Legalease

[NYGman]

Sometimes rules and regulations are drafted badly, that those who read them, sometimes can not understand them.

I had someone send me a direct quote out of a regulation as to why I had to do something, when the exact quote they sent me, essentially said I didn't have to do what they were asking me to do. A bit of formatting including Bold and Underline, and cutting out the extra words that didn't apply, made the paragraph clear, and showed that I was right. However, this all could have been avoided if the regulation was drafted well to begin with.

At least it wasn't and IRS regulation, but come on. Sending me something stating I don't have to do what is being asked, to justify them asking for something I had not done, as it was not required, was just comic gold. And to top it off, I have been providing that section to third parties for over three months now, whenever anyone erroneously ask for additional information that isn't required, and never had an issue after that. Maybe it is because it is drafted so badly, they can't figure out what it means.

[Judge Roy Bean]

... Maybe it is because it is drafted so badly, they can't figure out what it means.

This goes along with the " ... we do this because we've always done it" modus operandi.

[NYGman]

... Maybe it is because it is drafted so badly, they can't figure out what it means.

This goes along with the " ... we do this because we've always done it" modus operandi.

That's a whole other problem. At least in those situations there may have been some rational basis to do it in the first place, that may no longer exist. Here they are reading a section wrong, and creating an obligation where there is none. I don't blame them though, the section is written in the negative. "A person, other than a Financial Institution... is not treated as..." Sends them into a loop.

[Pottapaug1938]

When I was still practicing law, I would occasionally draft wills for people; and wherever possible, I used plain English. More than a few clients were bothered by this, complaining that their wills "didn't sound legal". I assured them that their wills WERE "legal", and asked them if they would rather have a "legal-sounding" will which might be misinterpreted and might prompt contest from dissatisfied family members, or one which used plain English and was much less likely to be misconstrued. I never had to redraft the wills to "sound more legal"; but I'm not sure that all of the clients were 100% comfortable with them.

[NYGman]

When documents try to be too legal, they may result in unintended results. I took a legal drafting class in law school, and one of the things stressed was to use plain English as much as possible, in order to be clear and concise. No fancy legal mumble jumble, just clear and concise English. It was one of the most interesting classes I took, analyzing bad drafting, trying to determine what they meant, redrafting something clear, in English. Sometimes this was hard as the legalese made the drafters intent very unclear, although in those cases we would interpret it in favor of the drafter, even though a Court might not.

I still cringe when I see bad legalese in a document, and want to scream Why!

[Pottapaug1938]

I used to explain that classic legalese came about because 1) early writ writers were paid by the word, which of course rewarded verbosity; 2) because early English documents had to be written so that French-speaking nobles and English-speaking commoners could understand them -- thus constructions like "force and effect"; and 3) because certain words had to be used to trigger certain statutes and ensure that the king got his cut of any money involved (thus "give, devise and bequeath"; also making deed language "to A" different from "to A, his heirs and assigns", both being different from "to A and the heirs of his body". Of course, the old rules no longer exist; but many lawyers still write that way because they know that this sort of language held up in the past and won't cause problems.

[Arthur Rubin]

Not be confused with "A, or his descendants, per stirpes", or "A, or his descendants, per capita". (Except those actually have a specific definition which might make sense.)

[operabuff]

At least part of the problem for Treasury Regulations is the "too many cooks spoil the broth" problem. A reg is drafted by an attorney in Chief Counsel's office, and reviewed by his branch reviewer. It is coordinated with other branches and Associate offices that may have some piece of it. Once people at the branch level are satisfied, it goes to the Associate Chief Counsel level. All this time, there's also coordination with the Office of Tax Policy at the staff level. And with the Internal Revenue Service. When you get approval at the Associate level, it goes to the Chief Counsel. From there, it goes over to the Commissioner's office. Then it's off to Treasury. Once the Office of Tax Policy is satisfied, it goes to the General Counsel, who has signatory authority over regs. Oh, and let's not forget OMB, which must review all significant regs before issuance. Each of these levels may demand edits and re-edits. It's surprising that regulations ever see the light of day.

But wait, all you've done so far is issue a proposed regulation. Now you have a period for public comment, and then it's back through the same circus again for the final reg.

[Famspear]

Oh, come on. How hard can all this be?

I have posted this before. Here’s that sentence from the Internal Revenue Code that’s over 400 words. It is 26 USC section 341(e)(1) (in part):

For purposes of subsection (a)(1), a corporation shall not be considered to be a collapsible corporation with respect to any sale or exchange of stock of the corporation by a shareholder, if, at the time of such sale or exchange, the sum of –

(A) the net unrealized appreciation in subsection (e) assets of the corporation (as defined in paragraph (5)(A)), plus

(B) if the shareholder owns more than 5 percent in value of the outstanding stock of the corporation, the net unrealized appreciation in assets of the corporation (other than assets described in subparagraph (A)) which would be subsection (e) assets under clauses (i) and (iii) of paragraph (5)(A) if the shareholder owned more than 20 percent in value of such stock, plus

(C) if the shareholder owns more than 20 percent in value of the outstanding stock of the corporation and owns, or at any time during the preceding 3-year period owned, more than 20 percent in value of the outstanding stock of any other corporation more than 70 percent in value of the assets of which are, or were at any time during which such shareholder owned during such 3-year period more than 20 percent in value of the outstanding stock, assets similar or related in service or use to assets comprising more than 70 percent in value of the assets of the corporation, the net unrealized appreciation in assets of the corporation (other than assets described in subparagraph (A)) which would be subsection (e) assets under clauses (i) and (iii) of paragraph (5)(A) if the determination whether the property, in the hands of such shareholder, would be property gain from the sale or exchange of which would under any provision of this chapter be considered in whole or in part as ordinary income, were made –

(i) by treating any sale or exchange by such shareholder of stock in such other corporation within the preceding 3-year period (but only if at the time of such sale or exchange the shareholder owned more than 20 percent in value of the outstanding stock in such other corporation) as a sale or exchange by such shareholder of his proportionate share of the assets of such other corporation, and

(ii) by treating any liquidating sale or exchange of property by such other corporation within such 3-year period (but only if at the time of such sale or exchange the shareholder owned more than 20 percent in value of the outstanding stock in such other corporation), as a sale or exchange by such shareholder of his proportionate share of the property sold or exchanged,

does not exceed an amount equal to 15 percent of the net worth of the corporation.

--from Internal Revenue Code section 341(e)(1).

Again, that entire quote is JUST ONE SENTENCE.

Section 341 was repealed by section 302(e)(4)(A) of the Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. No. 108-27, 117 Stat. 752 (May 28, 2003).



However, the repeal was not to apply to tax years that were to begin after December 31, 2010, per section 303 of the same Act, as amended by section 102 of the Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-222, 120 Stat. 345 (May 17, 2006). Under section 303, the repealed section 341 had been scheduled to become effective again -- for tax years that were to begin after December 31, 2010.



However, by virtue of section 102(a) of the American Taxpayer Relief Act of 2012, Pub. L. No. 112-240, 126 Stat. 2313 (Jan. 2, 2013), the Jobs and Growth Tax Relief Reconciliation Act of 2003 was amended by striking section 303.



So, the section 303 expiration of the section 341 repeal if you will, was itself repealed.



This means that, at least as of April 2016, Internal Revenue Code section 341 remains repealed, after all.

So, umm, it’s not there anymore. Again.

Section 341, I mean.



Unless of course you have to deal with an event that occurred years ago, in some time period for which section 341 was not repealed. In that case, I guess it’s still there. Uh, at least I think so.

See?

It’s so easy, once you get the hang of it.

[Famspear]

Oh, but wait. Section 341 was a statute.

We were talking about regulations.

OK.

Let's bite off a chunk of 26 CFR section 1.752-3:

§1.752-3 Partner's share of nonrecourse liabilities.

(a) In general. A partner's share of the nonrecourse liabilities of a partnership equals the sum of paragraphs (a)(1) through (a)(3) of this section as follows—

(1) The partner's share of partnership minimum gain determined in accordance with the rules of section 704(b) and the regulations thereunder;

(2) The amount of any taxable gain that would be allocated to the partner under section 704(c) (or in the same manner as section 704(c) in connection with a revaluation of partnership property) if the partnership disposed of (in a taxable transaction) all partnership property subject to one or more nonrecourse liabilities of the partnership in full satisfaction of the liabilities and for no other consideration; and

(3) The partner's share of the excess nonrecourse liabilities (those not allocated under paragraphs (a)(1) and (a)(2) of this section) of the partnership as determined in accordance with the partner's share of partnership profits....

Got that?

Now, how do we determine the partner's interest in partnership profits? Well, the regulation goes on to tell us:

....The partner's interest in partnership profits is determined by taking into account all facts and circumstances relating to the economic arrangement of the partners......

Wow, thanks for clearing that up.



So, what might the partnership agreement specify? Well, there's an answer for that, too:

......The partnership agreement may specify the partners' interests in partnership profits for purposes of allocating excess nonrecourse liabilities provided the interests so specified are reasonably consistent with allocations (that have substantial economic effect under the section 704(b) regulations) of some other significant item of partnership income or gain. Alternatively, excess nonrecourse liabilities may be allocated among the partners in accordance with the manner in which it is reasonably expected that the deductions attributable to those nonrecourse liabilities will be allocated....

Well, it's good to know we have an alternative.

Oh, wait. There's more.

....Additionally, the partnership may first allocate an excess nonrecourse liability to a partner up to the amount of built-in gain that is allocable to the partner on section 704(c) property (as defined under §1.704-3(a)(3)(ii)) or property for which reverse section 704(c) allocations are applicable (as described in §1.704-3(a)(6)(i)) where such property is subject to the nonrecourse liability to the extent that such built-in gain exceeds the gain described in paragraph (a)(2) of this section with respect to such property.....

Huh?

......This additional method does not apply for purposes of §1.707-5(a)(2)(ii). To the extent that a partnership uses this additional method and the entire amount of the excess nonrecourse liability is not allocated to the contributing partner, the partnership must allocate the remaining amount of the excess nonrecourse liability under one of the other methods in this paragraph (a)(3). Excess nonrecourse liabilities are not required to be allocated under the same method each year.

[ . . .]

Well, I guess that goes without saying.

[NYGman]

I spent years slogging through §1.752 regulations, thanks for bringing up those great memories

[fortinbras]

Treasury regs - more specifically Tax Regs (26 CFR part 1) - are to be read CLOSELY with the corresponding section of the Tax Code, which happens to have the same section number. So reg 26 CFR § 1.752-3 is meant to be read essentially as an official commentary to tax law 26 USC § 752. As a matter of fact, until 1980 (when, apparently, this became too bulky to be done economically), the entire federal Internal Revenue Code (26 USC) was republished in the annual volumes of the tax regs (26 CFR), the sections all grouped together neatly. After 1980, the numbering scheme of the regs was supposed to tell everyone the correlative USC sections (which is why, in 26 CFR, unlike other parts of CFR, there isn't an authority line for each reg showing what law authorized the writing of the reg).

An unfortunate fact: Tax law is not written for the general population, which (until about 1955) was on average not a high school graduate and (until about 1968) on average not a college graduate. It isn't even written for the run-of-the-mill lawyer, but for the lawyer who stayed awake in at least two semesters of tax law. This isn't a plot by lawyers; it's a plot by the big corporations and the malefactors of great wealth who scheme to create loopholes for themselves and stick the little guy with the real bill of sustaining the country.