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Codification of the Economic Substance Doctrine  

Author:  Erik M.  Jensen.

Source: Volume 28, Number 02, Winter 2011 , pp.87-96(10)

Journal of Taxation of Investments

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In March 2010, Congress codified a version of the economic substance doctrine, together with a stringent strict-liability penalty that applies if noncompliance with the doctrine leads to an underpayment of tax. This article provides guidance to investors and their advisors about the significance of the doctrine, discussing, among other things, the effects of codifcation, interpretive issues arising from the statutory language, and the lack of guidance about the transactions to which the doctrine applies. The article concludes that codification is something to which everyone must pay attention, but that many of the concerns raised by commentators about its scope have been overstated.

Keywords: economic substance, strict-liability penalty, IRC Section 7701(o), clarification, enhancement, codification, meaningful, substantial, profit potential, step transaction

Affiliations:  1: Case Western Reserve University School of Law.

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