The ALI Centennial and the Future of Tax Projects

I. Introduction

In its centennial book of essays summarizing its 100 years of existence, the American Law Institute and the authors it selected to contribute to the book do a good job describing the various restatements, principles of law, and model codes that form a huge part of the ALI’s legacy.¹ Who does not remember those days in law school reviewing the Restatement of torts, contracts, and so on? Well done and objectives fulfilled.

Not so well known is that the ALI has a long and rich history of engaging in projects involving federal tax.² Unfortunately, the federal tax history of the ALI was not separately discussed in the centennial history. It should have been.

A. ALI Tax History

The ALI’s involvement in federal tax started in the early 1950s, when it engaged in a project relating to partner and partnership taxation as part of the prelude to the Internal Revenue Code of 1954.³ The leaders of that project were all giants in the field of federal taxation, particularly as it related to partners and partnerships. Within that field, those authors enjoyed a level of professional standing comparable to that of luminaries like William Prosser in torts or Samuel Williston in contracts.

Several studies were published from the late 1950s through the 1970s on various federal income, estate, and gift tax subjects.

Then, in or around 1984, there were several extensive studies done by the ALI, again led by the giants of the tax profession at that time, particularly experts in partnership and corporate tax. Those other federal tax studies were in the fields of corporate tax, international tax, estate and gift tax, and income taxation of trusts and estates.

Finally, the ALI published a report on the taxation of private business enterprises in 1999.⁴

There has been no reported ALI activity on federal tax since 1999.⁵

B. Discussion

The 1953-1954 partnership tax report was published in the New York University Tax Law Review and served as the foundational document for the key statutory provisions that Congress ultimately enacted as subchapter K of the Internal Revenue Code of 1954.

The report was substantially drafted in 1982 but was published in 1984. It contained many good ideas and proposals; however, a number of its proposals were rendered moot by the fact that the report was principally drafted before the Deficit Reduction Act of 1984 was enacted. That tax act added a number of new partnership provisions, many of which solved problems that the 1984 report addressed. Thus, the timing of this 1984 report was not optimal, but the surrounding circumstances couldn’t have been predicted.

The 1999 report proposed that all private business entities be taxed as passthrough entities for which tax was only imposed at the owner level, not the entity level. It also proposed a simple taxation regime for small partnerships. For all other private business entities, the complex law of subchapter K for partnerships and partners would continue to apply, although with some technical improvements. No congressional action was taken in response to this report, and the ALI never formally approved it.

The ALI is no longer focused on entering into projects in a primarily statutory area of law. Federal tax law is heavily based on statutory provisions that can — and often do — change over time. It is my understanding that, after the 1999 project, the ALI leadership may have formed a view that tax legislation was too political and that the organization’s time and money were better spent elsewhere.

It can be argued that the deep tax tradition of the ALI and the present state of Congress mean that it is time to at least revisit this hesitancy to study federal taxes. This is particularly the case given ALI council rule 4.03:

To maintain the Institute’s reputation for thoughtful, disinterested analysis of legal issues, members are expected to leave client interests at the door. In communications made within the framework of Institute proceedings, members should speak, write, and vote on the basis of their personal and professional convictions and experience without regard to client interests or self-interest. It is improper for a member to represent a client in Institute proceedings and such conduct constitutes good cause for termination of Institute membership.

Because of tax professionals’ vested economic interests, tax policy has suffered from a lack of constructive commentary from outside the government. It is time for a change.

Below is an appendix that lists some of the key tax players involved in ALI federal tax projects.

II. Appendix

A. ALI Federal Tax Projects Post-1953

1. Federal estate and gift tax project.

• Recommendations of The American Law Institute and Reporters’ Studies (1961-1969).

• Study on Generation-Skipping Transfers Under the Federal Estate Tax (1982-1984) (discussion draft issued).

2. Federal income, estate, and gift tax project.

• Income Tax Problems of Corporations and Shareholders (1954-1958) (with American Bar Association Section of Taxation, report of study issued).

• Study of Definitional Problems in Capital Gains Taxation (1958-1960) (discussion draft issued).

3. Federal income tax project.

• Integration of the Individual and Corporate Income Taxes (1989-1993) (reporter’s study of corporate tax integration issued).

• International Aspects of United States Income Taxation:

  • Volume I: Proposals of The American Law Institute on United States Taxation of Foreign Persons and of the Foreign Income of United States Persons (1982-1987); and

  • Volume II: Proposals of The American Law Institute on United States Income Tax Treaties (1987-1992).

• Subchapter C: Proposals of The American Law Institute on Corporate Acquisitions and Dispositions and Reporter’s Study on Corporate Distributions (1974-1982).

• Subchapter J: Proposals of The American Law Institute on the Taxation of Trust and Estate Income and Income in Respect of Decedents (1979-1985).

• Subchapter K: Proposals of The American Law Institute on the Taxation of Partners (1976-1984).

• Subchapter C (Supplemental Study) (1986-1989) (reporter’s study draft issued).

• Taxation of Private Business Enterprises (1994-1999) (formerly “Taxation of Pass-Through Entities”; reporter’s study issued).

B. Reporters and Selected Consultants: 1984 Subchapter K Project

1. Reporters

• Richard G. Cohen, reporter, New York;

• William A. Rosoff, associate reporter, Philadelphia;

2. Selected consultants.

• M. Bernard Adinoff, New York;⁶

• William D. Andrews,⁷ Harvard, Cambridge;

• Hugh J. Ault, Boston College, Boston;

• Walter J. Blum, University of Chicago, Chicago;

• Martin D. Ginsburg,⁸ Georgetown University, Washington;

• Donald C. Lubick,⁹ Washington;

• John S. Pennell, Chicago;

• William A. Rosoff, Philadelphia;

• Arthur Willis,¹⁰ Los Angeles; and

• Bernard Wolfman, Harvard, Cambridge.

C. Selected Participants in 1999 Tax Project

1. Selected consultants.

• Joseph Bankman, Stanford Law School;¹¹

• Andrew N. Berg, New York;

• Karen C. Burke, University of Florida, Gainesville, Fla.;

• Richard G. Cohen, New York;

• Terence F. Cuff, Los Angeles;

• Mark P. Gergen, The University of Texas School of Law;

• Daniel Halperin, Harvard University Law School, Cambridge, Mass.;

• Glenn Hubbard, Columbia Graduate School of Business, New York;

• Vesper T. Hughes Jr., Dallas, Texas;

• Jerome Kurtz, New York University School of Law, New York;

• Lawrence Lokken, University of Florida;

• William S. McKee, Washington;

• John K. McNulty, University of California at Berkeley School of Law;

• Pamela F. Olson, Washington;

• Ronald A. Pearlman, Washington;

• William A. Rosoff, Spring House, Pa.;

• Michael L. Schler, New York;

• Stephen E. Shay, Boston;

• Jeffrey T. Sheffield, Chicago;

• Sherwin R. Simmons, Miami; and

• Willard B. Taylor, New York.

2. Tax program committee.

• M. Bernard Aidinoff, chair, New York.

3. Members of committee.

• William O. Andrews, Harvard University Law School, Cambridge;

• Michael Graetz, Yale Law School, New Haven; and

• John Stephan Nolan, Washington.

4. Ex officio.

• Roswell B. Perkins, chair of the council, New York;

• Charles Alan Wright, president of the American Law Institute, Austin; and

• Geoffrey C. Hazard Jr., director, Philadelphia.

5. 25 selected tax advisory group members.

• Sheldon S. Cohen, Washington;

• Jerald David August, West Palm Beach;

• Badette Barton, Berkeley;

• R. Beghe, U.S. Tax Court, Washington;

• Frank S. Berall, Hartford;

• Lorence L. Bravenec, College Station, Texas;

• Patricia L. Brown, Las Vegas;

• Edwin S. Cohen, Washington;

• Allan G. Donn, Norfolk;

• Peter L. Faber, New York;

• Milton Carr Ferguson Jr., San Diego;

• J. Clifton Fleming, Provo, Utah;

• Lawrence B. Gibbs, Washington;

• Martin D. Ginsburg, Washington;

• Charles H. Gustafson, Washington;

• Harry L. Guttman, Washington;

• Fred F. Murray, Washington;

• Arthur L. Nims III, U.S. Tax Court, Washington;

• Philip Frederick Postlewaite, Chicago;

• Sidney I. Roberts, New York;

• Mark J. Silverman, Washington;

• Stefan F. Tucker, Washington;

• Alvin C. Warren, Cambridge;

• David A. Weisbach, Chicago; and

• Bernard Wolfman, Cambridge.