After a quiet century or so, the scope of Congress’s power “[t]o lay and collect taxes” is once again in the news. The taxing power was at issue when the Supreme Court issued a decision that President (and Chief Justice) Taft would later call the worst injury to the Court’s reputation ever, Pollock v. Farmers’ Loan & Trust, striking down the Income Tax Act of 1894. That decision was largely reversed by the 1913 enactment of the Sixteenth Amendment. Today the taxing power is one of three grounds on which the federal government defends the constitutionality of the Patient Protection and Affordable Care Act, particularly the individual responsibility requirement (IRR)—the portion of the Act requiring each individual to purchase insurance or pay a penalty tax.

Parents often create a family limited partnership (FLP) or similar entity to provide a vehicle for cohesive management of assets, secure some measure of creditor protection, or create a common pool for investment in marketable securities. FLPs generally encumber their members’ interests with restrictions for various reasons. The Internal Revenue Service in turn attacks FLP restrictions because encumbrances reduce estate and gift tax value when FLP interests transfer. In two cases in the spring of 2010, the IRS successfully pressed attacks that tilt the battlefield against the taxpayer. Nevertheless, rules remain for defeating IRS attacks. These rules fall within two overarching taxpayer imperatives. First, the taxpayer must seek something other than tax savings in order to achieve tax savings. Hence, “context matters.” Second, the taxpayer must act with respect to the FLP in all respects as she would with unrelated parties. Hence, “do unto yours as you would do unto others.”