TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, September 14, 2017

When Sharia Law And The U.S. Tax Law Collide

Virginia La Torre Jeker, When Sharia and U.S. Tax Law Collide, 87 Tax Notes Int'l 787 (Aug. 21, 2017):

Sharia law impacts the US tax analysis of transactions arising in any Muslim-majority country or in any country when Muslim persons are involved in the transaction. Neither the US courts nor the Internal Revenue Service have provided guidance as to how the matter should be resolved when US tax and Sharia laws collide.

This article addresses the role of Sharia law in US international taxation and seeks to raise professional awareness of the possible pitfalls when dealing with clients having a connection to Sharia and the US.

Scholarship, Tax | Permalink


Interesting article that could have benefitted from additional analysis (though maybe there were space constraints).

I wish she delved further into the 482 cases which limit the ability of the IRS to impute income in a manner violating local law. My immediate thought is that the rule of such cases makes sense in limiting IRS discretion, particularly under 482s devoted to determining “accurate” income, but makes little sense in limiting statutes that operate without IRS discretion. I wonder if the cases support that view.

I do not think there’s an easy way to make the U.S. tax code work with polygamy or polyamorous marriage. The marital property regimes would need to catch up first. Further, if we just continue our current policies without rethinking, the tax avoidance potential for multiple marriages is pretty huge.

Sharia is not unique in forced heirship rules, so I would think we have analysis addressing the proper outcome there. As with polygamy/polyamory, I do not think simply granting a marital deduction even for transfers ultimately forced “away” from your spouse is the way to go due to tax avoidance. (You could easily plan into making a deductible transfer to someone other than your spouse.)

Interesting points on 7872. I do wonder if many of the loans of which she is concerned would simply fail to be the kind of loan 7872 addresses under 7872(c). But she appears right that 7872 mischaracterizes many loans as below market which are in fact simply market under Sharia law. (Also, I wonder if it could be argued that Sharia law’s limitations convert apparent debt instruments into equity under tax law principles.)

At any rate, thanks for bringing the article to our attention Paul.

Posted by: Mark E. Mullin | Sep 14, 2017 6:03:37 AM

It is important to note, in regards to Sharia and U.S. Law, that The Constitution is the Law of The United States of America.

It is important to note that while there is a final authority for Catholic Canon Law, which affirms the inherent Dignity of the human person as a beloved son or daughter, Sharia Law has no final authority, thus Sharia Law is not consistent. In fact, some elements of Sharia Law are a gross violation of our Constitution and a gross violation of the inherent Dignity of the human person as a beloved son or daughter.

One can know through both Faith and reason, that it is not "fearmongering", to be concerned about those elements of Sharia Law, which continue to exist within the context of Sharia. Muslim Americans should be equally concerned about those elements of Sharia Law that continue to be a gross violation of the inherent Dignity of the human person as a beloved son or daughter.

A system of government cannot co exist with our Nation's laws as long as it motivates actions that violate those laws that are grounded in our Judeo-Christian principles.

Sharia encompasses these problematic elements; as long as these problematic elements, which are a gross violation of our inherent human Dignity as beloved sons and daughters, remain within Sharia, Sharia Law will remain problematic, including for those Muslims who respect our founding Judeo-Christian principles, and desire to live according to these principles, either in this country or abroad.

Posted by: N.D. | Sep 14, 2017 8:08:00 AM