The common law “economic substance doctrine” would be codified as a mandatory two-prong test should the reconciliation bill to the new health care legislation be enacted. In general, the doctrine denies federal income tax benefits to a transaction that does not have economic substance or lacks a business purpose, even though the transaction may literally comply with the Internal Revenue Code (the “Code”) and its interpretations. The reconciliation bill would also impose a strict liability penalty standard, and possibly also increase penalties, for federal income tax benefits disallowed because a transaction flunks the new test.
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Codification of the economic substance doctrine: bright lines may create new uncertainties for tax-sensitive transactions
- Pillsbury Winthrop Shaw Pittman LLP
- James T. Chudy, Julie A. Divola, Thomas D. Morton, Dana P. Newman and Nora E. Burke
- March 24 2010
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