Paul L. Caron

Friday, April 25, 2008

Government Victories Using the Economic Substance Doctrine

Timothy R. Hicks (J.D. 2008, Cumberland) has published Comment, Government Victories Using the Economic Substance Doctrine: A Changing of the Tide in Tax Practice? 38 Cumb. L. Rev. 101 (2008).  Here is the Conclusion:

In America, as perhaps nowhere else, businesses and taxing authorities play the “tax shelter game” with unrivaled dedication. From time to time, the IRS launches a full on attack using a host of judicially sanctioned weapons. In light of such an onslaught, the tax shelter industry retreats only to return with innovative and intricate ways to minimize their corporate tax bills. Without question, the government is currently on the attack using the economic substance doctrine as its main artillery, but the true impact of the government's recent appellate successes is not yet known. However, as if the Service had any doubts, the tax shelter game will not end with this line of government victories; it will continue as long as there are tax savings to be had and tax practitioners with creative solutions to paying corporate tax.

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Congratulations to Timothy for a thoughtful piece.

Posted by: andy | Apr 25, 2008 10:39:45 PM

For Charlie Kingson's critique of the Federal Circuit's application of economic substance in its Coltec decision, see the Dec. 24, 2007 issue of Tax Notes at p. 1294.

Posted by: Martin B. Tittle | Apr 26, 2008 10:03:27 AM

Money in the world flows to the path of least resistance, much like a good army should. I refer readers to Sun Tzu's chapter 6 (

"The army's formation is like water. The water's formation avoids the high and rushes to the low. So an army's formation avoids the strong and rushes to the weak. Water's formation adapts to the ground when flowing. So then an army's formation adapts to the enemy to achieve victory. Therefore, an army does not have constant force, or have constant formation. Those who are able to adapt and change in accord with the enemy and achieve victory are called divine."

Indeed. So long as the IRS and Treasury seek to put roadblocks up, the wise ones will flow around.

Posted by: Admiral | Apr 26, 2008 6:53:50 PM