Federal Taxation

The Fifth Circuit issued opinions in twenty-nine cases involving federal taxation issues during the current survey period. An analysis of the decisions leads to the conclusion that the court has abandoned the previous tradition of strictly construing provisions of the Internal Revenue Code (“the Code") against the taxpayer for a more balanced approach, conceivably to a present posture of construing the Code in favor of the taxpayer. Still, the Fifth Circuit's current propensity to construe the Code favorably to the taxpayer was recently rebuffed by the Supreme Court.

Decisions supporting the taxpayer were varied. The Fifth Circuit ruled that an estate charitable deduction need not be reduced by administrative expenses of the estate, even though the will provided that such expenses must be paid from the residual estate, when a state court, in an adversarial proceeding, decided that the expenses could be paid out of income from the estate.

Taxpayers did not fare well in all cases, however. The Fifth Circuit denied a taxpayer standing to challenge the technique Congress has utilized to grant certain favored taxpayers substantial benefits (by exempting these special classes of taxpayers from provisions of new tax acts via transitional rules). The court denied one "luckless" taxpayer an offset of his gambling losses against his income from "wagering tokes." The court refused to narrow the definition of a "responsible party" so as to limit the range of taxpayers liable for the 100% penalty when a business fails to pay "trust fund taxes" to the IRS.