Tax law consists of a lot of moving parts.
You have case law coming out of a whole range of federal courts all the time on tax questions that make up a part of what we call “tax law.” For example, the U.S. Supreme Court in the big Obamacare case earlier this year had a thing or two to say about federal tax law. That case, along with cases from the U.S. Tax Court and the federal district courts and federal courts of appeal make up one piece of the puzzle of what makes up tax law.
Another piece of the puzzle is the compilation of thousands of pages of federal regulations on taxes. First and foremost, there are the regulations put out by the U.S. Treasury Department. These put a lot of skin on the bones of tax law. You also have regulations from other federal agencies that impact on tax matters and tax policy. For example, going back to the example of Obamacare, if the individual mandate results in a tax, as the Supreme Court has said, then all of the lawyers of Obamacare regulations must be viewed as at least tangentially part of tax law.
Finally, and most importantly, you have the tax code itself. It is a compilation of federal tax statutes passed on generations compiled into what tax lawyers affectionately call “the Code.” Not quite as voluminous as the Treasury regulations interpreting the Code itself, the Code nevertheless takes up thousands of pages.
All in all, it is no wonder that fundamental changes in tax law come so infrequently. When you have a gargantuan thing like federal tax law, it’s a bit like trying to turn the Titanic before it hits the iceberg. It takes time to make substantial changes to something so big. And the Titanic analogy is apt, because we’re facing an iceberg of monstrous proportions at the end of this year. The “fiscal cliff” as most commentators call it, the combination of tax increases and spending cuts to important government programs and agencies, such as massive cuts to the Defense Department, make for an iceberg that we’ve seen coming from a long way off, but so far have failed to maneuver around.
When I started as a young lawyer, the tax code’s official name was “The Internal Revenue Code of 1954.” That acknowledgement to 1954 essentially meant that 1954 was the year in which the most recent substantial change in the tax code had occurred. There were over 3o years between the 1954 code and the next big tax change. America went from Elvis Presley to the Beatles to Woodstock and to the hair metal bands of the 80s between moving the big ship called Tax Law. In 1986, such substantial changes were made to the tax code that it was renamed once again. No longer was it the “Internal Revenue Code of 1954.” President Reagan oversaw the birth of “The Internal Revenue Code of 1986.”
We have been living with the 1986 Code for 26 years now. Just as massive cultural and economic changes occurred between 1954 and 1986, so they have as well in the years since 1986.
We are in the midst of a Presidential election. No one knows what the result will be. However, the topic of major changes in tax law has begun to be discussed more seriously. Our tax code is in need of a substantial overhaul. We’ve had a federal commission looking into the need for change. We have had the candidates debate the need for and type of overhaul and change required.
Today, the Wall Street Journal in an article entitled “Presidential Race Paves the Way for Tax Reform” discusses the potential for a major change to the tax code after the election.
Could the “Internal Revenue Code of 1986” go the way of the 1954 Code in the next year? Could we be talking about the “Internal Revenue Code of 2013” this time next year? Stay tuned.