Yair Listokin (Yale Law School) has posted Posner on Tax: The Independent Investor Test (University of Chicago Law Review, Vol. 86, No. 1, 2019) on SSRN. Here is the abstract:
This paper, written in honor of Judge Richard Posner’s retirement from the federal judiciary, uses his opinion in Exacto Spring v. Commissioner as a lens into his tax law jurisprudence more generally. In Exacto Spring, Posner delivers a devastating rejection of the muddled multifactor test then in effect to distinguish reasonable salaries, which are deductible from corporate income, from disguised dividends, which aren’t. Posner replaces the multifactor test with the independent investor test, which focuses the judicial inquiry on the substance of the transaction. I critique Posner’s application of the independent investor test to the problem of salary disguised as dividends, showing that it yields perverse outcomes by treating equity as a fixed claim, rather than a residual claim. But I show that, when applied to dividends disguised as debt, the independent investor test offers great promise. More generally, I argue that Posner’s shift from form to substance in tax law clarifies an often opaque area of law.
Recommended. I have only read a fraction of Posner's judicial decisions, but on the basis of that fraction, he is, in my opinion, one of the greatest judges in the history of the common law--and the greatest American judge of his time. Whenever I look for a case to teach a difficult concept in civil procedure, I try to find a Posner opinion--and almost always it is a fabulous teaching tool. He cut straight to the heart of the matter. He had no tolerance for fuzzy or convoluted reasoning. He made the crooked straight.
Posner's influence as a scholar is also profound and far reaching. These days I think that many legal economists underestimate the importance of his early to middle-period work on law and economics to the development of the field. Contemporary law and economics is technically more sophisticated. Coase was deeper. But Posner demonstrated the power of economic analysis on an astonishing range of topics. No one did more to advance the field.
Of course, Posner wrote about many topics, and there were hits and misses. I disagree with most of Posner's work in normative legal theory, but Posnerian pragmatism has had a wide and deep influence on legal thought, for both good and ill. He is a thinker with big ideas, and he is fearless. Sometimes, he fell on his face, but frequently, he changed the way we think about the law.
One more thing: at the very start of my career as a law professor, I sent a paper to Posner, who had been appointed to the Seventh Circuit just a few years before. Posner provided several pages of detailed comments. And corrected all the spelling and punctuation errors. Thank you, Judge Posner. You are inspiring.
