Paul L. Caron

Thursday, June 6, 2013

Grewal: Will the Economic Substance Doctrine Get Lost in the Woods?

Supreme CourtFollowing up on Tuesday's post, Government Files Opening Brief in Basis Overstatement Case:  Andy Grewal (Iowa), Will the Economic Substance Doctrine Get Lost in the Woods? (Amicus Brief):

This fall, the Supreme Court will hear oral arguments in U.S. v. Woods, a tax case involving complex jurisdictional and penalty issues that no emotionally healthy person should take an interest in. But behind those issues lie important questions about the economic substance doctrine, which involves the allocation of lawmaking authority between the legislature and the judiciary.

This amicus brief, submitted in support of neither party, informs the Court about the issues hiding in this case. It urges the Court to take a cautious approach in deciding Woods -- the phrase "economic substance doctrine" has never appeared in a Court opinion, so the tax bar and government attorneys will pay close attention to anything the Court says here. And although Congress partially codified the economic substance doctrine in Section 7701(o), that statute expressly leaves it to the courts to determine when the doctrine is "relevant." Woods could very well provide guidance on that fundamental question, and the brief makes the Court aware of the relevant issues.

Although this brief is directed to the Justices, anyone interested in how Woods might affect the economic substance doctrine may find it useful. Also, the brief suggests a potential due process challenge to the new statutory economic substance penalty, which may interest practitioners.

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Grewal's argument that the relevance of the economic substance doctrine (ESD) is uncertain would be more persuasive if he had examined the entire body of ESD case law over the last 10 years, rather than a small subset. Once you do that, it's pretty easy to understand the ESD's relevance to specific cases (despite whatever the ABA Tax Section and its various hospitable interlocutors may have to say on the matter).

Posted by: Jake | Jun 6, 2013 6:07:30 PM