Tax Law Blog | IRS Tax Attorneys

Jason Quinn (J.D. 2009, George Mason) has published Comment, Being Punished for Obeying the Rules: Corporate Tax Planning and the Overly Broad Economic Substance Doctrine, 15 Geo. Mason L. Rev. 1041 (2008).  Here is the Conclusion:

As the use of prepackaged corporate tax planning has wound its way through the judicial system, the appellate bias against such tax packages has become increasingly apparent. Circuit courts have shown little restraint in expanding traditional judicial doctrines to disallow the use of a tax package, even if the only apparent reason to do so is that a different taxpayer has previously used the same package illegitimately. There is an alternative to this expansion of existing judicial doctrines. Circuit courts have two important guides when examining tax packages: the I.R.C. framework and the fact-finding of the trial courts. The I.R.C. provides objective rules for taxpayer behavior and the results of those rules, whether intentional or unintentional, are only the result of carefully considered legislative action. Where substantial tax benefits are not the result of clear taxpayer disingenuousness (i.e., where there was a possibility of economic benefit from the transaction and the taxpayer recognized that fact) those benefits should not be disallowed. To aid in the search for clearly disingenuous behavior, trial courts in tax package cases frequently develop comprehensive factual findings. These are of paramount importance, as they often serve to differentiate sincere behavior in one case from quasi-fraudulent behavior in another. In deference to the legislative framework and trial court fact-finding, appellate courts in tax package cases should strive to clarify the existing judicial doctrines, so that taxpayers may conclude with some certainty where the lines have been drawn separating acceptable tax benefits from unacceptable tax benefits.

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