Monday, March 16, 2009

Judge / Professor Lynch on the Blue Book

The New York Times reports that Judge / Professor Gerard Lynch is slotted for elevation to the Second Circuit Court of Appeals. Judge Lynch has written more than a few memorable opinions, but the one that comes immediately to my mind is his pronouncement on the relevance of the Blue Book to interpretation of a tax statute. Those in the plain meaning school of statutory interpretation (e.g., Justice Scalia) do not like such aids to interpretation, but this is what Judge Lynch had to say (Sequa Corp. v. United States, 350 F.Supp.2d 447, 454 (S.D. N.Y. 2004)):

However, as other federal courts around the country have noted, the Blue Book, as an interpretation of the statute by experts involved in the drafting process and very familiar with the problems being addressed, plainly has some value, particularly where the statute is ambiguous and the only available legislative history is limited to expressing broad policy goals. See Estate of Wallace v. Commissioner, 965 F.2d 1038, 1050 n.15 (11th Cir. 1992) (Blue Book is "a valuable aid to understanding"); McDonald v. Commissioner, 764 F.2d 322, 336 n.25 (5th Cir. 1985) (Blue Book is "entitled to great respect"); Hutchinson, 765 F.2d at 669 (although not legislative history, Blue Book can be "highly indicative" of Congressional intent); Ravenswood Group v. Fairmont Assoc., 736 F. Supp. 1285, 1287 (S.D.N.Y. 1990) (citing to Blue Book explanation). Where, as here, the explanation offered by the Blue Book accords both with the explicit statements of broad Congressional intent and with the most logical and consistent reading of somewhat ambiguous statutory provisions, that explanation is entitled to some weight. That weight simply tips the scales further in the direction of the Government's position. n6
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n6 Sequa argues on reply that the Blue Book is no more than a treatise, equivalent to any other academic commentary. (P. Rep. 10.) As part of its efforts to discredit the Blue Book's interpretation and advance its own, Sequa cites three academic commentaries that it claims support its view of the statutory language. (P. Mem. 22-24, citing Daniel J. Lathrope, The Alternative Minimum Tax P 6.11[3][f] (1994); Robert M. Brown, "Corporate Alternative Minimum Tax" § 28.04[4], 50 N.Y.U. Institute on Fed. Tax'n (1992); Robert M. Brown and Donald J. Massoglia, "Corporate Alternative Minimum Tax" § 7.07, 45 N.Y.U. Institute on Fed. Tax'n (1987).) First, two of the three are authored by the same person, so it is misleading to suggest that "three [separate] analyses ... amply negate[]" the Blue Book. (P. Rep. 10.) Second, Sequa selectively quotes from Professor Lathrope's treatise to make his analysis appear more favorable. (P. Mem. 23.) Lathrope does note that the Blue Book's approach "has been criticized," and offers some additional bases for questioning the position. However, Lathrope follows the quoted section with the following: "On the other hand, the transition rules do permit a corporation's pre-1987 net operating losses to carry over, with modifications, to post-1987 taxable years as AT NOLS. Perhaps offset of AT NOL carrybacks can be justified as a balanced approach." He then footnotes to the academic and practitioner commentary both for and against the Blue Book's interpretation. See Lathrope, 6-94 n.431 (citing Brown, supra, and Brown & Massoglia, supra, as critical of the Blue Book; and Hriszko, Schott & Stevens, "Reduction of Corporate AMT NOL Due to Regular Tax NOL Carrybacks," 19 Tax Adviser 778, 779 (1988), as in accord with the Blue Book.) The only reasonable conclusion to be drawn from the academic writing on this issue is that all observers agree that the statute is ambiguous. Beyond this unremarkable observation, the treatises offer little additional insight.

Now, I suspect that Judge Lynch would probably not rank this brief discussion among his more important judicial pronouncements but this one does resonate with tax procedure afficionados. And, moving to the broader issue of finding context for words to assist in meaning, I am reminded of the following article of faith that I learned as a first year law student from a tax opinion by Justice Oliver Wendell Holmes that is a good guide in the law and in life (Towne v. Eisner, 245 U.S. 418, 425 (1918)):

A word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used.