November 17, 2011 - Phil Hodgen

Tax law is algebra

When I was a brand new lawyer, an old guy (who was then in his 50’s, just like I am now) helped me tremendously.  Don Schaut.  He passed away several years ago, but he was an immensely positive influence on me as a young pup lawyer.  I do international tax law today because of Don.  Bonus interesting fact — he started his law career working for the CIA setting up shell companies for various (ahem) enterprises.

To show you how clueless I was as a newly-minted lawyer, one day I walked into Don’s office with a citation.  I wanted to know where to find something.  “What is this thing called ‘1982-1 C.B. 43’ and where do I find it?”  He gently and without mocking took me to the library and showed me the wall of grey books — the Cumulative Bulletin.  Thanks, Don, for not making me feel dumb.  I remember that episode to this day.  (For those of you who are not tax lawyers, the Cumulative Bulletin is where the IRS publishes every belch it makes.  Announcements. Revenue Procedures, Revenue Rulings, etc.  If you want to know what the IRS is saying, you must look here.  It’s basic stuff.)

Anyway.  Here is a bit of me (as an old guy) sharing with all of you out there who are newly-minted tax lawyers, or want to be.

To my mind, normal law school classes are a complete waste of time for a would-be tax lawyer.  The implicit training model is that you will grow up to be an appellate lawyer, working in the land of persuasion.  Yes there might be code-based law.  But for the most part law school professors think the world revolves around case law.

Tax law requires thinking like a mathematician.  It requires understanding logic.  If you took a logic class in Philosophy, you’re in good shape.  It involves binary thinking.  Tax law is a whole lot of IF/THEN gates through which you pass on the way to YES/NO.

My son is in 7th Grade and in the beginning stages of learning algebra.  I see the parallels between solving algebra problems and solving tax.  Create the equation.  Solve one element at a time.  Show your work.  That’s what your analysis should look like.

In tax law, there is no persuasion involved — the answer is either yes, no, or I don’t know.

And if the answer is “I don’t know,” then you need to understand the point at which the conclusion is unknowable.  That point is usually because of a drafting failure in the Code or Regulations.  Once you have put your finger on that point, then you know you’ve come to the jumping off point.  In the face of ambiguity, you must tell the client “Yes” or “No.”  There is risk involved.  Know the risk, and treat your client as a grown-up.

The answer is in the Code and the Regulations.  If I don’t find the answer there, I will look at law review articles, treatises, and case law for explanations — clues about where to find the answer in the Code.  But ultimately everything needs to be backed up with a citation to a Code section, just as a fire-and-brimstone preacher will back up every sentence with a reference to a Bible passage.