Dodging the Taxman: Why Treasury’s Anti-Abuse Regulation Is Unconstitutional

To combat abusive tax shelters, the Department of the Treasury promulgated a general anti-abuse regulation applicable to all of subchapter K of the Internal Revenue Code of 1986. The Treasury targeted subchapter K because unique aspects of the partnership tax laws—including its aggregate-entity dichotomy—foster creative tax manipulation. In the anti-abuse regulation, the Treasury attempted to “codify” existing judicially-created anti-abuse doctrines, such as the business-purpose and economic-substance doctrines. Also, and more surprisingly, the Treasury directed those applying subchapter K to use a purposivist approach to interpretation and to reject textualism.

In this article, I demonstrate that the Treasury exceeded both its constitutional and statutory authority. Congress neither expressly nor implicitly delegated to the Treasury the power either to direct a method of statutory interpretation or to codify the judicially developed anti-abuse doctrines. Hence, the regulation is unconstitutional. Alternatively, even if Congress validly delegated either power to the Treasury, the anti-abuse regulation exceeded the scope of any delegated power and is, thus, ultra vires.