Document Type
Article
Publication Date
10-2024
Abstract
In two recent instances, the IRS has asserted the economic substance doctrine (ESD) to challenge transactions that comply with the literal text of the code. First, in Liberty Global, the IRS successfully asserted the ESD to deny tax benefits claimed by Liberty Global — namely, a section 245A deduction for a dividend out of foreign earnings that would normally be subject to global intangible low-taxed income — by relying on a mistake in effective dates under the Tax Cuts and Jobs Act. In granting summary judgment, the district court held that the doctrine looks to whether the tax benefits achieved in a transaction violate congressional intent and that satisfying the doctrine requires undertaking an analysis using the statutory prongs of section 7701(o). According to the court, the core purpose of the ESD is to prevent business organizations from entering schemes to evade taxes under circumstances in which Congress would not have intended for the laws to apply. The court concluded that the ESD applied to the transaction and denied the tax benefits. Liberty Global has appealed to the Tenth Circuit, arguing that the ESD was not “relevant” to a transaction that complied with the unambiguous text of the code.
Recommended Citation
Avi-Yonah, Reuven S. "Can the Economic Substance Doctine Be Revived?" TaxNotes International 116, no. 4 (2024): 633-637.
Comments
Reprinted with the permission of Tax Analysts.