FATCA’s Legalese v. Legal-Ease
July 10th, 2012 by Anne Jakala
You know the saying. Nothing in life is certain but death and taxes. And when it comes to taxes, the list needs to be expanded. With taxes comes tax rules, and with those rules come thousands of pages of regulations. In the case of the U.S. tax code, there is a bewildering 73,000 pages, and as with many legal statutes and regulations, you can be certain to find one thing—legalese.
Legalese is defined by Merriam-Webster as, “the specialized language of the legal profession,” and it consumes most legal paperwork making it difficult for the average person to understand. And it just so happens that everyone’s favorite topic right now, FATCA, is filled with this legalese and is causing quite a commotion. Why? These new rules are unlike anything we have ever seen before, and people are struggling to understand what the requirements are and what they need to do. Moreover, FATCA affects millions of companies and individuals. These people come from all over the world and hold all sorts of positions at their organizations, many lacking the skills necessary to understand this information.
Although it is no surprise the detailed regulations regarding the withholding and information reporting of foreign financial institutions is written in such a complex and specialized language, the difficulty in understanding it is still troublesome. To give you some insight to what we are talking about with this legalese, take a look at this snippet from the proposed FATCA regulations.
(v) Forms for reporting–(A) In general. Except as provided in paragraph (d)(7)(v)(B) of this section, reporting under paragraph (d)(7)(ii) of this section shall be made on the forms described in paragraphs (d)(3)(v) and (d)(6)(iv) of this section, in the manner described in paragraphs (d)(3)(vi) and (d)(6)(v). Reporting under paragraph (d)(7)(iii) of this section shall be made in accordance with paragraph (d)(5)(vi) of this section. §1.1471-4(d)(7)(v)(A).
If you can’t follow those two sentences, you are in for some trouble because there are nearly 400 more pages filled with similar legalese. That single snippet clearly illustrates the difficulty of reading and comprehending the regulatory text, which begs the questions—can FATCA just be written in plain language or legal-ease?
The legal language and profession in general, has deep roots in tradition and historical customs. As is natural in such long stemming institutions such as religion and cultural customs, certain terms and practices will historically influence and carry through to the current usage and practice. Consequently, so much of the legalese used today is simply the product of history. However, it can also be attributed to the necessity of the profession and interpretation. Certain terms have over time been interpreted or defined through statutory or case law, and precedence requires its continued use. There is also a concern that simplified language could lead to various interpretations which creates uncertainty.
While there is no dispute that legalese can be difficult to comprehend and interpret, the solution may not be so agreeable. The easy answer is to merely simplify the language. However, as mentioned earlier, simplification has the potential to lead to various elucidations or misinterpretations. The cost and time in determining the correct interpretation could be great and lengthy, especially if the courts are required to construe the language.
On the other side, although the above FATCA language example is mind-numbingly frustrating to interpret, it can be argued—through the mind of an individual with a legal or tax accounting degree—that it clearly defines and specifies the intended meaning and usage by referencing specific portions to eliminate misuse or unintended interpretations.
One solution in solving the complexity balance could be to generate two formats of the regulations; one specific and detailed with legalese, and another written in plain language with legal-ease. The question as to who should write that second, simplified version will no doubtingly be answered differently depending on who you ask. Some will argue that the IRS or some governmental subdivision should be the author as they are the ones who are drafting and enforcing the laws and regulations. Others will believe that this should be left to the legal process and interpreted as necessary through the legal system, including interpretation by attorneys and potentially by the courts.
Regardless of how you feel about the complex text, there is little disagreement that the language used in laws and regulations, such as FATCA, is not easily understood. But with the proposed regulations as a guide, there is little doubt that the complicated nature of FATCA’s text is here to stay.
Tags: FATCA, IRS, TIN
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