A couple of days ago I speculated that any retroactive tax would be an ex post facto law. It turns out that the US Supreme Court may disagree with me. In United States v. Carlton, the court decided that tax regulations can be retroactive provided that such regulations are used to “correct a ‘mistake’ in the original legislation that would have resulted in significant and anticipated revenue losses through ‘essentially sham transactions’.” The court supported a retroactive tax regulation on the basis that the regulation was, “neither illegitimate nor arbitrary”, and it, “acted promptly and established only a modest period of retroactivity.”
Whether the retroactive changes to “correct” the AIG bonuses are covered under this decision, however, is open to debate.
- Does US v. Carlton apply if the new tax regulations are correcting a “mistake” in something other than the tax code?
- Can bonus payments that were contractually-established well before AIG took any governmental money be considered in any way to be “essentially sham transactions”?
- Do these bonuses truly constitute a “significant and anticipated revenue loss” when the government did not have any anticipation of revenue from the bailout?
And that’s not even getting into the issue of whether the tax regulations would be a bill of attainder, though that too seems to be up for debate as I cannot find a court case that seems directly applicable.
Still, given the generalized death threats received by AIG, it’s entirely possible that any punitive legislation will remain unchallenged simply because the plaintiff in such a case would likely be risking his or her life.
I do have to wonder though, just how much it will cost the IRS to accommodate any new regulations. It’s certainly less than the bonuses, but I have enough experience with implementing business processes and software to know that it’s going to be a few hundred thousand dollars by the time it’s all said and done.
