Supreme Court Downplays The Blue Book’s Interpretative Value

On December 3, 2013, the Supreme Court of the United States dismissed the applicability of the Blue Book, a commentary of recently passed tax laws prepared by the Joint Committee on Taxation, as little more than a law review article.

U.S. v. Woods, No. 12-562, decided on December 3, 2013, by the Supreme Court of the United States, upheld the jurisdiction of the district court to determine whether a partnership's lack of economic substance could justify imposing a valuation-misstatement penalty on the partners and applied the valuation-misstatement penalty to the deficiency. It also enunciated the appropriate weight that should be applied to the commentary prepared by the Joint Committee on Taxation (JCT) on recently passed laws in its Blue Book.

Background

The JCT, a nonpartisan committee of the U.S. Congress composed of Ph.D. economists, lawyers and accountants, prepares at the end of each Congress a general explanation of enacted tax legislation referred to as the Blue Book. The JCT, with the help of the staffs of the House Committee on Ways and Means and the Senate Committee on Finance, prepares explanations of enacted tax legislation. The explanation includes a description of the present law (the law in effect immediately prior to enactment), an explanation of the provision and the effective date. The Blue Book also often includes the reasons for the change of the law in the description.

While the courts have generally distinguished the Blue Book from legislative history, the appropriate deference that should be applied to the discussions and conclusions in the Blue Book has been inconsistent and somewhat of a mystery. Historically, the Supreme Court has cited the Blue Book, indicating that the "document provides a compelling contemporary indication" of a statute's meaning, but does not rise to the level of legislative history. FPC v. Memphis Light, Gas & Water Div., 411 US 458, 472 (1973).

Many cases have followed that line of reasoning; the U.S. Court of Appeals for the 7th Circuit agreed that the Blue Book "does not rise to the level of legislative history, because it was authored by Congressional staff and not by Congress. Nevertheless, such explanations are highly indicative of what Congress did, in fact, intend." Estate of Hutchinson v. Commissioner, 765 F.2d 665, 669-670 (7th Cir. 1985). The Court of Appeals for the 5th Circuit, citing the 11th Circuit, goes even further, explaining that, while the Blue Book is not binding...