The statutory interpretation canon dictating that exemptions from taxation are strictly construed against the taxpayer is frequently used by the IRS in order to enforce their own interpretation of the tax code on all those subject to taxation. Bibeau v. Commissioner, T.C. Memo. 2023-66, recently demonstrated this canon’s interaction with another that would instead favor the taxpayer. Mr. Bibeau, an enrolled member of the Chippewa tribe, claimed federal income tax exemption for his legal practice. He reasoned that the tax violates a treaty between the federal government and the Chippewa tribe guaranteeing the Chippewa the “[t]he privilege of hunting, fishing, and gathering the wild rice, upon the lands, the rivers and the lakes included in the territory ceded.” The result could not be seriously doubted. Yet this case may be noteworthy for its battle of statutory canons. Exemptions from taxation are to be strictly construed in favor of the government, yet a treaty with a Native American tribe is to be liberally construed in favor of the tribe. With little analysis, the Tax Court held that the pro-tax statutory canon prevails because the other cannot “create favorable rules” for tribes or tribal members. Though Mr. Bibeau could not have prevailed under either interpretive rule the Tax Court assigned precedence to the pro-tax canon favoring the IRS and adding strength to its future cases in this area.
The Tax Court is not the only court to deal with conflicts between cannons of statutory interpretation. Recently in U.S. v. Paulson the 9th Circuit wrestled with these rules as well. Paulson featured what is known as the series-qualifier canon and the rule of the last antecedent as the contestants with the battleground of IRC § 6324(a)(2):
If the estate tax imposed by chapter 11 is not paid when due, then the spouse, transferee, trustee (except the trustee of an employees’ trust which meets the requirements of section 401(a)), surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary, who receives, or has on the date of the decedent’s death, property included in the gross estate under sections 2034 to 2042, inclusive, to the extent of the value, at the time of decedent’s death, of such property, shall be personally liable for such tax.
The Court in Paulson decided “whether the phrase ‘on the date of the decedent’s death’ modifies only the immediately preceding verb ‘has,’ or if it also modifies the more remote verb, ‘receives.’”[1] The difference determines the personal liability for the estate tax of a beneficiary who receives property after the decedent’s death.
As in the case of Bibeau one canon favored one party, and another favored the other. “The series-qualifier canon provides that when there is a straight-forward, parallel construction that involves all nouns or verbs in a series, a modifier at the end of the list normally applies to the entire series.”[2] While on the other hand “The rule of the last antecedent provides that a limiting clause or phrase should ordinarily be read as modifying only the noun or phrase that it immediately follows.”[3] The 9th Circuit sided with the rule of the last antecedent because there was not a comma between the word “has” and “on” in the language “who receives, or has on the date of the decedent’s death.” Paulson reasoned that the series-qualifier canon does not apply to a “limiting phrase” that “is not separated from both antecedents by a comma, and it does not follow an integrated clause that contains both antecedents,” especially when “the limiting phrase is set off by commas with the immediate antecedent” apart “from the rest of the sentence.”[4] The dissent doubted that Congress afforded such meaning to a missing comma, but the majority opinion did not find anything in the statutory context to defeat the rule of the last antecedent.
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[1] United States v. Paulson, No. 21-55197, 2023 WL 3489050, at *5 (9th Cir. May 17, 2023).
[2] United States v. Paulson, No. 21-55197, 2023 WL 3489050, at *7 (9th Cir. May 17, 2023)(cleaned up; Facebook, Inc. v. Duguid, 209 L. Ed. 2d 272 (Apr. 1, 2021)).
[3] United States v. Paulson, No. 21-55197, 2023 WL 3489050, at *7 (9th Cir. May 17, 2023)(omitting internal quotation marks and ellipsis; quoting Lockhart v. United States, 577 U.S. 347, 351 (2016)).
[4] United States v. Paulson, No. 21-55197, 2023 WL 3489050, at *7 (9th Cir. May 17, 2023)(emphasis in original).
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California has required employers to “indemnify” employees for “necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer” in substantially the same terms since 1937 under Labor Code § 2802.
