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March 6, 2013
The Timeless Wisdom of Rusty Pipes

Full Text Published by Tax Analysts®


This article originally appeared in the December 21, 1998 edition of Tax Notes.


Rusty Pipes ponders the anti-abuse concept in a fictional letter to the IRS Commissioner.

Below is a viewpoint we first published in 1994. (Tax Notes, May 30, 1994, p. 1209.) The anonymous submission dealt with the protests directed at the IRS and Treasury after they released the partnership antiabuse regulation. It is, however, still a relevant comment today regarding the guidance the IRS and Treasury are preparing on corporate tax shelters.

To the Commissioner of Internal Revenue (re PS-27-94):

Maybe you can help me. I am a simple plumber. I live in the town of Taxland. I often bid on construction contracts. All work must conform to the Plumbing Code. The Plumbing Code is complicated, but most of the plumbers in town have learned to live with it. I get my share of contracts. I like being a plumber.

But some years ago, a few new plumbers came from out of town. They underbid all the local plumbers. At first I wondered how they could do it. Then I learned they hired lawyers to come up with creative interpretations of the Plumbing Code. They could install much cheaper plumbing that way. They split the savings with their customers.

The plumbing was brittle and likely to leak. The customers knew, but were happy to save money. The city Plumbing Board had few inspectors, and the inspectors were overworked. At worst, the customer would have to pay a small fine and fix a few leaks. The customer came out way ahead. The Plumbing Board had no idea what was going on.

The new plumbers prospered. Soon my customers asked me why I was so expensive. I told them the new plumbers were not complying with the Plumbing Code. They laughed at me. Sometimes I was embarrassed to be a plumber.

Many years passed. Then a new Plumbing Board was appointed. They had been plumbers themselves. They amended the Plumbing Code. They added a single sentence. It said that "the purpose of the Plumbing Code is to cause the installation of safe and durable plumbing, and the Plumbing Board may impose severe fines on owners of buildings that rely on interpretations that are inconsistent with that purpose in order to save money." It seemed simple and harmless enough to me. Also, I might not be laughed at again.

Then I went to the Plumbers' Convention. It was a real shock. The new plumbers were proclaiming the end of the plumbing industry. How would they know what was permissible? Construction would come to a standstill. If the Plumbing Code explicitly required 2-inch pipes, would 3-inch pipes suddenly be required by an inspector? The cry went out for more details of what is meant for plumbing to be safe and durable. At the previous meeting I attended, the cry had been for simplification of the Plumbing Code.

The customers were no better. The hospital coalition complained that the amendment would hurt the sick and the poor. The nursing home coalition complained it would hurt the elderly. The small business coalition complained that it would increase their rents. The labor unions complained it would hurt the economy and cost jobs.

But where were the old plumbers? Some cared about quality plumbing and said so. Others supported the amendment because they might win some bids again. Some, such as me, secretly supported the amendment but were afraid to say so. Who dares incur the wrath of the customer?

So what am I to do? I am just a simple plumber. The Plumbing Board did the right thing. But the opponents have money and influence. How has our society come to this?

                Hopefully yours,

                Rusty Pipes (anonymous) New York, N.Y. May 16, 1994

cc: Plumbing Notes


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