).
25. STANLEY S. SURREY, FEDERAL INCOME TAXATION: CASES AND MATERIALS (1986).
26. STANLEY S. SURREY ET AL., FEDERAL WEALTH TRANSFER TAXATION: CASES AND MATERIALS (1987).
27. In 1918, the top marginal tax rate was 77%, and between 1919 and 1921 it was 73%. In the period following World War I, the maximum rates declined gradually and their lowest level was 24% in 1929. During the Depression period that followed the stock market crash, the top marginal tax rate increased rapidly to 79% in 1936 and continued this trend in the Second World War to a top of 94% in 1945. See INTERNAL REVENUE SERVICE, SOI TAX STATS-HISTORICAL TABLE 23
28. [hereinafter TABLE 23], available at http://www.irs.gov/ pub/irs-soi/histaba.pdf (last visited Mar. 17, 2008).
29. Roger J. Traynor & Stanley S. Surrey, New Roads Toward the Settlement of Federal Income, Estate, and Gift Tax Controversies, 7 LAW & CONTEMP. PROBS. 336, 338 (1940).
30. Id.
31. Revenue Act of 1924, Pub. L. No. 68-176 § 900, 43 Stat. 336 (1924).
32. T.D. 6038, 1953-2 C.B. 443.
33. Stephen C. Gara, Challenging the Finality of Tax Court Judgments: When Is Final Not Really Final?, 20 AKRON TAX J. 35, 38 (2005).
34. Roger J. Traynor, Administrative and Judicial Procedure for Federal Income, Estate, and Gift Taxes - a Criticism and a Proposal, 38 COLUM. L. REV. 1393, 1394 (1938).
35. Id. at 1394.
36. Traynor & Surrey, supra note 15, at 352.
37. Id.
38. Id. at 351. This exact phrase was also used by Justice Robert H. Jackson. Kirk Stark, The Unfulfilled Tax Legacy of Justice Robert H. Jackson, 54 TAX L. REV. 171, 187 (2001).
39. He claimed that the elaborate tax system was "too much law, and too many kinds of law, and from too many sources, for tax administration to be simple, or the law clear." Id.
40. Traynor & Surrey, supra note 15, at 351.
41. Id. at 349.
42. See, e.g., Francis M. Allegra, Section 482: Mapping the Contours of the Abuse of Discretion Standard of Judicial Review, 13 VA. TAX REV. 423, 453 (1994) (discussing the role of the judiciary in the development of tax law);
43. Jennifer C. Root, The Commissioner's Clear Reflection of Income Power Under 446(B) and the Abuse of Discretion Standard of Review: Where Has the Rule of Law Gone, and Can We Get It Back?, 15 AKRON TAX J. 69, 74-76 (2000) (describing the role of administrative agencies and the IRS in the development of tax law).
44. See, e.g., Revenue Act of 1862, ch. 119, 12 Stat. 432 (1862).
45. Revenue Act of 1913, ch. 16, § 2, 38 Stat. 166-67 (1913).
46. JOHN F. WITTE, THE POLITICS AND DEVELOPMENT OF THE FEDERAL INCOME TAX 79 (1985);
47. see also Erik M. Jensen, The Taxing Power, the Sixteenth Amendment, and the Meaning of "Incomes," 33 ARIZ. ST. L.J. 1057, 1073-77 (2001) (discussing the ratification process).
48. Revenue Act of 1913, § 2, 38 Stat. 166-67.
49. ELLIOT W. BROWNLEE, FEDERAL TAXATION IN AMERICA: A SHORT HISTORY 40-45 (1996).
50. WITTE, supra note 30, at 83.
51. U.S. Dep't of the Treasury, Fact Sheet on the History of the U.S. Tax System, http://www.treas.gov/education/fact-sheets/taxes/ustax.shtml (last visited Mar. 17, 2008).
52. Id.
53. See BROWNLEE, supra note 32, at 58-78;
54. see also JOHN STEELE GORDON, HAMILTON'S BLESSING: THE EXTRAORDINARY LIFE OF OUR NATIONAL DEBT 104 (1997).
55. Id.
56. See DAVID M. KENNEDY, OVER HERE: THE FIRST WORLD WAR AND AMERICAN SOCIETY (1980) (providing a detailed study of the American home front and society on the eve of the war ).
57. WITTE, supra note 30.
58. TABLE 23, supra note 14.
59. BROWNLEE, supra note 32, at 44.
60. See generally WITTE, supra note 30, at 110;
61. Carolyn C. Jones, Class Tax to Mass Tax: The Role of Propaganda in the Expansion of the Income Tax During World War II, 37 BUFF. L. REV. 685 (1989) (discussing the transformation of the tax system from a "class tax" to a "mass tax").
62. WITTE, supra note 30, at 83.
63. President Harding recorded several speeches to the nation calling for a return to normalcy: "America's present need is not heroics but healing; not nostrums but normalcy; not revolution but restoration . . . not surgery but serenity." Warren G. Harding, U.S. President, Readjustment (May 14th, 1920), available at http://lcweb2.loc.gov/ammem/index.html (search "all collections" for "readjustment"; then follow "4. Readjustment" hyperlink under "Item Titles").
64. WITTE, supra note 30, at 89.
65. TABLE 23, supra note 14.
66. WITTE, supra note 30, at 101.
67. Opposition toward Roosevelt's initiatives from members of his own Democratic party is an example of such abnormalities. Id. at 102-04.
68. "Although government officials of earlier historical periods were aware that taxation affected matters such as capital investments and regional industry, they did not deliberately manipulate taxation to help manage the national economy." JULIAN E. ZELIZER, TAXING AMERICA: WILBUR D. MILLS, CONGRESS AND THE STATE, 1945-1957, at 12-14 (1998)- For a detailed description of the postwar tax policy,
69. see WITTE, supra note 30.
70. WITTE, supra note 30, at 108.
71. Sheldon D. Pollack, Tax Complexity, Reform, and the Illusions of Tax Simplification, 2 GEO. MASON INDEP. L. REV. 319, 328-34 (1994).
72. A movement for tax simplification led by T.S. Adams, a Yale economist, criticized the tax bills for being too complex and suggested that in the future this complexity would be beyond patching. WITTE, supra note 30, at 91.
73. Id. at 102.
74. The Roosevelt years began and ended with Congress taking the initiative, but the administration was again the major actor in the important tax bills of 1935 and 1936. WITTE, supra note 30. at 109;
75. see also BROWNLEE, supra note 32, at 80.
76. BROWNLEE, supra note 32, at 57.
77. WITTE, supra note 30, at 104-05.
78. See generally ROBERT S. MCELVAINE, THE GREAT DEPRESSION: AMERICA, 1929-1941 (1993) (discussing the social and economic consequences of the Great Depression).
79. W. Elliot Brownlee, The Public Sector, 3 CAMBRIDGE ECONOMIC HISTORY OF THE UNITED STATES 1039-40 (2000).
80. TABLE 23, supra note 14.
81. Assaf Likhovski, The Duke and the Lady: Helvering v. Gregory and the History of Tax Avoidance Adjudication, 25 CARDOZO L. REV. 953, 1000 (2004).
82. Traynor & Surrey, supra note 15.
83. Some of those tax avaidance incidents included officials of the Gulf Oil Corporation and the Chairman of the Board of the National City Bank of New York, Charles E. Mitchell. Assaf Likhovski, The Duke and the Lady: Helvering v. Gregory and the History of Tax Avoidance Adjudication, 25 CARDOZO L. REV. 953, 1007-08 (2004). The most famous case concerned the Republican Treasury Secretary Andrew Mellon. This case symbolized the political struggle between the New Deal administration and Republicans.
84. See Stark, supra note 24, at 189. Mellon was considered one of America's richest men, and he was responsible for tax policy and tax administration by virtue of his duty as Secretary of Treasury. Senator James Couzens accused Mellon of corruption, illegal favorable treatment of tax relief, granting tax benefits to Mellon's companies, and of reducing his income tax return by creating artificial losses.
85. Id. at 189-90;
86. see also BROWNLEE, supra note 32, at 79-80;
87. Assaf Likhovski, The Story of Gregory: How Are Tax Avoidance Cases Decided?, in BUSINESS TAX STORIES 89,123 (Steven A. Bank & Kirk J. Stark eds., 2005).
88. BROWNLEE, supra note 32, at 82.
89. BROWNLEE, supra note 32, at 94-97;
90. SUSAN B. HANSEN, THE POLITICS OF TAXATION: REVENUE WITHOUT REPRESENTATION 105 (1983) (discussing how tax revenues were misused to political advantage as "Christmas tree" bills to confer benefits on many social groups);
91. WITTE, supra note 30, at 103. For a different approach to the New Deal tax policy,
92. see MARK H. LEFF, THE LIMITS OF SYMBOLIC REFORM: THE NEW DEAL AND TAXATION, 1933-1939, at 5-6 (1984) (arguing that the government tax policy during those years was not meant to shift the tax burden, but rather was a rhetorical and symbolic instrument).
93. Tax Evasion, N.Y. TIMES, May 29, 1937, at 16. In his 1936 re-election speech, Roosevelt stormed against what he called "economic royalists," meaning rich tax evaders who used family trusts, pension plans, and family partnerships to avoid high surtaxes and estate taxes.
94. Text of Roosevelt's Tax Evasion Message, L.A. TIMES, June 2, 1937, at 8. It so happened that Eleanor Roosevelt was also suspected of tax avoidance activity by transferring money received for her radio performances.
95. Kirk J. Stark, The Unfulfilled Tax Legacy of Justice Robert H. Jackson, 54 TAX L. REV. 171, 259 n.87 (2001).
96. Report of the Joint Comm. on Tax Evasion and Avoidance of the Cong. of the United States, H.R. Doc. No. 75-337 (1937).
97. Revenue Act of 1937, Pub. L. No. 75-377, § 337, 50 Stat. 813 (1937). This act contained adjustments to the Revenue Act concerning personal holding companies and was the second act passed addressing personal holding corporations. The previous act, which was enacted three years earlier, defined personal holding companies as any corporation wherein 80% or more of the corporation's income was derived from certain passive-type income, and more than 50% of the stock was owned by five or fewer individuals. Revenue Act of 1934, ch. 277, § 351, 48 Stat. 680, 751 (1934). Nevertheless, tax attorneys abused the 1934 act and developed sophisticated legal methods to avoid entering into that definition and in 1937 the definition of "personal holding corporation" was altered.
98. Assaf Likhovski, The Duke and the Lady: Helvering v. Gregory and the History of Tax Avoidance Adjudication, 25 CARDOZO L. REV. 953, 983 n.126 (2004)
99. (quoting Learned Hand, Thomas Walter Swan, 57 YALE L.J. 167, 169 (1947) (discussing tax complexity as a result of the anti-avoidance approach)).
100. On the judiciary response to increasing tax evasion cases at that time, see Likhovski, supra note 59, at 982.
101. See also EUGENE C. STEUERLE, THE TAX DECADE: HOW TAXES CAME TO DOMINATE THE PUBLIC AGENDA 13 (1992);
102. WITTE, supra note 30, at no.
103. See generally Carolyn C Jones, Class Tax to Mass Tax: The Role of Propaganda in the Expansion of the Income Tax During World War II, 37 BUFF. L. REV. 685 (1989).
104. TABLE 23, supra note 14.
105. WITTE, supra note 30, at 130.
106. Likhovski, supra note 59, at 967-68.
107. Theodore Tannenwald, Jr., The United States Tax Court: Yesterday. Today and Tomorrow, Erwin N. Griswold Lecture Before the Annual Meeting of the American College of Tax Counsel, San Antonio, Texas (Jan. 23,1998), in 15 AM. J. TAX POL'Y I, 2 (1998).
108. Revenue Act of 1924, Pub. L. No. 68-176, § 900, 43 Stat. 253.
109. Id.
110. The taxpayer had the liberty to file a refund claim through the District Court or the Court of Claims, or a petition with the Board of Tax Appeals. See Traynor, supra note 20, at 1403.
111. Id. at 1396.
112. Id. at 1395, 1400.
113. This limited jurisdiction originated prior to the establishment of the Board, when the District Courts and the Court of Claims had the authority to adjudicate recovery of paid taxes and claims for refunds. Id. at 1402-03.
114. Id. at 1402-04.
115. A 1934 study showed that over 90% of Board cases were outside of Washington; seven states accounted for 59.5% of the cases, another seven states accounted for 16.9%, and the remaining 23% were spread over thirty-four other states, which emphasized the geographical spread of tax disputes before the Board. Id. at 1404-05.
116. "In fiscal year 1937-1938 the percentage of cases closed by Board decision after trial was only 19.1 percent - 1,108 cases out of 5,799." Id. at 1396. "At the close of fiscal year 1938-1939 there were 7,864 cases involving $456,974,846 pending before the Board and the courts reviewing its decisions."
117. Traynor & Surrey, supra note 15, at 337-38.
118. Stark, supra note 24, at 195.
119. Traynor, supra note 20, at 1394.
120. Id. at 1394 n.3.
121. Traynor & Surrey, supra note 15, at 338 & n.1a.
122. See id. at 339 ("By the close of the fiscal year 1938-1939 over 56% of the petitions filed with the Board involved amounts of less than $5,000 while over 38% involved amounts of less than $2,000.") .
123. Traynor, supra note 20, at 1400.
124. See id. at 1399-1400.
125. Id. at 1399.
126. Id.
127. Id.
128. Id. at 1394.
129. Id. at 1399.
130. Id.
131. Id. at 1400.
132. Id. at 1401.
133. Traynor, supra note 20, at 1400-02.
134. Id. at 1396.
135. In fiscal year 1936-1937, over 11% ($1,745,203) of the total amount assessed after hearing Board decisions proved uncollectible. In fiscal year 1937-1938, jeopardy assessments totaling $45,867,553 in taxes, interest, and penalties were made in respect to 2,327 income tax returns. Id. at 1397.
136. Id. at 1393.
137. Id.
138. Id. at 1398.
139. Robert H. Jackson, Equity in the Administration of Federal Taxes. 13 TAX MAG. 641, 642 (1935).
140. Id. at 644.
141. Stark, supra note 24, at 185. When discussing Justice Jackson's insights on federal tax litigation from his position as a career government lawyer, Stark described the problems of the interwar tax adjudication: Jackson ... focused on the delay and uncertainty associated with lengthy appellate consideration of disputed tax issues. Disputed legal issues often festered unresolved for several years, perhaps even decades, before the Supreme Court offered its "final" resolution. And not uncommonly ... Congress promptly amended the statute to reverse the Court's decision. Such extended litigation, in combination with aggressively self-interested reporting positions and limitations concerning prior taxable years, produced unfairness and complexity in the administration of the law.
142. Id. at 206-07.
143. For similar criticism of the interwar tax system, see generally Theodore Tannenwald, Jr., The Tax Litigation Process: Where It Is and Where It Is Going, Herman Gold Memorial Lecture (Sept. 11, 1989), in 44 REC. ASS'N B. CITY N.Y. 825 (1989).
144. Traynor, supra note 20, at 1403-04.
145. Id. at 1403.
146. Stark, supra note 24, at 200.
147. Traynor & Surrey, supra note 15, at 349.
148. Id.
149. Id. at 336.
150. Walter V. Schaefer, The Supreme Court of California, 1081-1982, In Memoriam - Roger John Traynor: A Judge's Judge, 71 CAL. L. REV. 1050, 1051 (1983).
151. Elizabeth Roth, The Two Voices of Roger Traynor, 27 AM. J. LEGAL HIST. 269, 288 (1983).
152. James R. McCall, Roger Traynor: Teacher, Jurist, and Friend, 35 HASTINGS L.J. 741, 743 (1984).
153. BEN FIELD, ACTIVISM IN PURSUIT OF THE PUBLIC INTEREST: THE JURISPRUDENCE OF CHIEF JUSTICE ROGER J. TRAYNOR 2 (2003).
154. McCall, supra note 116. Inspired by Thomas Reed Powell, his constitutional law professor, Traynor decided to pursue a law degree while working on his dissertation and teaching in the political science department.
155. Id. at 743.
156. EDWARD JOHNSON, HISTORY OF THE SUPREME COURT JUSTICES OF CALIFORNIA, 1900-1950, at 182-93 (1966).
157. Adrian A. Kragen, In Memoriam: Roger J. Traynor: Chief Justice Traynor and the Law of Taxation, 35 HASTINGS L.J. 801 (1984).
158. Id. at 802.
159. See id.
160. Retail Sales Tax Act of 1933, ch. 1020,1933 Cal. Stat. 2599.
161. Use Tax Act of 1935, ch. 361,1935 Cal. Stat. 1297.
162. Act of Mar. 1, 1929, ch. 13, 1929 Cal. Stat. 19.
163. Personal Income Tax Act, ch. 659, 1943 Cal. Stat. 2354.
164. Kragen, supra note 120, at 802.
165. See id. Since there were provisions of the Executive Order of 1873 prohibiting federal employees from holding office under any state, territorial or municipal government, President Roosevelt had to use his vested authority and sign a waiver to permit Roger Traynor to hold this position.
166. See Exec. Order No. 7708, 2 Fed. Reg. 2167 (Sept. 16, 1937).
167. Although Traynor and Surrey wrote two articles together on their preventive tax policy project, the first article appeared only with Traynor as its author. Traynor acknowledged Surrey's contribution: "At his own request the name of Mr. Stanley S. Surrey does not appear as co-author, although this article could not have been written without his unselfish interest and cooperation." Traynor, supra note 20, at 1393, n.*.
168. Traynor collaborated with Professors John M. Maguire and Stanley S. Surrey and proposed a complete revision of the administrative provisions of the income tax system. The three professors wrote a series of articles explaining this reform and the remaining loopholes that need to be closed. See, e.g., John M. Maguire, Stanley S. Surrey & Roger J. Traynor, Section 820 of the Revenue Act of 1938, 48 YALE L. J. 509 (1939).
169. Revenue Act of 1938, Pub. L. No. 75-554, § 820, 52 Stat. 447, 581-83.
170. Traynor & Surrey, supra note 15, at 336 (1940). The principle of "ability to pay" denotes the theory of progressive taxation by which the government imposes gradually increasing tax rates as the income to which the rate is applied increases.
171. See Slade M. Kendrick, The Ability-to-Pay Theory of Taxation, 29 AM. ECON. REV. 92 (Mar., 1939) (describing the justification for this policy).
172. Traynor & Surrey, supra note 15, at 352.
173. Id. at 336. Justice Robert H. Jackson was one of the critics of the complexity of the interwar tax system.
174. Stark, supra note 24, at 187. Further, he opposed the notion that complexity might serve other important purposes, such as fairness.
175. Id. He criticized the "elaborate procedural apparatus as institutional overkill in the need of reform."
176. Id.
177. Traynor & Surrey, supra note 15, at 336.
178. Id.
179. Id. at 353.
180. Id.
181. Id.
182. Id. at 338.
183. Id. at 343.
184. Id. at 344.
185. Id. at 339.
186. Id.
187. Id. at 344.
188. Id.
189. On average, about 67.4% of the total amount of deficiencies, which the Commissioner was forced to abandon, reveal the difficulty of attempting to determine tax liabilities without full and accurate information. Traynor, supra note 20, at 1401.
190. Traynor & Surrey, supra note 15, at 340-41.
191. Id. at 344.
192. Rev. Proc. 92-1, 1992-1 I.R.B. 519.
193. Rev. Proc. 68-16, 1968-1 I.R.B. 246.
194. Traynor & Surrey, supra note 15, at 353-56.
195. Id. at 354-56.
196. Traynor & Surrey, supra note 15, at 354-56.
197. Id.
198. Id. at 355.
199. Id. At that time, Congress did not want to limit this legislative freedom, thus both the regulations and each particular closing agreement stated that the agreement was subject to future change in the statutory law.
200. Id.
201. Id. at 345.
202. See id. at 338.
203. Id. at 347.
204. Id. at 347-48.
205. Traynor, supra note 20, at 1433-35.
206. Traynor & Surrey, supra note 15, at 348.
207. Id.
208. Traynor, supra note 20, at 1411-18.
209. Id. at 1412, 1417.
210. Traynor & Surrey, supra note 15, at 349-52.
211. Jones v. Comm'r, 18 B.T.A. 1225, 1230 (1930).
212. Jones v. Helvering, 71 F.2d 214, 218 (D.C. Cir. 1934).
213. Helvering v. Jones, 293 U.S. 583 (1934).
214. Helvering v. Johnson, 104 F.2d 140, 144 (8th Cir. 1939);
215. Smith v. Higgins, 102 F.2d 456, 458 (2d Cir. 1939);
216. Foster v. Comm'r, 96 F.2d 130, 133 (2d Cir. 1938);
217. Comm'r v. McCreery, 83 F.2d 817 (9th Cir. 1936);
218. Comm'r v. Eldridge, 79 F.2d 629, 631 (9th Cir. 1935);
219. see also Traynor & Surrey, supra note 15, at 350.
220. Comm'r v. Griffiths, 103 F.2d no, 114 (7th Cir. 1939).
221. Comm'r v. Griffiths, 308 U.S. 355 (1939).
222. Traynor & Surrey, supra note 15, at 345-48.
223. Id. Traynor and Surrey provided other options to establishing a Court of Tax Appeals, such as expanding the jurisdiction of the Court of Tax Appeals for the District of Columbia, or the Courts of Claims.
224. Id.
225. Traynor, supra note 20, at 1427-29.
226. See, e.g., Montgomery B. Angell, Procedural Reform in the Judicial Review of Controversies Under the Internal Revenue Statutes: An Answer to a Proposal, 34 III. L. REV. 151 (1939);
227. E. Barrett Prettyman, A Comment on the Traynor Plan for Revision of Federal Tax Procedure, 27 GEO. L.J. 1038 (1939);
228. J.S. Seidman, Proposed Procedural Changes in Federal Tax Practice, 67 J. ACCOUNTANCY 221 (1939);
229. William A. Sutherland, New Roads to the Settlement of Tax Controversies: A Critical Comment, 7 LAW & CONTEMP PROBS. 359 (1940);
230. Aaron G. Youngquist, Proposed Radical Changes in the Federal Tax Machinery, 25 A.B.A. J. 291 (1939).
231. Schaefer, supra note 114, at 1050.
232. Traynor Named to High Bench, Olson Raps Commission for Rejecting Max Radin, Another U.C. Educator, L.A. TIMES, Aug. 1, 1940, at 1.
233. FIELD, supra note 3, at 5.
234. James R. McCall, A Basic Concern for Process: Commentary on Quo Vadis, Prospective Overruling, 50 HASTINGS L.J. 805, 806 (1999).
235. Kragen, supra note 1.
236. Neil Duxbury contended that realist jurisprudence was never a "revolt against formalism" and the movement away from formalist legal thinking was very slow and hesitant. NEIL DUXBURY, PATTERNS OF AMERICAN JURISPRUDENCE 3 (1995). In his opinion there was no realist movement; it was nothing more than an "intellectual mood" and "a complex array of messages, some of which seemed rather feeble once placed in an institutional context."
237. Id. at 4.
238. For a discussion of the effect of New Deal lawyers in the judiciary see Sanford N. Greenberg, Ironies of Administrative Law, 72 CHI.-KENT L. REV. 1349 (1997);
239. Thomas W. Merrill, Capture Theory and the Courts: 1967-1983, 72 CHI.-KENT L. REV. 1039, 1055-59 (1997). For an intellectual history of the New Deal legal thinking,
240. see generally PETER H. IRONS, THE NEW DEAL LAWYERS (1982);
241. LAURA KALMAN, LEGAL REALISM AT YALE 1927-1960 (1986). For a comprehensive analysis of American legal realism,
242. see generally LAWRENCE FRIEDMAN, AMERICAN LAW IN THE TWENTIETH CENTURY (2002);
243. MORTON HORWITZ, THE TRANSFORMATION OF AMERICAN LAW, 1870-1960: THE CRISIS OF LEGAL ORTHODOXY (1992);
244. WILLIAM NELSON, THE LEGALIST REFORMATION: LAW, POLITICS, AND IDEOLOGY IN NEW YORK 1920-1980 (2001).
245. Roger J. Traynor, Better Days in Court for a New Day's Problem, 17 VAND. L. REV. 109, 109 (1963).
246. A term used to describe the Supreme Court's use of its interpretation power to achieve social goals. Activist judges, Traynor thought, undermine the law by making too many changes that impair its stability. FIELD, supra note 3, at 121.
247. An analytical and creative judge "bears no relation to that ill-defined character, the so-called judicial activist." Roger J. Traynor, The Limits of Judicial Creativity, 63 IOWA L. REV. 1, 2 (1977). Judicial creativity, he theorized, occurs when the judge succeeds in persuading the involved parties and the legal community of the necessity of modifying existing law.
248. Id.
249. Robert B. McKay, Constitutional Law: Idea in the Public Forum, 53 CAL. L. REV. 67, 67 (1965).
250. Sutter-Yuba Inv. Co. v. Waste, 136 P.2d 11, 12 (Cal. 1943). Although this seemed to be a straightforward redemption of property case, it had significant consequences for the overall process of calculating the tax liability on delinquent property. In this case, the taxpayer contended he should not have to pay taxes imposed on delinquent property for the years it was held by the local government.
251. Id. at 12.
252. Id. at 14. A tax policy issue was at stake that could seriously affect the redemption process of tax delinquent property. Traynor decided to reject the taxpayer's contention, and stated that taxes for that period must be included in calculating the redemption cost. He considered the inevitable repercussions of a decision to accept the taxpayer's interpretation of the law. "If [the county] did not require that redemption prices take into account taxes imposed had the property not been deeded to the state, owners would find it advantageous to allow their property to be deeded to the state with the intention of delaying redemption as long as possible to escape taxes that attended ownership." Id.
253. Id. Twenty years later, another tax redemption case came to Traynor's desk. People v. Lucas, 360 P.2d 321 (Cal. 1961). This time Traynor believed that a wrong judgment might give taxpayers an incentive to loot their tax-deeded property before its seizure by the government.
254. Id. at 324. The defendants in this case sold timber cut from tax-deeded land. When they were required to pay their taxes, they claimed the amount they paid to redeem the property included taxes on the value added to the land by the timber before it was removed. They asserted that by paying a redemption price based on the value of the land including the timber, they have in effect paid the state for the timber.
255. Id. at 322. In rejecting their contention, Traynor was concerned that owners of tax-deeded property would extract its natural resources and then argue that the harvest is excluded from the tax deed on the property.
256. Id. at 324.
257. 196 P.2d 550, 556-57 (Cal. 1948). Traynor demonstrated how the framers of the amendments of Article XIII and generations of Supreme Court decisions sustained the view that only intangibles listed in the Constitution were taxable property.
258. Id. at 563. Foreseeing the administrative problems of future taxation of intangible property, Traynor noted that among the absurdities of such taxation would be taxing life insurance policies, which would result in increasing tax avoidance by exchanging taxable intangible assets for tax-free intangible assets.
259. Id. at 556. To be cautious, Traynor added that in case the Legislature was not satisfied with his ruling in this matter, it has the vested power to change the terms of the license.
260. Id. at 557. Familiar with the bureaucracy and the legislation process, Traynor warned that such a change should be accomplished by a proper constitutional ratification process and not by an administrative procedure.
261. Id.
262. This process of inquiry is similar to the Pragmatists' concept of scientific method. See FIELD, supra note 3, at 9-14. Legal pragmatism is a nineteenth century philosophic school that emphasized the importance of context and the eclectic nature of the law.
263. See generally RICHARD A. POSNER, LAW. PRAGMATISM, AND DEMOCRACY (2003) (discussing principles of legal pragmatism).
264. Estate of Law v. Kirkwood, 325 P.2d 449, 449, 451 (Cal. 1958). In this case, the deceased's will provided that his estate taxes should be paid out of the residuary estate. The controller subtracted all the allowable deductions including federal estate tax from the fair market value of the estate. Then the controller declared half of the remainder of the estate as a marital deduction.
265. Id. at 449. The executor of the will objected to this calculation arguing that the marital deduction should have been subtracted from the fair market value of the estate prior to the deduction of the federal estate tax.
266. Id. at 451. Traynor affirmed the controller's computation, holding the marital deduction was properly determined. He detailed the way to compute the estate tax by first subtracting federal estate taxes to ascertain the clear market value of the estate. Traynor stated the marital deduction should be determined only then, and from that clear market value.
267. Id. at 451.
268. Another example of Traynor's academic opinions came a few years later, in the dissenting opinion of Rosemary Properties v. McColgan, 177 P.2d 757, 766 (Cal. 1947). At issue was the matter of the deductibility of dividends received by a corporation under section 8(h) of the Bank and Corporation Franchise Tax Act.
269. Id. at 758. The majority opinion in this case agreed with the plaintiff. holding that any dividend paid from earnings and profits would be a dividend paid out of income included in the measure of the tax and, as such, the recipient corporation was exempt from franchise tax on that dividend.
270. Id. at 762. In a long and detailed dissenting opinion, Traynor incorporated an illustration of the differences between "income" and "earning and profits": the latter included a deduction of federal taxes.
271. Id. at 767. Next, Traynor provided a mathematical example to demonstrate the differences between "net income" and "earning and profits."
272. Id. at 768. His opinion detailed the majority's mistake of allowing the plaintiff to declare dividends out of "earning and profits" in excess of the "net income" even though no tax was paid on this excess.
273. Id.
274. West Pub. Co. v. McColgan, 166 P.2d 861, 865 (Cal. 1946). In this case, the taxpayer was a Minnesota corporation engaged in the business of selling law books and other publications. The corporation shipped its books to California from orders taken in California by its employees.
275. Id. at 862. However, it refused to file returns under the California Income Tax Act or to furnish any information requested by the commissioner, claiming that the tax levied under the Bank and Corporation Income Tax Act was an unconstitutional California tax on a foreign corporation engaged in interstate commerce.
276. Id. at 862-63. Without the information he requested, the commissioner had no choice but to acquire data from the State Board of Equalization and to estimate the company's income.
277. Id. at 865.
278. Id. Traynor concluded that taxpayers cannot complain of errors in the computation of their tax liability when they refuse to avail themselves of administrative remedies to prevent or correct such errors.
279. Id.
280. Star-Kist Foods v. Quinn, 54 Cal. 2d 507 (Cal. 1960). The issue in this case was erroneous assessments. Although the taxpayer had the option to apply to the Board of Equalization for the correction of his return, he instead filed a claim in court seeking a writ of mandate against the tax assessor to cancel the assessments.
281. Id. at 509. Traynor was familiar with this issue, as he had written extensively on the problem of the taxpayer's choice according to the affordability of the dispute resolution mechanism. He claimed that taxpayers often chose the less-expensive option of filing a court claim before exhausting other appellate mechanisms, which overloaded the court system with unnecessary litigation.
282. Id. at 511. Reversing the trial court judgment, Traynor held that since the only issue was the constitutionality of California's Tax Code, the taxpayer was not required to file with the Board of Equalization before it sought a judicial determination. However, since the taxpayer had a plain, speedy, and adequate remedy in the ordinary course of law by paying the tax under protest and then seeking to recover it, the court held that the writ of mandate was not available to the taxpayer.
283. Id. at 510.
284. Star-Kist Foods, 354 P.2d at 3.
285. Star-Kist, however, could have obtained relief by paying its taxes under protest and suing for recovery thereof .... Mandate is ordinarily denied when the petitioner has a plain, speedy, and adequate remedy in the ordinary course of law. ... In more recent cases, however, the adequacy of such remedies has been considered and mandate has been denied. . . . The fact that Star-Kist filed its petition for mandate before the assessment was complete, however, does not affect the adequacy of its remedy by payment of taxes under protest and suit for recovery thereof.
286. Id. (citations omitted).
287. Justice Robert H. Jackson also recommended the establishment of a centralized tax tribunal as a final appellate tax review, stressing its retrospective character as interpreting tax cases in light of the tax changes over the years. He suggested that the members of the congressional committee will sit in this court, with a notion of harmonious interpretation of the tax court. Stark, supra note 24, at 188.
288. See. e.g., Mortimer M. Caplin & Stuart L. Brown, A New U. S. Court of Tax Appeals: S. 678, 57 TAXES 360, 363 (1979);
289. Martin D. Ginsberg, Making Tax Law Through Judicial Process, 70 A.B.A. J. 74, 75 (1984);
290. Erwin N. Griswold, The Need for a Court of Tax Appeals, 57 HARV. L. REV. 1153, 1153 (1944);
291. Stanley S. Surrey, Some Suggested Topics in the Field of Tax Administration, 25 WASH. U. L.Q. 399, 419-20 (1940). For historical overview on this idea,
292. see Todd H. Miller, A Court of Tax Appeals Revisited, 85 YALE L.J. 228, 228 (1975).
293. The proposal for federal judicial reform in 1997 rejected the idea of a separate court of tax appeals and suggested it be centralized in the federal circuit system. Act of Nov. 26, 1997, Pub. L. No. 105-119, in Stat. 2440;
294. COMMISSION ON STRUCTURAL ALTERNATIVES FOR THE FEDERAL COURTS OF APPEALS, 105TH CONG., FINAL REPORT 73 (1998).
295. Traynor & Surrey, supra note 15, at 351.
296. Tannenwald, supra note 73, at 6.
297. Id.
298. Id. at 7.
299. Id. at 4.
300. Traynor & Surrey, supra note 15, at 353.
301. Revenue Act of 1938, Pub. L. No. 75-544, § 801, 52 Stat. 447, 573 (1938) (amending Revenue Act of 1928, Pub. L. No. 70-562, § 606, 45 Stat. 791, 874 (1928)). By striking the words "ending prior to the date of the agreement" the Act established that a closing agreement may be related not only to a past tax year already closed, but also to a present tax year not yet terminated, or to a future tax year not yet commenced. Id. at 573.
302. Traynor & Surrey, supra note 15, at 355.
303. See generally Insop Pak, International Finance and State Sovereignty: Global Governance in the International Tax Regime, 10 ANN. SURV. INT'L & COMP. L. 165, 165 (2004);
304. Philip R. West, Foreign Law in U.S. International Taxation: The Search for Standards, 3 FLA. TAX REV. 147, 171 (1996).
305. Reuven Avi-Yonah, Globalization, Tax Competition, and the Fiscal Crisis of the Welfare State. 113 HARV. L. REV. 1573, 1576 (2000).
306. For more on the emergence of APAs, see Diane M. Ring, On the Frontier of Procedural Innovation: Advanced Pricing Agreements and the Struggle to Allocate Income for Cross Border Taxation, 21 MICH. J. INT'L L. 143, 160 (2000).
307. Rev. Proc. 91-22, 1991-1 C.B. 526 (defining APAs).
308. Ring, supra note 213, at 170.
309. For consumption tax proposals see The Armey-Shelby Flat Tax, H.R. 2060 & S. 1050, 104th Cong, (1st Sess. 1995);
310. The Nunn-Domenici USA Tax, S. 722, 104th Cong, (1st Sess. 1995);
311. DAVID BRADFORD, UNTANGLING THE INCOME TAX (1986);
312. ROBERT E. HALL & ALVIN RABUSHKA, THE FLAT TAX (1995);
313. LAURENCE S. SEIDMAN, USA TAX, A PROGRESSIVE CONSUMPTION TAX (1997);
314. PRESIDENT'S ADVISORY PANEL ON FEDERAL TAX REFORM, SIMPLE, FAIR & PRO-GROWTH: PROPOSALS TO FTX AMERICA'S TAX SYSTEM 21-22 (2005).
315. See Traynor & Surrey, supra note 15, at 349.
316. Id. at 339.
317. See STEUERLE, supra note 69, at 13;
318. WITTE, supra note 30, at no;
319. Jones, supra note 69, at 685-86.
320. Likhovski, supra note 59.
321. See Traynor, supra note 20, at 1411.
322. Id. at 1394.
323. On the ability to predict legal changes, see Robert Charles Clark, The Morphogenesis of Subchapter C: An Essay in Statutory Evolution and Reform, 87 YALE L. J. 90, 92 (1978).
324. American legal historian Harry N. Scheiber wrote, "In any list of the most admired and influential state judges in the nation's history, Traynor stands at the very top level." FIELD, supra note 3, at ix-xi.
325. Griswold, In Memoriam: Stanley S. Surrey, supra note 7, at 331.
326. Traynor & Surrey, supra note 15, at 341.
327. Id.
328. Id. at 343.
329. Griswold, In Memoriam: Stanley S. Surrey, supra note 7, at 344.
330. Traynor, supra note 20, at 1400.
331. Id. at 1401.
332. On September 9, 1952, while continuing to suggest improvement of tax administration, Surrey published a paper supporting the separation of the Bureau of Internal Revenue from the Treasury, making it an independent agency of the executive branch. The paper was delivered in the 1952 meeting of the National Tax Association, in Toronto, Canada. Stanley S. Surrey, A Comment on the Proposal to Separate the Bureau of Internal Revenue from the Treasury Department, 8 TAX L. REV. 155, 155 (1953).
333. Griswold, In Memoriam: Stanley S. Surrey, supra note 7, at 330.
334. In one of his lectures at the University of New York at Buffalo, Surrey commented: The achievement of tax simplification requires a high measure of sheer ingenuity mixed with an intelligent weighing of what is valuable complexity proper to achieve needed fairness and what is expendable refinement and detail... .Where simplification is possible without pain to the taxpayers involved, and without serious loss of revenue, it will obviously be adopted as soon as the solution is perceived.
335. Honorable Stanley S. Surrey, Assistant Sec'y of the Treasury, The James McCormick Mitchell Lecture at the School of Law State University of New York(April 21, 1966).
336. Estate of Law v. Kirkwood, 325 P.2d 449, 454 (Cal. 1958). Another example of Traynor's use of legislative history to track legislative intent was in the case of W.F. Bray v. Jones, where Traynor examined the legislative history of the Political Code and the idea behind its amendments. 129 P.2d 357, 359 (Cal. 1942). Thus, he noted that in 1895 the Legislature adopted an amendment replacing the word "percentage" with the word "penalty."
337. Id. Traynor clarified that the choice of words was not incidental and its purpose was "not to inaugurate a new concept but to lend greater precision to the old."
338. Id.
339. Don Barrett. Traynor's clerk and friend, called the period from 1945 to 1956 the "Long Court" for its long and unchanged composition. Donald P. Barrett. The Supreme Court of California. 1981-1982, In Memoriam - Roger John Traynor: Master of Judicial Wisdom, 71 CAL. L. REV. 1060 (1983).
340. During this period Traynor became a "leading state court judge in the nation" who set a high literary standard for judicial writing. Id.
341. Traynor wrote 892 opinions and seventy-five law review articles. FIELD, supra note 3. at 121. In the field of taxation, Traynor wrote about twenty-five majority opinions and over twenty dissenting opinions. For a list of Traynor's tax decisions,
342. see Kragen, supra note 1, at 813. On the judicial philosophy of Traynor,
343. see John W. Poulos, The Judicial Philosophy of Roger Traynor, 46 Hastings L.J. 1643, 1646 (1995).