The Joint Committee on Taxation and Codification of the Tax ......As Stam transports the child safely across the River Styx to the other shore (labelled “absolute law”), he can

The Joint Committee on Taxation and Codification of the Tax Laws

George K. Yin Edwin S. Cohen Distinguished Professor of Law and Taxation

University of Virginia Former Chief of Staff, Joint Committee on Taxation

February 2016 Draft prepared for the United States Capitol Historical Society’s program on The History and Role of the Joint Committee: the Joint Committee and Tax History

Comments welcome.

Yin – Codification ‐ 2/11/2016 9:32 PM Page 1

THEUNITEDSTATESCAPITOLHISTORICALSOCIETYTHEJCT@90

WASHINGTON,DCFEBRUARY25,2016

TheJointCommitteeonTaxationandCodificationoftheTaxLaws

GeorgeK.Yin* February11,2016 preliminarydraft

[Note to conference attendees and other readers: This paper describes theworkofthestaffoftheJointCommitteeonInternalRevenueTaxation(JCT)1thatledtocodificationofthetaxlawsin1939.Ihopeeventuallytoincorporatethismaterialinto a larger project involving the “early years” of the JCT, roughly the periodspanning the committee’s creation in 1926 and the retirement of Colin Stam in1964.Stamservedonthestaffforvirtuallythisentireperiod;hewasfirsthired(onatemporarybasis)in1927asassistantcounsel,becamestaffcounselin1929,andthenservedasChiefofStafffrom1938until1964.Heisbyfarthelongest‐servingChiefofStaffthecommitteehaseverhad.

TheconclusionsinthisdraftarestillpreliminaryasIhavenotyetcompleted

myresearch.Iwelcomeanycommentsorquestions.]

PossiblythemostsignificantaccomplishmentoftheJCTanditsstaffduringthe committee’s “early years”was the enactment of the InternalRevenueCode of1939.This “monumental task”waswidelycharacterizedasa “triumphofexactingscholarship” when it was finally completed. The staff produced at least threeversionsofaproposedtaxcode(in1930,1933,and1938)beforeafinalversionwasenactedintolawinearly1939. TheundertakingiscloselyassociatedwithColinStam,whomanyyearslaterdescribed it as his “first assignment” at the JCT. He prominently listed hiscodificationworkinbiographicalsketchespreparedneartheendofhiscareer,andhisWashington Post obituary identified him as the “co‐author” of the 1939 (and1954)Codes.ProfilesofStamclaimthathisnameis“synonymous”withtheCode,whichisdescribedasa“livingmonument”tohis“prodigiousabilityandindustry.” *EdwinS.CohenDistinguishedProfessorofLawandTaxation,UniversityofVirginia;formerChiefofStaff,JointCommitteeonTaxation,2003‐05;[email protected]©2016GeorgeK.Yin.Allrightsreserved.Mostfootnoteshavebeenomittedfromthisdraft.1Thenameofthecommitteewaschangedin1976toitspresent“JointCommitteeonTaxation.”


Stam’scodificationeffortshaveevenbeenmythologized.Inoneillustration,Stam is portrayed as Sisyphus attempting to push a huge boulder (labelled“codification”) up a steep incline. Another depiction shows Stam as Orpheusrescuingayoungchild(“theCode”)fromHadesandthebarkingheadsofCerberus(representedbyamenacingBureauofInternalRevenue(BIR)ChiefCounselandthe“Treasury hounds” of “ignorance,” “possible error,” “envy,” and “delay”). As Stamtransports the child safely across the River Styx to the other shore (labelled“absolute law”), he can be seen nimbly stepping on stones named for variouspersonsinvolvedinthelegislativeprocess.2 WhatledtheJCTandStamtoundertakethisproject,andwhatultimatelywasachieved?Why did it take Congress so long to act on the proposed codification?Finally,whatmightthisaccomplishmentrevealaboutthebroadersignificanceoftheJCTinthelegislativeprocess?TheSimplificationMissionoftheJCT Codificationwasanaturaloutgrowthof the JCTstaff’sprincipal initial task,whichwas to develop proposals to simplify the tax laws. The JCTwas created in1926tosatisfysomewhatdivergentobjectivesoftheHouseandSenate.TheHouse’smain interest was simplification. Congress had been forced by the Great War todevelopandpassmanytaxlawsraisinglargeamountsofrevenuewithoutadequatestudy or experience, and the House was anxious to use the post‐war period toreexamineandsimplifythelawandremedysomeofthedefectsthathadcreptintoit. Beginning with the 1918 Act, the House approved modest steps with thatobjectiveand,initstaxbillthatwouldeventuallybecomepartoftheRevenueActof1926, it approved creation of a temporary (through 1927) “Joint Commission onTaxation”—consistingofmembersoftheHouse,Senate,andpublic—toinvestigatetheoperation,effects,andadministrationofthetaxlawsandtoproposemethodsofsimplificationandimprovement. The Senate’s principal interest was somewhat different. Caught up in the“investigation hysteria” produced by numerous allegations of HardingAdministration scandals, and offended by revelations arising from a public feudbetweenTreasurySecretaryMellonandoneofitsmembers(SenatorJamesCouzens(R.‐Mi.)), theSenatehadauthorizedan investigation,eventually ledbyCouzens,oftheBIR. The investigation uncovered various unsound administrative practices atthe agency but little indication of fraud or corruption.Nevertheless, Couzenswasabletomaintaincontinuingpublicinterestintheinvestigationdespite(or,perhaps,because of) Mellon’s strenuous objections. The Senate eventually modified the

2 See #487. A business contemporary of Stam has described the second illustration differently,claimingthatStamrepresentsthe leadcharacter inUncleTom’sCabinwhoisrescuing“LittleEva”from drowning. Reportedly, the second illustration was drawn by a JCT staff member and Stamproudlyposteditinhisofficeformanyyears.SeeConnolly(1974)at3‐5.


House’sproposalbyapprovingcreationofapermanentJCT,consistingofSenatorsandRepresentatives (butnomembersof thepublic), thatcould (through itsstaff)keep an eye on the BIR (as well as perform the other functions specified in theHouse bill). Some have suggested that the Senate’s action was a maneuver to“sidetrack”theCouzensinvestigation(whichwasended)becausecreationoftheJCTenabledtheOldGuardRepublicanswholedtheSenatetoclaimthattherewouldbecontinuing oversight of the BIR. The critical difference, of course, was that anyfutureoversightwouldbeperformedbyacommitteeandstaffundertheircontrol.Couzens, who was not a member of the Finance Committee, was ineligible tobecomeamemberofthenewJCT. FollowingauthorizationofthecommitteeinFebruary,1926,HouseWays&MeansCommitteeChairmanGreen(R.‐Ia.)andSenateFinanceCommitteeChairmanSmoot(R.‐Ut.)apparentlyquarreledforseveralmonthsregardingwhoshouldchairthenewcommittee,buteventuallyGreenwaselected.ThischoicemayhavebeenafatefulonefromthestandpointoftheevolutionofthenewJCTanditsstaff.Itclearlymeantthatthestaffwouldinitiallyfocusattentiononthecommittee’ssimplificationmission—the House’s principal objective. It also resulted in the staff becomingcloselyintegratedintothetaxlegislativeprocess(asopposedtomainlyservinganoversight‐type role similar to the current staff of the Government AccountabilityOfficeortheoversightcommitteesinCongress).ChairmanGreenearlyondescribedhis expectation that the new JCT and its staff “would carry on its work entirelyseparatelyfromthatoftheWays&Meanscommittee.”ButwiththeJCTstafffocusedon examining ways to simplify and improve the tax law (the central legislativemission of the Ways & Means and Finance Committees), with those committeeslacking any professional staff assistance of their own, andwith the leadership ofthosecommitteesandtheJCTbeingthesamepersons,itwasnaturaltoexpectthatthemembers of those committeeswould eventually turn to the new JCT staff forhelp.Andthat ispreciselywhathappened.ThestaffwassoonaskedtoassistboththeWays&Means and Finance Committeeswhen they took up the tax bills thatwouldbecometheRevenueActof1928,andimportantaspectsof thosebillswerederivedfromJCTstaffwork.Eventually,in1930,theJCTformallydirectedthestafftoassistinthedevelopmentoftaxlegislation.

Thisbackgroundhelpstoexplainan intriguingmysteryaboutthestatutoryprovisionsgoverning the JCT:despiteadetailed listingof thecommittee’s specificduties,thestatutefailstomentiontheonetask—assistinginthepreparationoftaxlegislation—forwhich the staff ismostknown (andhasperformed throughout its90‐yearexistence).AsStamexplainedin1954inrespondingtoaninquiryaboutthefunctionsoftheJCTanditsstaff,“byprecedentanddirection”(butnotbystatutoryauthorization),thestaff“hasfunctionedasadvisorsinthecapacityofaprofessionalstafftoboth[taxcommitteesinthe]...preparationofproposedtaxlegislation.”

ItisunclearwhetherthissamedevelopmentwouldhaveoccurredhadSmootbeenelectedthefirstJCTchairmanratherthanGreen.TheSenatedoesnotappeartohavehadthesamesimplification interestastheHouse,andalthoughtheHouse


insertedintothefinallegislationcreatingtheJCTtherequirementthatitproduceasimplificationreportbytheendof1927,aChairmanSmootmightnothaveinsistedonthesamedepthofanalysisthatthestaffeventuallygavetothereport.Indeed,ifthe Senate’s JCT interest was mostly to sidetrack the Couzens investigation, onemight imagine a completely different scenario in which the committee and staff(directedbyaChairmanSmoot)endedupbeingquiteinsignificantandshort‐lived.In its initialyears, thestaffappearstohavehadalmostnocontactwithanyof theSenate members of the JCT (or any Senator), whereas it did have considerableinteractionwithChairmanGreen and at least one otherHouse JCTmember (Rep.Treadway(R.‐Ma.))whoalsohadakeeninterestinsimplification.Althoughduringhistenureaschairman,GreenrepeatedlyreferredtotheJCTasacommitteewithalimitedterm,themannerinwhichheusedthestafftendedtoensurethatitwouldbecomeanimportant,long‐termfixtureofthelegislature.

Green organized the staff into separate divisions for simplification and

investigationtoreflectthedualCongressionalpurposesforthecommittee. In July,1926,GreenhiredLovellParker,anMIT‐trainedengineer,toheadtheInvestigationsDivision. Parker had previously worked as an engineer and served as chiefinvestigatorof thedefunctCouzens investigationbeforeapplyingforapositiononthenewJCTstaff.Hewouldeventuallyearnalawdegreein1931.

Green had a more difficult time identifying appropriate staff for the

Simplification Division, but he eventually hired inMarch, 1927, Charles Hamel tohead the division and Edward McDermott as his assistant. Hamel was anexperienced attorneywho had served in various government agencies (includingtheBIR)andbeenthefirstchairmanoftheBoardofTaxAppeals(BTA)(createdin1924) before joining the JCT staff. McDermott was a young attorney who hadcompleted his legal studies at Harvard five years earlier. In August, 1927, at theurgingofHamelandMcDermott,Greenhiredanotheryoungattorney,ColinStam,asassistant counsel. After obtaining his law degree fromGeorgetown in 1922, Stamhad worked at the BIR and been detailed to the Treasury to work on a reportrequestedbythenewJCTstaff(andtherebycametotheattentionofthestaff).HewasinitiallyhiredonatemporarybasisandexpectedtoreturntotheTreasuryoncehisdutiesattheJCTwerecompleted.

HamelandMcDermotteventuallyleftthestaffin1929andeachwouldfound

alawfirm:Hamel’sisnowpartofFoley&LardnerandMcDermott’sisthefirmnowknown asMcDermott,Will& Emery.When they left, the staffwas reorganized tomergethetwodivisions(whosefunctionshadoverlapped),withParkerappointedthefirstChiefoftheentirestaffandStamascounsel.WhenParkerresignedin1938toimprovehis“personalfinancialsituation,”StamwasnamedChiefofStaff.

Hamel andMcDermott, aswell as Stam once he joined the staff, appear to

have done most of the initial simplification work. The immediate task was toprepare the simplification report due at the end of 1927. The JCT eventuallycirculatedathree‐volumereporttotheWays&MeansandFinanceCommittees in


lateNovember,1927,andsubmittedessentiallytheidenticalreporttoCongressinlateDecemberofthatyear.Thestaffwasassistedbyafive‐personAdvisoryGroupconsisting of two economics professors (T. S. Adams (Yale) and ThomasW. Page(Virginia)),twoNewYorkCitypractitioners(ArthurBallantineandGeorgeHolmes),and an accountant (George May of Price Waterhouse). They also solicited andreceived much input from the Treasury Department and outside professionalgroups, including a lengthy report and set of recommendations submitted by acommittee(headedbyAdvisoryGroupmemberGeorgeHolmes)oftheNationalTaxAssociation(NTA).

TheStateoftheIncomeTaxLawin1926

Looking back at the principal features of the 1926 tax law that the staffworkedsoferventlytosimplify,amodern‐dayobservermightinitiallyseempuzzledbyall of theeffort.By1926, thepersonal anddependentexemptionamountshadbeen increased sufficiently to permit perhaps 90‐95 percent of the population toescapehavingany income tax responsibilityat all—theultimate simplification forthem.Mostofthefewremainingpersonssubjecttothelevypaidtaxequaltoonly1‐1/2tofivepercentoftheirnetincome.Averyfewveryhighincometaxpayerspaidtaxatprogressivelyhigherrates,butonlyuptoa toprateof25percent.Lowandflat taxratestendtosimplifythe lawbyreducingtheneedforreliefprovisionsaswellasrulespreventingtaxavoidancestrategiessuchasincomeshifting.

The income tax base in 1926 was also fairly straightforward, with few

exclusions, special deductions, or credits. Moreover, some of the most complexfeatures of the tax law that were added during the war period had either beenrepealedormodifiedtoreducetheircomplication.3Inshort,basedonjustthesekeyportionsofthe1926taxlaw,amodern‐dayobservermightviewthelawasalreadyquite simple; indeed, it arguably achieved a level of simplicity that has not beenmatchedinthesucceeding90years.

Butthatwasnottheviewofobserversin1926.Fromtheirperspective,they

had seen the almost overnightmetamorphosis of an income tax law approved in1913thathadbeenevenmoresimpleandpristine,withmuchlowerandflatterrates,and exempting an even greater percentage of the population, into a behemothcontaining many of the complications one would expect of a system with a topindividual income tax rate of 77 percent and a top excess profits tax rate of 80percent.Althoughthe1921,1924,and1926Actshadallchippedawayat thewarperiodcreation,manyobserversbelievedmuchmoresimplificationwaspossible. 3Both theexcessprofits taxandanamortizationprovision thatallowed taxpayers towriteoff theestimatedamountoflossesfromcapitalinvestmentsmadetoproducewarmaterialswererepealedin 1921. In the 1926 Act, Congress replaced the discovery depletion allowance for oil and gasinvestments with percentage depletion. However one may view the policy justification forpercentagedepletion,thereseemstobelittlequestionthatitgreatlysimplifiedthedeterminationofthepermissibleallowance.


Moreover,themodern‐dayobserverwouldbeoverlookingthestillextremely

fragileandundevelopedtaxsysteminfrastructurein1926.ThisproblemhadbeenforeseenbyCordellHullandotherswhentheydesignedthe1913incometaxtobeapplicable to only a tiny slice of the population. They understood the need forgradualdevelopmentoftherequiredtaxinstitutionsbeforetheincometaxcouldbeapplied more broadly. But the vicissitudes of the war had made that hope animpossibility.

ThemostcriticalweaknesswasattheBIR.AsexplainedbyGeorgeHolmesof

the NTA, “almost overnight, it became necessary to establish the largest tax‐gatheringorganizationtheworldhaseverseen.Andithadtobedoneinthemidstofthe bewilderment of war.” As might be expected, the agency had tremendousdifficulty obtaining and retaining qualified personnel and keeping up with itsresponsibilities.

Onemanifestationof theBIR’sproblems involved itsauditing function.The

agency’s policy was to examine all tax returns, but this quickly produced a hugebacklogwhentheincometaxwassuddenlymadeapplicabletoincreasedaffairsofmanymore taxpayers. To overcome this problem and accelerate its collection ofneeded revenue, the BIR began a policy of making “superficial audits” of mostreturns that generally resulted in complete disallowance of hard‐to‐determinedeductionsforpurposesofboththeincomeandexcessprofitstax.Notsurprisingly,this policy produced a huge number of controversies. Initially, they all had to beresolved through refund actions because taxpayers at the time had no ability tocontest deficiencies prior to assessment.When creation of the BTA in 1924 gavethem that opportunity, the Board was floodedwith cases, including a number ofchallengestodeficienciespurportedlyarisingfromthehigh‐taxwarperiodyears.

Theagencywasalsoextremelyineffectiveatexplainingthelawtotaxpayers

to help them understand their responsibilities and minimize later controversies.Regulationswerescantyandpublishedrulingsandinformalformsofguidanceevenscantier. BIR officials were reluctant to speak about the law or participate ineducationalconferencesoutoffearthattheirviewsmightbemisconstruedorfoundtobeincorrect.Accordingtooneobserver,theattitudeoftheBIRseemedtobethat“thelawspeaksforitself.”

Of course, as a practicalmatter, the “law” (at least in terms of the statute)

spoke to almost no one, certainly not ordinary taxpayers and probably not verymanyprofessional advisors.AsGeorgeHolmesof theNTAstated, the “rootof thetrouble[withtheincometax]isthecomplexityofthestatute.”

Whatcausedthestatutetobesocomplex?Beginningin1916,Congresshad

generally followed thepolicyof reenactingallof thesubstantiveprovisionsof thetaxlaw(and,intheprocess,repealingpriorenactmentscoveringthesamematerial)whenever itmadeamajor change to the law.Thiswasdone, inpart, because the


substantive tax law rules (especially those enacted during the war period) weregenerallyviewedastemporary,sothateachnewenactmentreplacedinitsentiretythe earlier temporaryversionof the law.Congress sometimesdidnot repeal (butwouldamend)priorenactmentsofadministrativetaxprovisionsoutofthegeneralviewthatsuchrules(nomatterwhatsubstantivetaxprovisionsaccompaniedthem)wereanecessary,“permanent”featureofthelaw.

This procedure provided the advantage of generally permitting taxpayers

andtheiradvisorstolookonlyatthelatestenactmenttodiscoverwhatthelawwas.Butitrequiredthetaxcommitteeseachtimetheyfoundtheneedtomakeamajorchange(whichwasoften)toprepareabillcontainingtheentiresubstantivetaxlawandopenupallofthoseprovisionstopossibleamendmentincommitteeand(moretroublingly) on theHouse and Senate floor. It alsomeant that as certain changesweremade, it sometimesbecamenecessary to include in thecurrentenactmentapriorlawruleifitwasstillapplicabletoearliertaxableyears.Forexample,section277ofthe1926Act,concerningtheperiodoflimitationsforassessingadeficiency,sets out different periods applicable to deficiencies arising under everymajor taxact between 1909 and 1926. Some of these provisions became so long andconvoluted as to be completely impenetrable. Finally, the committees graduallyaddedmoreandmoreprovisions intothe lawtotake intoaccount issuesthathadbeenoverlookedbutbecamecriticallyimportantduringthehigh‐taxwaryears.Theresultwasanevergrowing(andincreasinglycomplicated)bodyoflawthathadtobeperiodicallyreenactedinitsentirety.Table1roughlyillustratesthisconsequencebyshowingthenumberofpagesintheStatutesatLargethatweredevotedtojustthe incomeandexcess‐profitstaxtitle(ifany)of themajortaxactsbetween1913and1926.4

Table1

TaxAct #pages1913 151916 211918 381921 501924 4951926 59

4Thetwomajortaxactsenactedin1917areomittedfromthetable.TheRevenueActofMar.3,1917,Pub.L.No.64‐377,39Stat.1000,addedashortexcessprofitstax(justtwopagesintheStatutesatLarge)butitwasrepealedbeforeevergoingintoeffect.TheWarRevenueActof1917,Pub.L.No.65‐50,40Stat.300,substitutedamoreelaborateexcessprofitstax(sixpages)butotherwiseamendedselectedprovisionsofthe1916Actratherthanreenactingtheentirelaw.Theprocessofamendingportions of prior law rather than reenacting the entire law (and repealing the prior statute) wascriticized because it required taxpayers to examine and understandmore thanone version of thestatute.SeeTaussig;Blakey.5 This slight decrease reflects in part the repeal of the excess profits tax in 1921. The 1921 Actincludedaversionofthattaxapplicabletojust1921(sevenpages)afterwhichthetaxexpired.


Aside from being long and obscure, the statute was also organized in apeculiar way. This may have occurred because of the lengthy and complicatednatureof eachunderlyingbill, thepiecemeal incorporationof amendments to thebills, and thehaste inwhichsomeof legislationhadbeenprepared.Whatever theexplanation,the1926Actprovided12pagesintheStatutesatLarge,coveringsucharcaneissuesasthetaxconsequencesofareorganization,beforespecifyingthetaxrates applicable to individuals and the definitions of gross and net income andidentificationofpermissibledeductions.Thestatutethenaddressedspecialrulesfornonresident aliens, partnerships, estates and trusts, the prevention of surtaxevasion through incorporation, withholding, tax credits for individuals (includingtheforeigntaxcredit),andtaxfilingrequirements,beforeturningtothecorporatetaxandspecifyingthecorporatetaxrates(29pages intotheStatutesatLarge). Indefining the corporate tax base, the statute reiterated word‐for‐word certainprovisions already included in defining the tax base for individuals, such as thedeductibilityofordinaryandnecessarybusinessexpensesandotheritems.6TheJCTStaff’sPrincipalRecommendations Inthesimplificationreportsubmittedattheendof1927,asurgedbybothitsAdvisoryGroupandtheNTA,theJCTstafffocusedprimarilyonmethodstoimprovethe structureof the statute. This choicemayhavebeenviewedas themost likelywaytoachievesimplification.Thestaffproposedideastosimplifytheoperationofafewminorprovisions(suchasthefirstearnedincometaxcredit),andseveraloftheideas were included in the 1928 Act. But modifying tax provisions, such as thecapitalgainspreference,obviouslyintroducedpotentiallytrickytrade‐offs.Thestaff(McDermott in particular) also spent time trying to simplify the language of thestatute,aparticular interestofRepresentativeTreadwaywhourged improvementin the statute’s “phraseology.” Here, too, however, the staff recognized that evenminor word changes might have important repercussions—and might end upcomplicating the law—if the meaning of previous language had already beenconstruedby the courts.Probablymore important thanusing “simple”wordsandphrases was the need for precise and consistent language that would ensure thelegislature’sintentionswouldbeproperlyunderstoodbytaxprofessionalsandthecourts. Finally, the staff suggested ways to improve tax administration, includingconsolidatingsomeBIRoffices,improvingcoordinationbetweenthenationalofficeand the field, and extending civil service protection to all subordinate BIRemployees.Buttheagency’sfundamentalproblemwasprobablyalackofsufficientfunds to pay for qualified personnel. The staff obviouslywas not in a position tohavemuchinfluenceoverthatdecision.

6Comparesections214and234ofthe1926Act.The1916Actsetouttheseverysimilarprovisionsfour times in defining the tax base separately for domestic individuals, nonresident aliens, anddomesticandforeigncorporations.See1916Act,§§5(a),6(a),12(a)and(b).


The principal recommendation was to rearrange the statute. The staffpresented as a proposed title to the upcoming 1928 tax bill a completerearrangementof the income taxprovisionsof theRevenueActof1926.Both theorderandspecificlanguageofmanyofthedraftprovisionsverycloselypreviewtheincometaxchapteroftheCodethatwouldultimatelybeenactedin1939(aswellasthe current version of the Code that is so familiar tomany of us). The draft firstpresented the “General Provisions” of the law thatwere estimated to be the onlyrulesneededby80percentoftaxpayers.Theremaining“SupplementalProvisions”then set out the rules for extraordinary classes of taxpayers and extraordinarytransactionsofordinarytaxpayers.Thedraft,submittedtothetaxcommitteeslessthan ninemonths afterHamel andMcDermott joined the staff and less than fourmonths after Stamarrived,wasprincipally thework‐productofHouseLegislativeCounselMiddletonBeamanworkingwiththeJCTstaffmembers. Importantly, the draft rearrangement assumed that in addition to the newtaxtitletobeenactedin1928,theRevenueActof1926wouldgenerallyremainineffect. This change gave Congress a “fresh start”: it could enact a new, completeincome tax titleapplicableonly to future taxableyears,andnothave to include inthebillpriorlawenactmentsthatremainedapplicabletoprioryears.AsMcDermottlaterexplained,theprocessofrepeatedlyreenactingallcumulativepartsofthelawthatcontinuedtohavesomeeffecthadreacheda“breakingpoint”by1926.TheNTArecommended taking this step as its “most important conclusion.” According toProfessorBlakey,thestatutewouldhavebeen“almostbeyondunderstanding”hadthischangenotbeenmade.

Thechangeeffectivelycreateda“base”law(inthiscase,theRevenueActof1926servedasthebaselawforalltaxableyearspriorto1928)withanysubsequentenactment (such as the forthcoming 1928 bill) either amending that law orprovidingnewlawapplicableonlytofuturetaxableyears.WhenCongressapprovedtheproposedrearrangementoftheincometaxaspartofthe1928Act, it followedthisrecommendationinthenameofsimplification(andthereforegenerallyretainedthe Revenue Act of 1926 while adding the new 1928 tax title). One potentialdifficultywiththisapproach,however,wasthatifCongresswereagaintobegivena“freshstart” in its subsequentenactmentsbyalsomaking themapplicableonly tofutureyears, therewouldgraduallyaccumulateaseriesofpriorenactments(i.e.,aseries of “base laws”) that would continue to have effect only for selected prioryears.Taxpayersinvolvedintransactionsspanningmultipleyearswouldpotentiallyhavetoconsulttheentiretyofmanyversionsoftheincometaxstatute.7

A final staff recommendation in 1927was for Congress to enact a code offederaltaxadministration,astepthatHamelhadurgedfromtheverybeginningofhistimeattheJCT.Theselawshadbecomescatteredinmanypriortaxacts,statutesof general applicability, and other enactments (such as riders on appropriationsbills). The staff argued that a codewould allow all of these rules to be identified, 7Seenote4regardingcomplaintswhenCongressdidthisintheWarRevenueActof1917.


reconciled, simplified, and ultimately located in one law. The Senate FinanceCommitteeapprovedofthisideaandtheSenate,asafirststep,passedaresolutionforitsLegislativeCounseltobegincompilingthevariouslaws.

We can easily see from these 1927 developments the seeds of a future

interestincodifyingtheentiretaxlaw:thefundamentalgoalofsimplification,desiretoorganizeandpresentthelawinamorelogicalfashion,needforacontinuinglawthat could serve as a “base” for subsequent amendments, and interest in anadministrativetaxcode.Oneotherobjectivethatacompletecodecouldsatisfywassimplytocollectandpresent inoneeasilyaccessibledocumenttheentiretyof thetax law. McDermott had previously expressed to Green his frustration at beingunabletoobtainsomepertinent,priortaxlawenactments.

The staff’s budding interest in codificationwouldnot, however, be fulfilled

foroveradecade.Tohelpunderstandwhy,wemustbriefly consider someof thebroadercontextofthestaff’sactivities.

OtherU.S.CodificationEffortsPriorto1927 MosttaxprofessionalsprobablythinkoftheInternalRevenueCodeof1939asthenation’sfirsttaxcode,butthatturnsoutnottobetrue.By1927,astheJCTstaff worked on its simplification proposals, there had already been one, andpossiblytwo,taxcodesapprovedbyCongress,dependinguponthemeaningoftheterm,“code.” ThefirstU.S.taxcodewasTitle35oftheRevisedStatutesof1873.In1866,Congress authorized the President to appoint a three‐person commission toconsolidateallexistingU.S.statutesofageneralandpermanentcharacter.Itwasthefirstfederalcodificationeffort—thecollectionandrestatementinanorderlyfashionof the law contained in separately enacted statutes—and followed similar effortsthathadoccurredinthestatesduringthefirsthalfofthe19thCentury.Theseeffortsmightbethoughtofas“partial”codificationssincetheyonly triedtopull togetherstand‐alonestatutescoveringthesamesubject‐matterareas.Abroadereffortmightalsoattempt to include in the code common‐lawrules, administrative regulations,and other sources of the law. In the tax area, we are all familiarwith the recentdebate regardingwhether the common‐law “economic substancedoctrine” shouldbeincludedintheInternalRevenueCode. Proponents of codification (in the “partial” sense) argued that it wouldsimplify the law. Without codification, laws affecting the same issues were oftenscattered among many separate enactments that might have amended or evenrepealed one another. Thus, it was sometimes necessary to undertake extensive


research merely to ascertain the state of the law at any given moment.8 Thisdifficulty occasionally led some lawmakers, when theywanted to propose a newlaw, to craft and pass a stand‐alone bill rather than determine whether therealready existed a law thatmight need to be amended or repealed. In addition tocollectingandreorganizingthelaw,codificationprovidedanopportunitytoidentify(andpossiblyreconcile)inconsistenciesthatresultedfromthispractice. Anexampleoccurred in1953whenCongresspasseda lawauthorizing theSecretary of Defense to regulate the sale of liquor on all Army andNavymilitaryposts.IntheCanteenActof1902,however,Congresshadpreviouslyprohibitedthesaleof liquoronarmyposts.What, then,was theeffectof the1953 law?The firstattempt to codify the law in this area took the position that the later enactmenteffectivelyrepealedtheearlierprohibitionandpermittedthesaleof liquorsubjectto the Secretary’s regulation. Unfortunately, this decision turned out to be highlycontroversial and almost undermined the entire codification effort. Eventually,Congresscodified the lawwithout specifying the ruleon this issue,with thepriorstatuteslefttospeakforthemselves.

Codification thuspromised toprovide important advantages, but it faced anumber of challenges. The first was simply locating every prior enactment,includingpossible ridersonappropriationsbills,dealingwithaparticular subject.Thecodifierthenhadtoeliminateobsoleteandrepealedprovisions,reconciledirectconflicts,andplacetheremaininglawinsomelogicalorder.Thecodifieralsohadtodeterminewhichlawsweresufficiently“generalandpermanent”tobeincludedinthecode.Annualappropriationbills,forexample,werenotgenerallycodified(eventhoughridersofa“permanent”naturewere).Some“temporary”lawswereseriallyreenacted—a practice certainly familiar to current tax professionals—and thecodifierhadtodecideatwhatpointsuchlawqualifiedas“generalandpermanent.”Afinalquestion,asillustratedbytheCanteenActexample,wastheextenttowhichacodifiershouldchangethelaw.Iftwopriorenactmentsdidnotdirectlyconflictwithoneanotherbutneverthelesstogetherproducedanonsensicaloutcome,shouldthecodifierattempttomakesenseoutofthenonsense? When a code is approved, an important distinction is whether Congressenactsitas“positive”(or“absolute”)lawasopposedtomere“primafacieevidence”of the law. “Positive” law isconclusiveevidenceof the law;acodeenacted in thatmanner replaces its underlying statutes, which are repealed. In contrast, codeprovisions that aremere prima facie evidence of the lawmay be rebutted by theunderlyingstatutes,whicharenotrepealed.Aresearchermuststillexaminethosestatutestodeterminetheprecisestateofthelaw.

8InexplainingtheneedforwhatwouldeventuallybecometheU.S.Code,RepresentativeLittle(R.‐Ks.),chairmanoftheHouseCommitteeonRevisionsoftheLaws,assertedin1919that“youcanreadthe lawsofHamurabi (sic)written4,000yearsago [ona rock] andknow the lawof thatcity, andwhat you are disobeying, but that is more than you can do in the United States.” H. CodificationHearing(1919)at8.


Anotherreasonthedistinctionisimportantisitseffectonlateramendments.

Acodeenactedaspositivelawmayserveasabaselawthatcanbedirectlyamendedby subsequent enactments. A code that ismerely prima facie evidence of the lawcannot serve this function; subsequent amendments must be made to theunderlyingstatutes.Aswehaveseen,theabsenceofacontinuingbaselawwasoneofthemainproblemsencounteredbyCongressduringtheearlyyearsofthemodernincometax.Iftherehadexistedataxcodeconstitutingpositivelaw,Congresscouldhavepassedamendments to it (rather thancompletelyreenacting theentire law).The direct code amendments would also have preserved, without need for anyfurthercodificationefforts,theorderlystructureofthelawalreadyprovidedbythecode. Congressrejectedthesubmissionoftheprivatesectorexpertswhomadeupits1866commissionbecauseitfoundtheyhadchangedtheunderlyingstatutestoomuch. Congress, however, approved the work of another private attorney whocorrected and completed the work of the commission, and enacted in 1874 aspositive law the “Revised Statutes of 1873,” which codified all general andpermanentU.S. statutesasofDecember1,1873.Theenactmentrepealedallpriorfederal statutescoveredby the revision,with the revision “be[ing] in force in lieuthereof.”Because theCivilWar income taxhadexpiredby thatpoint, the InternalRevenue title (title 35) of the Revised Statutes did not include any income taxprovisionsbutdealtexclusivelywithexcisetaxesandtaxadministrationmatters. Almost immediately, there was criticism that the codification containederrorsandwas incomplete. Inaddition, therewassomeconfusionabout theexactstateof the lawfollowingthecodification.Therevisioncontainedasavingsclausethatpreserved(ratherthanrepealed)priorlawsnotincludedintherevision,butitdid not specifywhat prior laws had, or had not, been included. As a result, someclaimedthattherevisionfailedtoprovideasingle,completesetoflaws.Finally,assubsequently confirmed by the Supreme Court, the 1874 revision did notmerelyrestate the lawwithout any change but made alterations “necessary to reconcilecontradictions and amend imperfections in the original text of the preexistingstatutes.”9

Anycodification,ofcourse,requiressomechangetothelawifonlytoremoveobsolete provisions, conform language used in separate enactments, organizeprovisions, and resolve direct conflicts. On the other hand, it should not besurprising that Congress jealously guards its legislative role and is therefore verysensitive to “too much” change. The experience in 1874 left Congress wary ofenactingsubsequentrevisionsaspositivelaw.Whenasecondeditionoftherevision(to correct the errors of the first edition) was completed in 1878 by GeorgeBoutwell (a formerSenatorandTreasurySecretaryand the firstCommissionerofInternalRevenue),Congress specified that the statutesenacted sinceDecember1, 9SeeDwightv.Merritt,140U.S.213,217(1891).


1873, and not the second edition, controlled in the event of any discrepancy. Inaddition,perhaps reflecting its lackof confidence in theRevisedStatutesof1873,Congress generally chose in subsequent legislation to pass separate enactmentsrather than direct amendments to the newly created “base” law. As a result,CongressgraduallyreintroducedthechaoticstateofaffairsthattheRevisedStatuteshad been intended to eliminate. It again became necessary to examine individualstatutes(andreconcilepossibleinconsistencies)todeterminethestateofthelawonanygivenissue.

When theU.S. Codewas created about 50 years later, Congress’s objectivewasmerelyto“compile”thepriorlawsintoacode,ratherthanalsoto“revise”themasthe1874revisionhaddone.Nevertheless,aseriesofeventssimilartotheearlierexperiencetookplace.Initially,theSenatedidnottakeanyactionon1920and1921Housebillsthatwouldhavecodifiedaspositivelawthepost‐1873U.S.statutesofageneral and permanent nature (and repealed those statutes). In 1924, the Housetriedagainandpassedanothercodificationbill;thistime,theSenateCommitteeonRevisionof theLawsreported thebillunfavorablybecauseof thebill’serrorsandomissions.Finally,in1925,theHousepassedafourthcodificationbillbutspecifiedthat the new code would bemerely prima facie evidence of the law until July 1,1927. Thedelayed effectwas intended to give Congress time—termed a “twilightzone”—toidentifypossibleerrorsandpassamendatorylegislation.Attheendofthetwilight zone, the bill repealed the underlying statutes and approved the code aspositivelaw.ReportedfavorablybytheSenatecommittee,thisbillwasfoundontheSenatefloortocontainglaringerrors.Asaresult,theSenateamendedittomakethetwilightzonepermanent,andthebillwaseventuallypassedinthatmannerin1926.

Thus, all of the titles of the U.S. Code (representing the law in effect on

December7,1925)wereinitiallyapprovedasmereprimafacieevidenceofthelawwithouttherepealofanypriorstatutes.TheplanwastohaveCongressseparatelyenact each title as positive law once it was clear that the title was accurate andcomplete. The tax title approved in 1926 (Title 26)—essentially setting forth inslightly reorganized form the provisions of the Revenue Act of 1924—became, ineffect,thesecondU.S.taxcode(albeitconstitutingmereprimafacielaw).Thetitle(as well as the rest of the U.S. Code) was approved on June 30, 1926, almostpreciselythedayJCTChairmanGreenbegantoorganizethestaffandmakehisfirsthires. In short, the JCT staff’s simplification work in 1927 took place within theshadowofsignificantCongressionalinterestincodification,butalsowarinessofitspotentialintrusionintothelegislature’sprerogatives.

TheSlowTrekto1939 OnNovember15,1930,StamsubmittedtoJCTChairmanHawley(R.‐Ore.)aproposedcodificationofalloftheinternalrevenuelawsofapermanentcharacterin


force on December 1, 1930.10 Representative Hawley had replaced Green asChairmanofboththeWays&MeansCommitteeandtheJCTinMarch,1928,whenGreenresignedfromCongresstobecomeajudgeontheU.S.CourtofClaims.11Greenwas72yearsoldatthetime,andtheusualpracticewasnottonameanyoneover60to such a position. ButGreenhad strongly opposed theCoolidgeAdministration’sthird attempt to repeal the estate tax (and the proposed repeal had not beenincludedintheHousetaxbillthenbeingconsideredbytheSenate).Indeed,ontheHousefloor,Greenhadcharacterizedthedebateonthatissueasinvolving“themostextraordinary,highly financedpropagandaforaselfishpurpose . . . . thathaseverbeenknown in thewholehistoryof this country.”Therewas speculation that theappointmentwasmade to remove Green from Congress and improve the chancethatestatetaxrepealwouldbeincludedinthefinallegislation(itwasn’t).

InhislettertoHawley,StamreportedthatheandoneotherJCTstafferhadspentpractically theentirepreceding twoyearsworkingon thedraft code.Theremaywellhavebeenmuchtruthtothisstatement.Inthe30monthsbetweenMay29,1928 (when the 1928Actwas approved and the 1st session of the 70th Congressended)andStam’ssubmissioninNovember,1930,Congresshadbeenoutofsessionfor about13months.Moreover,when itwas in session (which included a specialsession), Congress—especially the tax committees—had devoted much time todeveloping the legislation that would eventually become the Tariff Act of 1930(popularly known as “Smoot‐Hawley”). Beginning in January, 1929, the Ways &MeansCommittee had conducted almost sevenweeks of hearings and its bill hadbeen on the House floor for 20 days. The Finance Committee subsequentlyconducted almost six weeks of hearings, and its bill was on the Senate floor foralmostsevenmonths.TheConferenceReportanddebatehadthentakenanother2‐1/2monthsbeforefinalpassageofthelegislationoccurredinJune,1930.

With the tax committees so preoccupied, they considered very little tax

legislation during this period. They also apparently requested few JCT reports:duringthe30months,theJCTstaffpreparedonlyfivereports—threeonlegislativetax issuesandtworelatingto the JCT’sreviewofBIRrefunds.Meanwhile, the JCTstaff (with responsibility only for internal revenue matters) appears not to havespentanytimewhatsoeveronthetarifflegislation.Inshort,thetariffbill(aswellas,perhaps, the uncertain economic prognosis following the October, 1929 stockmarketcrash)gavethestaffagoldenopportunitytoworkoncodification.12

10TheproposalcouldmakethisclaimbecauseCongresswasnotscheduledtobebackinsessionuntilDecember1,1930.11 In 1933, SenatorHarrison (D.‐Miss.),whowas chairmanof the Finance Committee, became thefirst member of the Senate to serve as JCT chairman. In 1935, the chairmen of the tax‐writingcommitteesbeganalternatingservingasJCTchairmanandvice‐chairmaneachsession.12ThelullmayhavecontinuedevenafterStam’ssubmissionofthedraftcode.AcopyofanunsignedletterdatedMay2,1932,apparentlyfromaJCTstaffattorney,reportsthat“IamstillattorneyingfortheJointCommittee,whichmeansthatIamnotattorneyingatall.ButIcangiveyoucomputationsshowingthereneverwasanyprosperityandthatHueyLongshouldbePresident.”(#259)


Thestaffbenefittedfromoneotheradvantage.Congresshadalreadypassedthe Revenue Act of 1928 by inserting its 1928 changes into the staff’s proposedrearrangementoftheincometaxstatute.Thestaff,therefore,hadtomake(anddidmake) only veryminor changes to the income tax provisions of the 1928 Act todeveloptheincometaxchapteroftheproposedcode.

Most of the staff’s time was probably spent working on the rest of the

internalrevenuelaw,consistingoftheestatetax,manymiscellaneousexcisetaxes,taxprocedureandadministrationprovisions(includingtherulesfortheBTA),rulesapplicabletoBIRpersonnel,andtheprovisionsauthorizingtheJCT.AlthoughtheselawshadgenerallybeenincludedintheRevenueActsof1926and1928,unliketheincome tax provisions, they had not been transformed into a code. As StamexplainedtoHawley, thestaffhad toexamineabout350originalstatutes tomakesure no law had been inadvertently omitted, identify and remove obsolete andtemporaryprovisions,and thenrearrange the law inanorderly fashion.Althoughnotmentioned,thestaffpresumablyhadalsoreconciledinconsistenciesinthelawthat it had discovered. Anticipating possible objections, both Stam and Hawleyrepeatedlyemphasizedthat theproposedtaxcodemadenochangetosubstantivelawandhadbeendevelopedwiththefullinvolvementoftheTreasuryDepartment.

TheJCTsubsequentlypassedaresolutionrecommendingtheproposedcode

totheHouseCommitteeonRevisionoftheLaws,thecommitteethathadpreparedthe U.S. Code in 1926 and had jurisdiction to report legislation enacting theproposed taxcodeaspositive law.RepresentativeFitzgerald (R.‐Oh.), chairmanofthat committee, responded to Hawley very positively: “I shall try to overlook noopportunityofpushingthematterforward.”HerequestedameetingwithStamandHouseLegislativeCounselBeamantohelphimpreparetheproperlanguage.Ontheback of Fitzgerald’s letter is a handwritten note, apparently written by Stamsummarizinghismaintalkingpointsinfavorofcodification:

“All the lawiscollectedtogether inoneplaceandconvenientlyand

logicallyarranged.The Code can be cited in court as absolute law and will not be

rebuttableasinthecaseofthepresentlaw.Practitioners do not use the code to any great extent now as they

prefer to go back to the absolute law. Thiswill be changed if this Code isenactedintolaw.

Allinternalrevenuelawsinthefuturecanbeenactedbyamendmentinsteadofbyenactingthewholelawover.”

Stammayhavetimedhissubmissioninthehopethattheproposedtaxcode

would be taken up during the third session of the 71st Congress that began inDecember,1930.ButnotwithstandingFitzgerald’senthusiasticresponsetoHawleyand whatever arguments Stam may have made to Fitzgerald on behalf ofcodification,nobillwas introduced in thatsession.Norwasanybill introduced inanyofthenextfourCongresses(1931‐38).


Meanwhile, during that period, the pace of other tax legislation quickly

pickedup,withsevenmajor incometaxactspassed(aswellas theSocialSecurityActof1935).Congressreenactedlargeportionsoftheincometaxinfouroftheactsand gave itself a “fresh start” each time; thus, the new lawswere generallymadeapplicableonlytofuturetaxableyears,withpriorstatutespreservedforprioryears.In theother three income tax acts, Congressprincipally amended earlier statutes.The net result was a growing body of laws spread among a number of differentenactments. The “base” law that Congress tried to create in 1928 had becomefractured into many different pieces. Since the income tax statutes tended to besimilar,butnotidentical,tooneanother,thepotentialforconfusioninrememberingwhatlawappliedtowhichyearswasquitehigh.

Inadditiontohelpingwithallofthislegislation,theJCTstaffproducedthree

more editions of the proposed tax code: in 1933 (for law in effect as of July 16,1932), 1938 (for law as of January 1, 1938), and 1939 (for law as of January 2,1939).Eachedition,ofcourse,hadtoincorporatethelawsthathadbeenenactedinthe interim.The243‐pageproposedcodein1930grewtoa1939proposalof504pages.Despitethestaff’seffortsandtheseeminglyincreasingneedforacode,andaside from some occasional feedback received from the Treasury, BIR, and BTAregardingportionsofthedrafts,enactmentofthetaxcodeaspositivelawappearsto have completely fallen off of the legislative radar screen. The JCT staff’s 1933proposal was included as Title 26 of the 1934 edition of the U.S. Code, but itremained(liketherestofthatCode)asmereprimafacieevidenceofthelaw.

PossibleReasonsfortheLegislativeDelayOne possible reason for the lack of legislative activity may have been

resistancefromtheHouseCommitteeontheRevisionoftheLaws.ThiscommitteehadsponsoredtheHouse’srepeatedeffortstoenact thenewU.S.CodeaspositivelawbutgottenbadlyburnedintheprocesswhentheSenatekeptidentifyingerrorsand omissions. As onemember of the committee later explained, once the Senatepointedoutalloftheerrors,thecommitteemembers“wereallashamedthatwehadever voted for it.” It is, therefore, easy to imagine the committee being wary ofsupportingabillcodifyingthetaxlawsaspositivelaw,anareaprobablyunfamiliartomostorallof thecommittee’smembers.Although thecommitteealmostsurelyknewandtrustedHouseLegislativeCounselBeamanwhoprobablydidmostofthedrafting,theymaywellhavebeenunfamiliarwithStamandanyoneelseontheJCTstaff. Yet any changes to the law that had beenmade in the proposed codewerelikely the product of judgments by the JCT staff to iron out inconsistencies in thelaw.HowconfidentlycouldthesecommitteemembersrespondtoquestionsifabillwerebroughttotheHousefloor?

Afactorcontributingtothedelaymayhavebeentheresultsofthe1930and

1932 elections. Following the 1930 election, the Democrats took control of the


House.Thus,RepresentativeCollier(D.‐Miss.)replacedHawleyaschairmanofbothWays & Means and the JCT.13 Then, in the 1932 landslide election for FranklinRoosevelt, Collier did not run for reelection,Hawleywas defeated in his primary,andSmootwasdefeatedinthegeneralelection(thelattertworesultsreportedlytheconsequence, in part, of fallout from the Smoot‐Hawley bill). Thus, the electionchanged three of the top four positions at the JCT. Beginning in March, 1933,RepresentativeDoughton(D.‐N.C.)becamechairmanofWays&MeansandSenatorHarrison(D.‐Miss.)becamechairmanoftheFinanceCommitteeandtheJCT.

Members have differing interests and priorities, and it is unclear if Collier,

Doughton,orHarrisonhadanyknowledgeof,orinterestin,codificationatthetime.It is alsonot clear howmuch contact theyhadhadwith the JCT staff before theybecamechairmen.Atechnicalprojectlikecodificationmaydemandadegreeoftrustinstaffthatcanonlybegainedovertime.

Presumablyanother factordelayingactiononacodificationbillwassimply

the surge of other tax legislation beginning with the Revenue Act of 1932. It isprobablyfairtoassumethatcodificationofthetaxlawscouldnotbegintocompetewiththoselegislativedemands.

But,assuggestedbyoneoftheStamcartoons,resistancefromtheTreasury

DepartmentandtheBIR—thebarkingdogsof“ignorance,”“possibleerror,”“envy,”and“delay”—maybethemainexplanationforthelackofactiononcodification.AsreportedbyE.W.Kenworthy,long‐timeDCcorrespondentfortheNewYorkTimes,“Treasurywasafraidtoletanybodytrytoputthatoceanintoapintpot.”Althoughevery codificationproposal of the staff emphasizedTreasury’s full involvement inthe project, it is noteworthy that there was never any mention of Treasuryendorsement of the work‐product or support for the legislation. No matter howmanytimestheTreasuryhadbeengivendraftstoreview,theDepartmentmaywellhaveremainedwary if ithadnothadmuch input into thecritical firstdraftwhenmany important, initial decisions are sometimes made. Interestingly, the onegovernmentagencythatstronglysupportedtheprojectwastheJusticeDepartment,whosetaxlitigatorsespeciallystoodtobenefitfromtheclarityacodemightprovide.

AFebruary,1938speechbyRoswellMagill,whowasthenUnderSecretaryof

theTreasury,mayprovide a little insight into theTreasury’s attitude at the time.According to one noted tax historian, Magill was “indisputably one of the mostimportanttaxofficialsofthe1930s.”Duringthesameweekhedeliveredhisspeech,MagillhadappearedonthecoverofTimeMagazine.

MagillandStamwerecontemporaries.Bornlessthanayearapart,theyeach

served in thearmed forcesbeforeobtaining lawdegrees in theearly1920s.They

13StammaynothaveknownthiswhenhesubmittedtheproposedtaxcodetoHawleyonNovember15,1930,sincetheRepublicansstillhadaverynarrowmajorityimmediatelyafterthepollsclosed.SpecialelectionsoccurringbeforethenextCongressconvenedgavetheDemocratstheirmajority.


boththenworkedattheBIRin1923and1924(althoughthereisnoindicationthatthey knew each other at the agency). Thereafter, Magill left to begin a teachingcareeratColumbiaandwouldeventuallyjointheCravathfirmin1943asoneofthefirm’sfewlateralpartners.Hecontinued,however,tobecloselyinvolvedinthetaxlegislativeprocess, serving in 1933‐34 asAssistant Secretaryof theTreasury andagainin1937‐38asUnderSecretaryforTreasurySecretaryHenryMorganthau.Ofcourse,Stamatthosetimeswasalreadywellintohislengthyinvolvementwiththatsameprocess.Theirpathscrossedagainattheendoftheircareers(andjustafewyears before they each passed away) when Magill, as chairman of the TaxFoundation’sBoardofDirectors,deliveredthatorganization’sdistinguishedpublicserviceawardtoStamin1962.

But their lives intersected inmoreways than this. In late 1926,when JCT

Chairman Green was searching for staff for the JCT’s Simplification Division, heinvited Magill, who had been highly recommended to him, to head the division.Greenapparentlysuggestedvariousways inwhichMagillmightserveon thestaffwhile continuing to teach at Columbia. For example,Magillmightwork part‐timeduring the school year and full‐time during the summer (when Congress wastypicallyoutof session). InaDecember, 1926, response toGreen,Magill cordiallydeclinedtheoffer.Heexplainedthatalthoughhewasveryinterestedinrevisionandsimplificationof the tax laws, given the sizeand importanceof the task, hedidn’tfeelitwouldbesatisfactorytoeitherofthemifhespentonlyalimitedtimeontheproject in 1927. He offered his services as a volunteer “in any way you deemdesirable,”butdidnotwanttoundertakeregularemployment,evenpart‐time.

Subsequently, in June, 1927, when Hamel and McDermott urged Green to

hireanotherattorneytohelpwiththesimplificationwork,GreenagainthoughtofMagillandsuggestedthathebecontacted.Asitturnsout,evenbeforereceivingthesuggestion,McDermotthadbeenincontactwithMagilltosolicitideasandhelponthe simplification project. Magill offered some suggestions and expressedwillingness to do research for the JCTwhile at Columbia, but apparently did notshow any interest in coming toDC. It is not clear ifMagillwas approached againfollowingGreen’ssuggestion,butMagilldidnot jointhestaffandthepositionwasshortlythereafterfilledbyStam.HadMagillacceptedeitheropportunitytoworkattheJCT,Stammightneverhaveservedonthestaff.

In his 1938 speech to the New York City bar,Magill delivered amasterful

summaryof thekey legislative, judicial,andadministrativedevelopmentsoverthefirst 25 years of the modern income tax. Among other things, he described themorassoftaxstatutesthathadaccumulatedandtheincreasingdifficultyinknowingwhat law applied to a particular transaction occurring in the past. He stated(perhaps grudgingly) that “even a codification of existing provisionswould be anenormousimprovementoverthepresentsomewhatconfusedsituation.”Butwhenhe subsequently elaborated on codification, Magill mentioned only twodevelopments. One was Treasury’s ongoing attempt to restate and codify theadministrativeprovisionsof the internal revenue laws.Theotherwasaneffort to


codifythetaxlawsthentakingplaceinEngland.MagillsuggestedthattheU.S.mightwant to form an independent commission (as the British had done) to do thenecessarywork.

Just days before the speech,Magill had received from Stam the JCT staff’s

thirddrafttaxcode,andhewasundoubtedlyawareofthehistoryofthecodificationeffortthatwasthenstretchingintoitseighthyear.Further,thethirdeditionofthecodehadbeenpreparedpartlyattherequestofMagill.Itis,thus,extremelycuriousthatinhislengthyspeech,whichincludedsomediscussionofcodification,Magilldidnot mention a single word about the JCT staff’s effort. It was as if, from his andTreasury’s standpoint, the entire JCT project had disappeared by early 1938.Interestingly,theBritishcodificationeffortreferredtobyMagillwasintheprocessofgoingdowntodefeat,inlargepartbecauseoftheperceivedfailureoftheBritishCommissiontoincorporatesufficientlytheviewsofInlandRevenue.Magill,whohadpreviouslyco‐authoredwithJCTChiefofStaffParkerasummaryoftheBritishtaxsystem,maywell havebeen awareof thoseproblems. Thus, a possible subtext ofMagill’smessagetothepractitionerswastheneedforgreaterTreasuryinvolvementbeforecodificationwouldoccur.

Magill’sreticencemayhavemainlyreflectedtheviewsofHermanOliphant.

LikeMagill, Oliphantwas a graduate of theUniversity of Chicago LawSchool andwasteachingatColumbiawhenMagilljoinedthefaculty.From1934untilhepassedawayinearly1939,OliphantservedasGeneralCounseloftheTreasuryDepartmentwherehewasacloseadvisortoTreasurySecretaryMorganthauandbestknownforstrongly supporting the undistributed profits tax. Oliphant opposed enactment oftheproposedcodeaspositivelaw.Hebelievedthatsubstantiallyallofthebenefitsofthecodecouldbeobtainedifitremainedasmereprimafacieevidenceofthelaw.Magill’s successor as Under Secretary, John Hanes, later testified that it was hisbelief Magill “recognized the dangers inherent in . . . codification, but that thepracticaladvantagestobegainedtherebyweresuchastoweighheavilyinfavorofits enactment.” Hanes conceded, however, that there was “some difference ofopinion” among the legal staff at the Treasury towards the codification effort(referringtoOliphant’sopposition),withtheprincipalconcernbeingthelikelihoodoferrorsinsuchamajorundertaking.

Enactmentofthe1939CodeStraightforward power politics eventually pushed the proposed tax code

acrossthefinishline.Inearly1939(justoneweekafterOliphant’suntimelydeathattheageof54),ChairmanDoughtonintroducedacodificationbill(incorporatingthestaff’s fourthproposedcode)and itwasreferredtotheWays&MeansCommitteeratherthantheCommitteeonRevisionoftheLaws.Fromthatpointon,passageofthebillwasaforegoneconclusion.Oncethepowerfultaxcommitteesgotbehindthelegislation on a matter within their substantive expertise and almost surely notraisinganysignificantpolicyissues(nomatterhowmanyminorchangestothelaw


may have been made), few members of Congress were likely to be swayed byTreasury or BIR complaints that a particular sub‐sub‐sub clause in the proposedcodehadnotbeenphrasedexactlyright.

TheWays&MeansCommitteeunanimouslyapprovedthelegislation.Onthe

Housefloor,Doughtonfieldedquestionsabouttheextentofanychangemadebytheproposed code and Treasury’s position towards it. As the following colloquyillustrates,hewasnotespeciallyresponsivetosomeofthemorepointedquestions:

Mr.Robsion(R.‐Ky.): [Canyouassure] theHousethatnowordshavebeenaddedandnowordshavebeentakenfromthestatutes?Mr. Doughton: Absolutely, unconditionally, without any qualification orequivocation,therehasbeennochangeinthelaw.

Treasury’s positionwas also left somewhat ambiguous. Representative Treadway(R.‐Ma.),RankingMemberoftheWays&MeansCommitteeandasupporterofthelegislation, explained that “[t]here was some little complication or unfortunatecircumstancethatpreventedadefiniteapprovalbytheTreasuryDepartment,”buthethenpromptlytoldtheHousethat“weareassuredthattheTreasuryDepartment. . . approves this effort at codification.”Notwithstanding this lackof clarity, therewasneveranydoubtthatthebillwouldbeapproved,andthefinalvoteinfavorwas350‐16.

The Senate’s approval was even quicker than the House’s. The Finance

Committeeunanimouslyreportedthebillfavorablywithoutamendment.Duringthemarkup, therewas a little concern expressed about the possibility of change anderrorintheproposedcode.StamandAssistantAttorneyGeneralMorris,however,persuaded the Committee that it was far preferable to gain the advantage of thepermanentfreshstartprovidedbyacodeenactedaspositivelaw,andtocorrectanyerrorsafterthefact,thantocontinuetheexisting,confusedstateofthelaw.OntheSenate floor, thebillwaspassedwithoutarecordvote.Less thanonemonthafterDoughtonintroducedhisbill,themeasurewassignedintolawasthefirstActofthe76thCongress.AsthePrefaceintheStatutesatLargevolumeindicates,thenewcodewasderivedfrom164separateenactmentsapprovedbetweenJuly1,1862andJune16, 1938. It was the first body of law covered by the U.S. Code to be enacted aspositive law.14 The next title to be so enactedwould not occur for another eight

14Asatechnicalmatter,thelawenactedtheInternalRevenueCode,andnotTitle26oftheU.S.Code,aspositivelaw(butthelatterincorporatesthetextoftheformer).SeePub.L.No.76‐1,§2;cf.1U.S.C.§204note(2012)(clarifyingsamedistinctionforpurposesof1954and1986Codes). It is forthatreason that the U.S. Code does not indicate Title 26 as having been enacted as positive law. SeeUnitedStatesCode(2012ed.),p.III.Asonelawlibrarianhasobserved,thedistinction“isalittlehardtowrap yourhead around.”Whisner (2009) at 554 n. 48. The courts haveuniformly rejected theclaimsofsometaxprotestorsthattheInternalRevenueCode,orthetextofTitle26oftheU.S.Code,isnotpositive law.SeeHackettv.Comm’r,791F.2d933(6thCir.1986)(unpubl.),1986WL16862(describing argument as “frivolous”); Young v. IRS, 596 F. Supp. 141, 149 (N.D. Ind. 1984);U.S. v.


years,andatpresent,roughlyhalfofthetitlesremainmereprimafacieevidenceofthelaw.

SignificanceoftheCodificationEffortfortheLegislativeProcess Some may view the swift denouement of the codification saga as simplyillustratingtheaphorismthat“mightmakesright.”Butthatreactionwouldoverlookoneof theprincipal lessonsof theepisode. Itmaybetruethatthetaxcommitteeswerepowerfulenoughin1939toobtainpassageoftheproverbialham(orsausage)sandwich.Thequestionremained,however:whowouldpreparethesandwichtobepassed? For legislation as long and technically challenging as the codification bill,thisquestionpresentedarealdilemmaforCongress. Atonepoint,itwascommonforlegislatorstodrafttheirownbills.In1913,in opposing a measure (which was not approved) that would have created anonpartisan drafting service in Congress staffed by professionals, one Senatormockedcolleagueswhowouldneedsuchhelp.Heinstructedthemto“retiretotheirhomes,resumetheirseatsontheirschoolbenches,andletsomebodyelsecome[tothe Senate] who is capable of doing [the necessary drafting].” The same Senatorbelittledthenotionofnonpartisanstaff,statingthat ifsuchan“all‐wiseman”with“great learning . . . absolute sincerity of purpose and patriotism” could be found,Congressshouldinstallthatpersonasthelawmakerofthecountry.Adecadelater,at least some members of Congress continued to hold this view, with someinterpreting the hiring of professional assistants as an “implied slur” upon theirabilitiesaslegislators.Theinitial1913incometaxbill,aswellastheinitialbillsofcertainsubsequenttaxacts,hadbeenprincipallydraftedbyRepresentativeCordellHull(D.‐Tn.)whowasaidedbyacoupleofassistantswhomhehadhired.

Itwas,however,extremelyunlikelythatanylegislatorwouldhavethetimeorabilitytodraftabillaslongandcomplexascodificationofthetaxlaws.Althoughby1939, Congress had at its disposal the staff of theHouse and SenateOffices ofLegislative Counsel to provide expert drafting assistance, a bill like codificationrequiredmore than justdraftingskill. It requiredextensiveresearch todeterminetheexactstateoftheentirebodyoflaw.Knowledgeabletaxprofessionalsneededtocollaboratewiththedraftsmentocraftthefinalproduct. Oneoptionwastoseekassistancefromtheprivatesector.CongressreliedonsuchexpertsinproducingthefirstcodificationoftheU.S.statutesin1874,anddidlikewise in the early 1920s when Representative Little (R.‐Ks.), chairman of theHouse Committee on the Revision of the Laws, oversaw the work of a series ofprivate sector advisors, including the staff of two legal publishing companies, toproduce what would become the first U.S. Code. But in each case, the resort to

Zuger,602F.Supp.889,891‐92(D.Conn.1984),aff’d755F.2d915(2dCir.1985),cert.denied,474U.S.805(1985);Lynchat76‐77(describingargumentsasemanatingfromthe“lunaticfringe”).


privatesectorhelpforthismostbasicoflegislativefunctionsmayhaveheightenedtheconcernsandsuspicionsofCongressaboutthesubstanceofthefinalproduct.Aswehaveseen,neithereffortresultedintheenactmentofpositivelawthathadthefullconfidenceofCongress. AnotheroptionwastoseekhelpfromtheagenciesoftheExecutiveBranch.Butinter‐branchjealousiesalsomadethispossibilitysomewhatproblematic.Whilesome members of Congress during the brief 1939 debate sought assurance thatTreasuryhadbeenfullyinvolvedindevelopingthetaxcodificationproposal,othersexpressedconcernthattheExecutiveBranchagencieshadbeentooinvolved.AsoneRepresentative stated: “I am inclined to think that there is a possibility that theTreasury [and Justice] Department[s] in their zeal to make a workable law haveperhapseliminated from this codification certain so‐calledunworkableprovisionswhichhavebeenaconstantembarrassmentto[them].” Chairman Doughton and the other supporters of codification in 1939repeatedlyemphasizedthethirdoptionthattheyhadused:relianceonthestaffofthe JCT to perform thework. As he explained to theHouse, “themembers of the[Ways&Means]committee,ofcourse,couldnot[checktheaccuracyofthebill]withthe[same]thoroughness[as]thestaff . . . ;butthecommitteehasagreedthat it iswilling to be governed by and responsible for the work of the staff of the jointcommittee.”WhenoneRepresentative, concerned thatTreasury’s viewof the law(rather than the taxpayer’s) had prevailed in the codification, asked who hadprotected the taxpayer,Doughton immediately responded, “[t]hatwas thedutyofthestaffoftheJointCommitteeonInternalRevenueTaxation.” To be sure, Stam and the JCT staff obtained much assistance from thegovernment tax agencies aswell as private groups and individuals.But the staff’spresencemeantthatsomeoneinthelegislativebranchcouldbeheldresponsiblefortheendproduct.ThestaffcouldprovideaformofpoliticalcoverforthemembersofCongressthattheotheroptionscouldnot.Asonememberemphasized,theJCTstaffare“allemployeesoftheCongress.” Presently, of course, virtually every committee in Congress receivessubstantialhelpfromprofessionalstaff.Butthatwasnotthecasein1926(whentheJCTwas formed)or1939 (when the1939Codewasenacted).Between1913and1946,Congresshadonlyabout300mostlynonprofessionalaidesspreadamongits135 standing committees. Aside from the JCT staff, about the only professionalcommitteestaffduringthistimebelongedtotheHouseandSenateAppropriationsCommittees. There was a limited amount of other professional assistance. By 1926,Congress was obtaining help from the staff of a legislative reference unit in theLibraryofCongress(createdin1914andnowtheCongressionalResearchService),theHouseandSenateOfficesofLegislativeCounsel(formedin1924fromlegislativedraftingservicesapprovedin1918),andtheGeneralAccountingOffice(createdin


1921 and now the Government Accountability Office). But none of these staffsworkeddirectlyforanycommitteesorhelpedwithday‐to‐daylegislativework.

Given this context, we can see that the statement Doughton made on theHousefloor—thattheWays&MeansCommitteehadnotmadeathoroughcheckofthebillbutwas“willingtobegovernedbyandresponsiblefortheworkofthestaffof the joint committee”—may have been quite bold. Although most everyone inCongress presumably understood at some level the impossibility of themembersgivingdetailed reviewtoabill as longandcomplicatedas codification, therewas,nevertheless,someriskinadmittingthisopenly.Doughtonwaswillingtotakethisriskbecausebythatpoint,theJCTanditsstaffhad“beenoperatingontaxationforyears”and theirworkwas “familiar” to theHouse.Moreover, the staff’sworkhadbeenseenasgood.AsRepresentativeTreadway(R.‐Ma.),whohadbeenamemberoftheJCTfromthebeginning,explainedtotheHouse:

Wehaveemployedeversince[theJCT]originatedamostefficientstaff.TheheadofthatstaffuptolastyearwasMr.LovellH.Parker,thanwhomthereisnogreater taxexpert in thecountry, in theopinionof theCommitteeonWaysandMeans.Hehadunderhim,ascounseltothejointcommittee,Mr.ColinF.Stam;andwhenMr.Parkerresignedfromhisposition,Mr.Stamwasunanimouslyelectedbyourjointcommitteetotakehisplace.Thereinisthesecurityofthepublic,thatmenofsuchhightypeastheseemployeesandthepersonsunderthemhavedonethemanualwork,theactualphysicalworkofcodifyingthelawsontaxation.15Finally,perhapsmostimportant,thestaffwasperceivedashavingworkedin

a nonpartisan way. Treadway, who by early 1939 had been a member of theminoritypartyinCongressforeightyears,expressedconfidencethat“asmuchofapartisanas Iam,”hecouldnotconceiveof thestaff trying “tocoveruporhideorpreventaproperclassificationandcodification[ofthetaxlaw].”

Nothing in the JCT’s authorizing statute required the appointment of

nonpartisan staff. Nevertheless, JCT Chairman Green seems to have followed thatpracticewithhis initialhires.Althoughsomeof thestaff (suchasParker)cametoGreen’s attention through contacts in Congress, there is no indication of anyselectionbasedonpoliticalconsiderations.WhenpartycontrolofCongresschangedin 1930 and 1932, there does not appear to have been any turnover on the staff.Years later,Stamreported that therewassimilarlynostaff turnover following the1952electionsthatproducedanotherchangeincontrolofCongress.

Thus, the innovation that Congress stumbled into when it created the JCT

providedthelegislaturewiththeopportunitytolearnthatitcouldbenefitfrom,butmaintainpropercontroloverand,therefore,trust,unelectedprofessionalsworking

1584Cong.Rec.783(Jan.25,1939);seealsoid.at788(statementofRep.Reed(R.‐N.Y.))(“Ibelievethe Joint Committee on Taxation has engaged as fine a lot of experts as can be found. They areexpertsinonedefinitelineoflegislation,namely,therevenuelaws.”).


directly in the legislative process. In the Legislative Reorganization Act of 1946,which marked the formal beginning of professional staff for the committees,Congress specifically looked to the JCT model (and followed it in part) when itauthorized the hiring of professional, nonpartisan staff by the House and SenateCommittees.Itmaybeacoincidence,butthefirstU.S.CodetitlestobeapprovedaspositivelawafterenactmentoftheInternalRevenueCodeof1939occurredjustoneyear later, in 1947. In summary, perhaps more important than any specificachievement(includingcodificationofthetaxlaws),thekeycontributionofParker,StamandtheotherearlyJCTstaffersmayhavebeentoservewithenoughskillandintegritytodemonstratetoCongressthatitsinnovationwasasuccess.

Documents

The Joint Committee on Taxation and Codification of the Tax ......As Stam transports the child safely across the River Styx to the other shore (labelled “absolute law”), he can