Abstract

Excerpted From: Richard Winchester, A Simple Tax Case Complicated by Race, 21 Pittsburgh Tax Review 37 (Fall, 2023) (58 Footnotes) (Full Document)

Race and racism are inescapable facts of life in America. The impacts can be found in some of the most unexpected places. Dorothy Brown eloquently made this point with her groundbreaking book The Whiteness of Wealth. Despite the absence of any reference to race in the pages of the Internal Revenue Code (Code), U.S. tax rules consistently enrich whites and penalize Blacks, primarily because the law is structured around the way whites live their lives and disregards the differences in the way that Blacks do so.

Brown's observation about the tax code addresses an important aspect of the U.S. income tax system: the law itself. However, as with most laws passed by Congress, the executive and judicial branches play a role. In this case, the Internal Revenue Service (IRS) administers and enforces the Code, while courts resolve disputes between the government and taxpayers. There is a risk that race will affect these aspects of the tax system, too. And it does!

Scholars have already identified some racially inequitable ways that the IRS has performed its role. However, virtually no scholarship addresses the potential for courts and judges to impact the tax system in racially inequitable ways. This Essay hopes to address this omission by using a little-known Tax Court case to show that judges are not immune from allowing race to affect their judgments and the ramifications that follow when they do so.

The case involves the builder of a segregated Black community in New Orleans called Pontchartrain Park. The judge had to determine whether the builder was eligible to pay tax at a discounted rate on the profits derived from the sale of undeveloped land that was originally intended to be part of the subdivision. Although the operative rule made no reference to race, the judge used the racial identity of the homebuyers as a central part of his analysis. This Essay will examine the court's reasoning and its implications. First, some background.

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Withey decided the case at a time when it might not have raised eyebrows to make an explicit reference to a racial stereotype. One would hope that a judge would not do so today. Still, a judge could allow an implicit bias to affect their decision. That is because judges, like all humans, are irrational beings who exhibit biases that cause them to act in predictable ways. These cognitive biases include implicit racial bias. All forms of bias, including implicit racial bias, are produced by the same observable psychological mechanism; there are specific parts of the brain that cause people to use shortcuts when necessary to make quick decisions. Those same parts of the brain also operate when individuals categorize or stereotype people based on race, gender, or other characteristics. Therefore, there is a direct connection between implicit racial bias and other cognitive biases that interfere with rational decision-making.

Research on implicit racial bias has produced three important overarching insights. First, most people display unconscious preferences, attitudes, and stereotypes. Second, these unconscious attitudes often are inconsistent with someone's expressed attitudes. Third, these unconscious attitudes can predict how people behave in certain situations. This last point is key because it means that the unconscious associations we make not only determine our attitudes but also impact the decisions we make. The decisions by legal actors are not immune from being tainted by implicit racial bias. Withey's opinion in PPHI's case shows that judges hearing tax disputes are no exception.

The Fifth Circuit panel that considered the government's appeal may have been particularly sensitive to Withey's improper use of racial assumptions. Two of the judges would later be referred to as members of the “Fifth Circuit Four” for the role they played in transforming the principles articulated in Brown v. Board of Education into a broad mandate for racial justice beyond education. However, their repudiation of Withey's race-based rationale did not prevent it from having an afterlife. Writing in 1982, the Tax Court cited Withey's decision while accepting uncritically his determination that the raw land was initially held as an investment. That determination, and the anti-Black bias that supports it, cannot be reconciled with the Fifth Circuit's view that the land only became a capital asset many years later. Even the IRS has attempted to validate Withey's rationale. In a brief it filed as recently as 2018, the agency asserted that the raw land sold by PPHI was a capital asset because the company was in the business of selling improved lots, as opposed to raw land. That is a true statement about the Tax Court opinion. However, it completely disregards the Fifth Circuit's decision, which rejected that rationale and its underlying racist premise. Thus, Withey's rationale in PPHI's case has retained some persuasive power, despite the Fifth Circuit's admonition.

If this can happen when a judge has openly expressed an anti-Black bias, then it can also happen when an implicit bias has interfered with a judge's thinking. This underscores something very crucial. Judges, including ones deciding tax cases, must be aware of and sensitive to any implicit racial bias that might cloud their thinking. Otherwise, we should expect that this will not be the only simple tax case complicated by race.

Associate Professor of Law, Seton Hall University School of Law; J.D., Yale Law School; A.B., Princeton University.