Tax Breaks for the Big Guys, Changing Tax Law by Memo

A remarkable Washington Post story on how long-standing tax policy was changed by administrative notice hit the wires last Sunday.

It’s not every day that a popular press story deals with an obscure section of the tax code. But these aren’t regular times. Amit R. Paley does a good job explaining how, in the heat of financial chaos and the clamoring to do something, a tax policy of some 22 years was quietly reversed by a mere memo published by the Treasury Department.

In a nutshell, Congress passed Section 382 in the 1980s to attack certain kinds of tax shelters. The code had allowed corporations to buy companies that had a “net operating loss” or “built in loss” and then apply that loss to their books to reduce taxable income. The loss companies had no real value except for the tax benefit. Section 382 drastically limited the types and amounts of loss that the buying company could write off.

Although many business-oriented economists and tax policy experts (certainly not all) argued that the rule was too heavy-handed, Congress steadfastly refused to change it. This is consistent with Congress’s general power to set tax and fiscal policy.

Until Treasury, in the heat of the financial meltdown, decided to do away with it by an administrative notice.

The notice essentially does away with the limitations for institutions that participate in the “Capital Purchase Program (CPP) implemented by Treasury under the authority of the “Emergency Economic Stabilization Act of 2008 (aka Bailout Bill). The idea was to ease the tax consequences of bank mergers. The Washington Post article points out:

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

But, apparently, Congress was surprised and not happy about what has come to be called “the Wells Fargo Ruling.” According to the article, estimates of the hit to federal revenue range from $105 billion to $140 billion.

Some commentators are very surprised as well. From the article:

Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

Reading the Notice, I can see why he said this. It is only 2 ½ pages long. The memo is written in technical terms that are incomprehensible to anyone not familiar with the operations of Section 382. However, under the “Background” header is a paragraph that insouciantly states the authority for the action:

Section 101(c)(5) of the Act provides that the Secretary is authorized to issue such regulations and other guidance as may be necessary or appropriate to carry out the purposes of the Act. Section 382(m) of the Code provides that the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of sections 382 and 383.

Parse that a little. The first sentence says that “the Act” (aka Bailout Bill) gives the Treasury Secretary authority to issue regulations for the purpose of carrying out “the Act” (aka Bailout Bill). OK, nothing very controversial about that.

The next sentence says something similar about Section 382 of “the Code” (in Treasury lingo, this means the “Tax Code”). The Treasury Secretary is authorized to issue regulations “to carry out the purposes of section 382. . . .”

The problem is obvious. The “purposes of section 382” has nothing to do with the Bailout Bill. The purpose of 382 is to stop a certain kind of tax shelter.

And, as far as I know, the Bailout Bill did not grant the Treasury Secretary authority to amend the Tax Code. The Bailout Bill did deal with the tax code in three separate areas: capital gains, executive compensation, and help for homeowners. It does not give the Treasury Secretary authority to amend the Tax Code. (The Bailout Bill is a mere 451 pages long, maybe you can find something in there I have missed, but I doubt it.)

Yet the Secretary of Treasury did amend the tax code because, apparently, it seemed like a good idea. Certainly the merging banks are getting a huge break. And maybe it is a good idea, but this sort of sweeping change to tax policy, under cover of administrative ruling and in the heat of confusion, is decidedly unusual and ominous.

BTW, don't expect this change in the law to benefit any small companies that might want to buy out other struggling companies. It's only for the big kids, the "too big to fail finance companies," who have been able to sell their smoldering and nearly worthless instruments to the government.

(Post first appeared on Tax and Tribute blog.

Um, yes, there is a law that says you have to pay income tax

There's a bit of a buzz going on about the acquittal of Tom Cryer, a Lousiana attorney who had been charged with the federal crime of failing to file his tax returns. Misleading articles, such as "IRS loses challenge to prove tax liability", kindle hopes that someone somewhere has finally convinced a court that we don't have to pay taxes.

A quick look at the Cryer case, however, demonstrates that the government failed to prove the "willful" element of the crime of failure to file. As with all elements of a crime, this must be proved beyond a reasonable doubt. The jury apparently decided that Mr. Cryer's mental state was not criminally willful, perhaps because they were convinced that he had a reasonable belief that he didn't have to file. But the legality of the tax law itself was not at issue in the trial. Cryer's motion to dismiss using that argument was denied before the trial.

But tax protestors everywhere are cheering, shouting "show me the law!" In the interests of public service, I show the law below. It's not as straigtforward as it could be, but it's there. If you earn income, and if it is high enough, you have to file a return. If you have to file a return, you have to pay the tax. Plain language leading to plain duties.


Title 26 United States Code
§ 1. Tax imposed (a) Married individuals filing joint returns and surviving spouses
There is hereby imposed on the taxable income of -
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table: If taxable income is: The tax is:
Not over $36,900 15% of taxable income.
Over $36,900 but not over $5,535, plus 28% of the excess over
$89,150 $36,900.
Over $89,150 but not over $20,165, plus 31% of the excess
$140,000 over $89,150.
Over $140,000 but not $35,928.50, plus 36% of the excess
over $250,000 over $140,000.
Over $250,000 $75,528.50, plus 39.6% of the
excess over $250,000.

. . . .

(c) Unmarried individuals (other than surviving spouses and heads
of households)
There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table:
If taxable income is: The tax is:
Not over $22,100 15% of taxable income.
Over $22,100 but not over $3,315, plus 28% of the excess over
$53,500 $22,100.
Over $53,500 but not over $12,107, plus 31% of the excess
$115,000 over $53,500.
Over $115,000 but not $31,172, plus 36% of the excess
over $250,000 over $115,000.
Over $250,000 $79,772, plus 39.6% of the excess
over $250,000.

Note, a tax is imposed on taxable income. Taxable income is figured out from gross income:

§ 61. Gross income defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
. . . .
§ 63. Taxable income defined
(a) In general
Except as provided in subsection (b), for purposes of this subtitle, the term "taxable income" means gross income minus the deductions allowed by this chapter (other than the standard deduction).
. . . .

So a tax is imposed on taxable income, who has to report this income? This statute tells us that everyone with gross income above a minimum amount has to file:

§ 6012. Persons required to make returns of income (a) General rule
Returns with respect to income taxes under subtitle A shall be made by the following:
(1)
(A) Every individual having for the taxable year gross income which equals or exceeds the exemption amount. . . .


And finally, some people demand to know where it says that a person with income is liable. The statute below says that if you have to file, you are required to pay whatever you owe as deteremined by properly filling out the return:

§ 6151. Time and place for paying tax shown on returns(a) General rule
Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).

So the law is there. It says people with income over a certain level (which elsewhere is defined as being over the exemption amounts) have to file their return. If their return indicates taxable income, they have to pay.

So be careful out there. People claiming that there is no law requiring you to pay income tax are either deliberatly not looking or they are deceived.

And, even though Mr. Cryer was found not guilty of a tax crime, I am pretty sure the feds will get their money. Plus interest. Plus penalties. It's not a pleasant scenario.

Just when the slumber was getting pleasant

Suppose there is family down the street with a wayward son or daughter who is just not "right." Suppose this straying child has become enflamed about what is going on in Iraq. And suppose this child sends some internet advice (of a technical nature) to some "freedom fighters" (we would call them insurgents) whom the child has met on an internet board somewhere. And finally, suppose these insurgents actively and violently seek to disrupt our administration's goals in Iraq.

Of course, this is a very bad thing. Dangerous even. The government monitors such things. It even claims the authority to seize all the assets owned by such a wayward soul.

Now suppose in its zeal, the government freezes the bank accounts of the entire family, not just those of the foolish child. The family will not be able buy groceries. They will likely be scared and confused. They probably would be angry at their child too.

But suppose in the mean time you feel sorry for the neighbors and bring over a casserole as they try to sort this all out.

Under an Executive Order dated July 17, 2007, all of your own assets may be blocked and seized too.

"all property and interests in property of the following persons, that are in the United States, that hereafter come within the United States, . . . are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in: any person determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Defense. . . ."

The persons this applies to are those who have been determined (by the government):

"(ii) to have materially assisted, sponsored, or provided financial, material, logistical, or technical support for, or goods or services in support of, such an act or acts of violence or any person whose property and interests in property are blocked pursuant to this order. . . ."

Of course, good people won't fall under this, right? The government isn't really going to freeze the assets of the neighbors down the street. And if they do, they wouldn't really go after someone who brought them a casserole, right?

Maybe, but the language of the order asserts that very option.

As Han Solo said when things got weird: "I've got a bad feeling about this, Chewey."

What you've always suspected

My state's bar association is sponsoring a continuing legal education program about "Lawyers’ Roles in Preparing and Responding to Disasters".

So the secret is out. Lawyers prepare disasters so that you will hire them to fix the aftermath. You'd think the association that requires us to pay dues would not be so open about this.

(For the serious-minded conspiracy afficianados, the program really is meant to be a good thing--the State Bar merely needs a better editor).

Fender benders and stealing cars, the DEA does it all.

The War on Drugs gets even weirder. DEA agents now have authority to stop a suspected vehicle by pretending to be drunk and colliding into it with another vehicle. They then may pretend to steal the car and drive it to an unknown location to allow for an "administrative search" to look for drugs. The tactic is a novel method of getting around the 4th amendment--the amendment which used to mean that the government could not conduct unreasonable searches and seizures without a warrant. I know the facts sound bizzare, so I quote directly from the the recent 9th Circuit Court of Appeals decision. It was filed June 8, 2007.

"We consider the Fourth Amendment’s limits on the use of trickery and force in conducting seizures.

Facts: Ascension Alverez-Tejeda and his girlfriend drove up to a traffic light. As the light turned green, the car in front of them lurched forward, then stalled. Alverez-Tejeda managed to stop in time, but the truck behind him tapped his bumper. As Alverez-Tejeda got out to inspect the damage, two officers pulled up in a police cruiser and arrested the truck driver for drunk driving. The officers got Alverez-Tejeda and his girlfriend to drive to a nearby parking lot, leave the keys in the car and get into the cruiser for processing. Just then, out of nowhere, someone snuck into their car and drove off with it. As the couple stood by in shock, the police jumped into their cruiser and chased after the car thief with sirens blaring. The police then returned to the parking lot, told the couple that the thief had gotten away and dropped them off at a local hotel.

The whole incident was staged. DEA agents learned that one of the leaders of a drug conspiracy was dealing drugs out of his car and deduced from several intercepted calls and direct surveillance that Alverez-Tejeda, one of the conspiracy’s subordinates, was using the leader’s car to transport illicit drugs. The agents decided to stage an accident/theft/chase in order to seize the drugs without tipping off the conspirators. Every character in the incident, other than Alverez-Tejeda and his girlfriend, was either a DEA agent or a cooperating police officer." (emphasis added)

The lower court found that the seizure was unconstitutional. It ordered the evidence obtained by the seizure to be suppressed. Although it acknowledged that the car, which had been used in previous documented drug selling activity, was subject to immediate seizure under forfeiture laws, even such seizures have Constitutional protection from "unreasonable" seizures. The lower court decided that the staging of an accident and car theft was not reasonable:

"The seizure in this case needs to be contrasted against the principles discussed above. Unlike a normal seizure by law enforcement, this seizure appeared to be a car theft. Any person seeking information on the theft would reach a dead end. Local authorities were told to deny knowledge of the event if asked. Even during the pendency of the case before this Court, defense attorneys were told that there was no record of such an event in the Deschutes County Sheriff’s Office records. No inventory was filed. No judicial determination was made of the need for a covert search. No judicial determination was made of the period of time needed to delay notification. No judicial review of the inventory was made. All of the decisions normally made by the judiciary were made by the officers involved. It is difficult to conclude that the authors of the Fourth Amendment contemplated such discretion be afforded to the Executive branch."

But the 9th Circuit reversed. In a rather cavalier decision, it essentially reasoned as follows:

1.The government had the right to seize the car (even if not the right to seize the property of the occupants).
2.Nobody got hurt.
3.It was reasonable because the government's interest in preventing drugs from entering the market, and its interest in avoiding tipping off the driver that the car was seized outweighed the relatively minor inconvenience of the driver. (The second point is important because the government could not arrest the driver at the time of the seizure because they did not have probable cause to know if drugs were in the car).

Of course, what is left unsaid in the 9th Circuit's analysis is what happens if the government's information is wrong, or if it identified the wrong car, etc. It has essentially given the green light for government agents to stage pretend crimes, carjackings, and other phony scenarios in order to buy time to search a car and obtain an arrest warrant for the driver.

There was never a question that the officers could have obtained a warrant prior to the seizure. Indeed, under today's drug forfeiture laws they could have seized the car at any time (because they had probable cause to believe that it had been involved in a prior drug crime). Despite these powerful tools, US government has decided to step up the tactics another notch. The so-called liberal 9th Circuit has given its blessing. We can only wonder what other creative methods our government will come up with to prosecute this endless "war."

One minor moral of the story is to never leave your keys in the car when asked by a police officer to leave it. They just might steal it.

Copy of the 9th Circuit opinion here:
http://www.ca9.uscourts.gov/ca9/newopinions.nsf/C2D95381F1084FD9882572F30082587B/$file/0630289.pdf?openelement


The US District Court ruling here:

http://blog.wired.com/27bstroke6/files/ordertosuppressalverez_tejada.pdf

Brought to you by the War on Drugs

If a thief be found breaking up, and be smitten that he die, there shall no blood be shed for him.
--Exodus 22:2

Blackstone, Commentaries on the Laws of England:

Burglary, or nocturnal housebreaking, has always been looked upon as a very, heinous offense, not only because of the abundant terror that it naturally carries with it, but also as it is a forcible invasion and disturbance of that right of habitation, an invasion which in such a state would be sure to be punished with death, unless the assailant were the stronger. But in civil society, the laws also come in to the assistance of the weaker party; and, besides that they leave him this natural right of killing the aggressor, if he can. . . .

On November 21, 2006, three armed men burst through the door of Kathryn Johnston's house. It was about 7 pm, which according to my almanac, was about an hour and a half after sunset. Ms. Johnston was reported to be 92 years old. She owned an old pistol. She shot once at the invaders.

The men who kicked down the door returned 39 shots and killed her. They were on a mission in the name of the Atlanta Police Department. They were performing a drug raid under authority of a no-knock warrant obtained by perjury and on the tip of an unnamed informant. The informant later stated that he was coerced by the police to lie about buying drugs at the house.

Today, two of the officers pled guilty to manslaughter and other crimes, including violation of oath, criminal solicitation, and making false statements. One of the officers admitted committing perjury. They pled down from charges of felony murder. The other officer faces trial.

http://www.cnn.com/2007/LAW/04/26/atlanta.indictments.ap/index.html

The two guilty officers are facing 10 years in prison.

By Biblical standards, the English Common Law, and the State of Georgia's statutes, Kathryn Johnston was justified in shooting at the intruders. They were committing the felony of residential burglary--breaking into a house unlawfully. It was unlawful because they were using a warrant obtained by perjury. And the guilty officers admit that.

Under the felony-murder rule, generally, if a person causes the death of an innocent person while committing a felony, it is punishable as murder. Nevertheless, the vagaries of our modern justice system apparently compelled the prosecutor to agree to a lesser charge. Soft "justice."

Whoso sheddeth man's blood, by man shall his blood be shed: for in the image of God made he man.
--Genesis 9:6.

Those who favor the police using military tactics, no-knock warrants, warrantless wiretaps, and constant surrveillance consider this:

You have long since lost assurance that the armed wing of the state will leave you alone if you "have nothing to hide."

Thank the War on Drugs, the War on Terror, and whatever other War on Abstractions yet to come. As they say, Freedom isn't free.

Learning sin through the tax code

What shall we say then? Is the law sin? God forbid. Nay, I had not known sin, but by the law: for I had not known lust, except the law had said, Thou shalt not covet.

But sin, taking occasion by the commandment, wrought in me all manner of concupiscence. For without the law sin was dead.

Romans 7:7-8

Internal Revenue code, 26 U.S.C. 6050I:

Returns relating to cash received in trade or business, etc.
(a) Cash receipts of more than $10,000
Any person -
(1) who is engaged in a trade or business, and
(2) who, in the course of such trade or business, receives more than $10,000 in cash in 1 transaction (or 2 or more related transactions), shall make the return described in subsection (b) with respect to such transaction (or related transactions) at such time as the Secretary may by regulations prescribe. . . .

I'm spending many hours learning about tax crimes. I already knew about the requirement that you had to report business cash transactions of more than $10,000, but I never really thought that failure to do that would be a felony. But it is:

26 U.S.C. 7203:

Willful failure to file return, supply information, or pay tax.

Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting "felony" for "misdemeanor" and "5 years" for "1 year".

Before I ran across this, I never had a desire to deal in cash transactions over $10,000. But now I have a perverse desire to do this every day. Of course, I would file the required form each time just to add to the work of the Treasury Department.

Paul was right, "Nay, I had not known sin, but by the law: for I had not known lust, except the law had said, Thou shalt not covet."

Thank God I don't have $10,000 cash with which to go around transacting.

Laws of Nature Trump Natural Law

"Natural Law" is a hot topic of discussion in many contemporary circles. Political Science aficionados bandy the term around while arguing for a particular view of how the Constitution should be applied. Ethicists and philosophers debate how a natural law perspective can inform proper action. Postmodernists question whether natural law can even be discovered. Theologians address it in terms of the proper role of a state with respect to the church and vice versa. And normal people sometimes invoke the term to justify self-autonomy, or the "Pursuit of Happiness" as a normative rule.

Scholarly writers rarely mention the name of Blackstone, let alone his very interesting distinction between "The Laws of Nature" and "Natural Law." Even Christian writers, who ought to be interested, normally equate the two terms. (I alluded to this observation here.)

I just performed a computer search of law review publications, using the terms "law of nature" and "natural law" found in the same paragraph. The search yielded 746 citations. Of those, I reviewed about thirty. Every one used the terms interchangeably.

I added "Blackstone" to the search. That search yielded only five articles. Blackstone, apparently, is not a popular author among legal scholars. In those five articles, no distinction between the terms is found.

Blackstone clearly articulated the distinction and considered the two terms to be separate terms of art:

"Yet undoubtedly the revealed law is of infinitely more authenticity than that moral system, which is framed by ethical writers, and denominated the natural law. Because one is the law of nature, expressly declared so to be by God himself; the other is only what, by the assistance of human reason, we imagine to be that law. If we could be as certain of the latter as we are of the former, both would have an equal authority; but, till then, they can never be put in any competition together."

Blackstone's Commentaries. Book I, Part I, Section 2 (emphasis added). (A decent version of the Commentaries can be found here.)

The point Blackstone made, which was rejected by the legal positivists of the late 19th and early 20th centuries, was that the express law of God, as revealed, is the primary authority. We may use our minds and reason to try to develop an understanding of law (this is "Natural Law", in other words, what our fallen minds attempt to deduce from Nature), but the clear teaching of God (the Law of Nature, the very decree that binds the universe and all of its creatures) must guide our reason.

One of the sad legacies of Christopher Columbus Langdell, dean of Harvard Law School in the late 19th century, is that now almost nobody reads Blackstone. Langdell adopted the case study approach of law. It was supposed to be a "scientific" approach, following inductive analysis of how courts decided cases instead of an abstract analysis based upon ancient principles. Legal thinkers initially opposed this idea, but it became the standard format for legal eductation in almost every law school in the country.

This approach was a conscious unmooring of jurisprudence from theology. Roscoe Pound, following Langdell, stated the following in his essay "Mechanical Jurisprudence":

"We have, then, the same task in jurisprudence that has been achieved in philosophy, in the natural sciences and in politics. We have to rid ourselves of this sort of legality and to attain a pragmatic, a sociological legal science.
. . .
Herein is the task of the sociological jurist. Professor Small defines the sociological movement as "a frank endeavor to secure for the human factor in experience the central place which belongs to it in our whole scheme of thought and action." The sociological movement in jurisprudence is a movement for pragmatism as a philosophy of law; for the adjustment of principles and doctrines to the human conditions they are to govern rather than to assumed first principles; for putting the human factor in the central place and relegating logic to its true position as an instrument."

8 Colum. L. Rev. 605, 609-10 (1908).

Blackstone, of course, interfered with this approach. He was ignored because he argued from first principles:

"Man, considered as a creature, must necessarily be subject to the laws of his creator, for he is entirely a dependent being. A being, independent of any other, has no rule to pursue, but such as he prescribes to himself; but a state of dependence will inevitably oblige the inferior to take the will of him, on whom he depends, as the rule of his conduct: not indeed in every particular, but in all those points wherein his dependence consists. This principle therefore has more or less extent and effect, in proportion as the superiority of the one and the dependence of the other is greater or less, absolute or limited. And consequently, as man depends absolutely upon his maker for every thing, it is necessary that he should in all points conform to his maker's will.

This will of his maker is called the law of nature."

Blackstone's Commentaries. Book I, Part I, Section 2

Blackstone expressly answered those who would place fallen human reason over the revealed law of God:

"To instance in the case of murder; this is expressly forbidden by the divine, and demonstrably by the natural law; and from these prohibitions arises the true unlawfulness of this crime. Those human laws that annex a punishment to it, do not at all increase its moral guilt, or super add any fresh obligation in foro conscientiae to abstain from its perpetration. Nay, if any human law should allow or enjoin us to commit it, we are bound to transgress that human law, or else we must offend both the natural and the divine." (Bold emphasis added).

It is not surprising for modern commentators to disagree with Blackstone. What is surprising is that modern commentators completely miss the basic understanding of legal terms used by those debating how our government was to be formed. Blackstone was widely read and discussed in those days.

Our Declaration of Independence opens with these familiar and very deliberately chosen words:

When in the Course of human Events, it becomes necessary for one People to dissolve the Political Bands which have connected them with another, and to assume among the Powers of the Earth, the separate and equal Station to which the Laws of Nature and of Nature's God entitle them, a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to the Separation.

I am not asserting that the United States was organized as a Christian country. But I find it hard to believe that so many scholars can miss the point that this country was organized under a Christian view of law. The term of art "Laws of Nature" clearly meant laws conforming to the revealed will of God. In other words, the Bible was considered to be the source of our law.

I suppose it is not odd that such things can be swept under the rug. I only wish that Christian scholars, lawyers, and writers would not also man the brooms.

Thomas Aquinas, Natural Law, and Relativistic Positivism

The title is more ambitious than the post.

I was stirred to think about our current state of affairs by a scholarly article by R. Scott Clark of Westminster Theological Seminary, Escondido California. Its title is "Calvin on the Lex Naturalis" (Stulos Theological Journal, 6/1-2 (May-November 1998) 1-22).

Dr. Clark's main point is that Calvin defined natural law by identifying it with the Ten Commandments or moral law of God. This is very similar to the view held by Blackstone (he called it the "laws of Nature"— a phrase found in our Declaration of Independence).

In contrast, Thomas Aquinas viewed natural law as what the mind of man can discern by reason. His presupposition was that man, because he contains the image of God, has an "inclination to the good". Id. p. 4. Of course, Calvin, with his understanding of total depravity, did not think this was a viable basis for a moral system.

Although the Calvin-Blackstone view (that is, we look to God's revealed law in scripture for reference) was reflected in the early English Common Law, the Thomistic view seemed to take over in our country almost from the start. Certainly, by the time of the ratification of the Constitution, it was ascendant. Read a few opinions by the early Supreme Court Justices for evidence.

People who study jurisprudence speak of natural law theory being the main theory of jurisprudence in the 18th and early 19th centuries. It began to be eclipsed by the Legal Realism, which bloomed into Positivism by the early 20th century.

Positivism is considered a reaction to natural law theory. It holds to the idea that law is "manufactured" by social convention. The phrase "widely and warmly shared values" is something of a touchstone for it. The idea is that judges, and legislatures, dictate what the law should be according to community norms. Instead of the law being just because it is right, the law is right because it is the law.

But it struck me that Thomas and the Positivists are really saying the same thing. Following Thomas, law is discovered by using man's reason. What should be right is what is reasonable. But depraved men are by definition and in fact unreasonable. Using their faulty reason, they come up faulty standards. When these don't work, they seek what the majority of men think is reasonable and make that the law. The end result under either the Thomist version of natural law or legal positivism is the same: the moral standard is discovered by the latest opinion poll.

In the jurisprudence world, the natural law people are considered to be dinosaurs. The positivists are the current conservatives because they still want law based upon social tradition. Critical Studies people, FemCrits, or whatever is their postmodern term du jour, push the envelope a bit further: the law is whatever the judge says it is based upon, among other things, what she* had for breakfast and whatever convention suits the moment.

These days, law is process, not justice. There is essentially no standard, just inertia. Conservatives and liberals can fight all they want about the terminology, but they miss the primary point: their presumptions are all grounded in rebellion against God.

Thomas Aquinas owed his thinking to the philosopher Aristotle, that granddaddy of empiricists. Calvin's view of philosophers, quoted by Dr. Clark, is appropriately dismissive:

. . . they saw things in such a way that their seeing did not direct them to the truth, much less enable them to attain it! They are like a traveler passing through a field at night who in a momentary lightning flash sees far and wide, but the sight vanishes so swiftly that he is plunged again into the darkness of night before he can take even a step – let alone be directed on his way by its help.

Id., p. 8, (quoting Calvin's Institutes, 2.2.18).

Of course, Paul addressed this too:

Beware lest any man spoil you through philosophy and vain deceit, after the tradition of men, after the rudiments of the world, and not after Christ. Colossians 2:8.


*(Feminine Critical Legal Studies convention requires the generic personal pronoun to default to "she" or "her", etc.)

It's ALIVE!?

And God created great whales, and every living creature that moveth. . . . Genesis 1:21.

A new publication from the IRS on charitable giving has this interesting take on the state of our law:

The IRS considers this publication a living document, one that will be revised
to take into account future developments and feedback. Comments on the
publication may be submitted to the IRS at the following address:

Internal Revenue Service
1111 Constitution Avenue,
NW
Washington, DC 20224
Attn: T:EO:CE&O

http://www.irs.gov/pub/irs-pdf/p1828.pdf

Does the IRS's subjective opinion on the state of the document make it alive? If so, how can they justify revising it? Wouldn't that be cruel? And if it is alive, who made it so?

Maybe they should ask the document what it thinks about all this.

Let's all drop T:EO:CE&O a postcard and ask him (or it) the answers to these pressing issues.

Another twist: taxing what you don't receive.

Or what man is there of you, whom if his son ask bread, will he give him a stone?
Or if he ask a fish, will he give him a serpent?
If ye then, being evil, know how to give good gifts unto your children, how much more shall your Father which is in heaven give good things to them that ask him?

Matthew 7:9-11.

If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.

Exodus 22:25.


Generations from all cultures have recognized the virtue of giving gifts. Sometimes the gift takes the form of an interest-free loan. It's a good way for parents to help their children start out while still instilling a sense of responsibility and gratitude. But if that loan is more than $10,000, beware. The federal government will tax the person giving the loan for the interest he could have gotten had he made the loan on the open market. 26 U.S.C. § 7872.

There is something called the "applicable federal rate." If you make a loan with interest below that amount, the government wants you to pay income tax on the difference between the magical federal rate and what you charged.

So, for instance, if you made a no-interest loan of $40,000 to a child to help him make a down payment on a house, the government imputes interest income to you. The October 2006 federal applicable rate was around 5%. Presto, even though you haven't gotten any income from the loan, you will be taxed as if you had received $2,000. (There are convoluted adjustments possible, but this is the general idea).

Even though there is a gift tax exemption for certain amounts, it is only by the grace of Congress. In the meantime, remember that even if you don't want to charge usury to your family or friends, the watchful grace-enforcers will tax you as if you did.

There is another nifty little feature in tax law. If you let your adult children (or anyone else) use property you own, perhaps a cabin by the lake or an extra house to live in (or, conceivably, even a car or boat), the IRS can impute rental income to you. This is decidedly not Calvin's doctrine of imputation. But that is another story for a different time.

More Tax Stuff

One of the jobs of the IRS, and the courts, is to "protect the fisc." What that means, generally, is that the IRS Commissioner can interpret the rules and "restructure" transactions in such a way so as to prevent tax avoidance. Federal Bulk Carriers, Inc. v. Commissioner, 558 F.2d 128, 130 (2nd Cir 1977). This also has been stretched to mean that even if a statute allows you to do something, you may not necessarily really be allowed to do it. The case of Albertson's v. Commissioner jumps out as an example of "there are many ways to do it wrong."

Albertson's developed a deferred compensation plan for its employees. Although the facts are a little complicated, the essence was that Albertson's promised to pay employees in the future as part of their compensation. It also promised to pay interest on the amount deferred. It then wanted to deduct the interest on its tax return.

At first, the IRS agreed with the scheme. Then it changed its mind and charged Albertson's with a tax deficiency. The lower tax court was badly divided over the whole thing, but decided against the deduction. The Ninth Circuit Court of Appeals, after first deciding in favor of Albertson's, changed its mind and reversed itself.

The reason for the change is remarkable. It agreed that Albertson's had a strong argument under the plain meaning of the statute. But that wasn't enough. Here is a key quote:

"Albertson's argument as to the plain language of the statute is a strong one. We certainly agree that the additional payments resemble "interest" and that, under a literal reading of the statutory language, the deduction of interest is not affected . . . .

In the end we are forced . . . to reject Albertson's approach. We may not adopt a plain language interpretation of a statutory provision that directly undercuts the clear purpose of the statute. . . . (T)he 'court must look beyond the express language of a statute where a literal interpretation 'would thwart the purpose of the overall statutory scheme or lead to an absurd or futile result.'" (citation omitted).

Albertson's Inc. v. Commissioner, 42 F.3d 537, 545 (1994)(Emphasis added).

The argument was fairly technical. In a nutshell, Albertson's plan was a non-qualified (but perfectly legal) deferred compensation plan. The IRS argued that Congress had developed a scheme for "qualified" plans. It further argued that even though Alberston's was not violating any law, and in fact was operating squarely within the statutory scheme, Albertson's should still lose because this would tend to negate Congress's goal of promoting qualified plans. In other words, Albertson's loses because Congress was not clear enough.

The moral of the story is not only do you have to know the law as passed by Congress, you have to know what Congress really meant when it passed the law. Should be easy enough as long as you are clairvoyant.

Of course, the idea of a standard, as in something to measure by, is obscured by that process.

"Divers weights and divers measures, both of them are alike abomination to the LORD." Proverbs 20:10.

Compare and Contrast

U.S. Constitution, Article I, Section 9, second paragraph:

The privilege of the writ of habeas corpus shall not be suspended, unless when in cases of rebellion or invasion the public safety may require it.
(Emphasis added).
…….

Senate Bill 3930 (passed on Thursday, the House has already passed essentially the same bill:

SEC. 6. HABEAS CORPUS MATTERS.

(a) In General- Section 2241 of title 28, United States Code, is amended—

(1) by striking subsection (e) (as added by section 1005(e)(1) of Public Law 109-148 (119 Stat. 2742)) and by striking subsection (e) (as added by added by section 1405(e)(1) of Public Law 109-163 (119 Stat. 3477)); and
(2) by adding at the end the following new subsection:

`(e)(1) No court, justice, or judge shall have jurisdiction to hear or consider an application for a writ of habeas corpus filed by or on behalf of an alien detained by the United States who—

`(A) is currently in United States custody; and
`(B) has been determined by the United States to have been properly detained as an enemy combatant or is awaiting such determination.

(Emphasis added).

Yes, it is a big deal. The writ of habeas corpus is abolished for non-citizens who have been determined by the president (or his agents) to either be an enemy combatant, or who are awaiting that determination.

No, I don't think we have a rebellion or an invasion right now within our borders. But the legislation does not limit itself to outside our borders.

The U.S. Supreme Court determined a long time ago that the writ of habeas corpus cannot be suspended in areas in which the civil Federal Courts are open. Ex Parte Milligan, 71 U.S. 2, 140 (1866).

"We by no means assert that Congress can establish and apply the laws of war where no war has been declared or exists.

Where peace exists the laws of peace must prevail. What we do maintain is, that when the nation is involved in war, and some portions of the country are invaded, and all are exposed to invasion, it is within the power of Congress to determine in what states or district such great and imminent public danger exists as justifies the authorization of military tribunals for the trial of crimes and offences against the discipline or security of the army or against the public safety." Id. at 140.

So the Milligan Court recognized that military tribunals could be authorized by Congress, but only when there is an invasion within our borders and a declared war (or a rebellion, as the Court called the War Between the States). We don't have any of those within our borders now.

But, as of the end of this week, we will have the suspension of the Great Writ for aliens (including legal aliens) throughout the land. All it takes to lock such a person up is for him to have been "determined by the United States to have been properly detained as an enemy combatant or is awaiting such determination." In other words, if the President says you are awaiting determination, you can be locked up and you don't get to ask a court for review.

One other thing to note: the protections of the Constitution, including due process and habeas corpus, have consistently applied to all "persons", not just U.S. citizens, found within our borders. (The distinctions between citizens and non-citizen residents show up in some cases, like immigration, which the Constitution expressly allows for Congress to regulate.) This means that no conceptual or legal difficulty exists to prevent the law from being extended to citizens sometime in the future.

Welcome to the future. It doesn't seem so bad yet. Incrementalism works well on lobsters and sleepy people. The temperature of our country just went up another degree or two.

Hang on.