Washington, D.C., partner Stuart Bassin was quoted in the Bureau of National Affairs' March 8, 2010, Daily Tax Report article, "IRS Counsel Reviews Substantive Law Impact Of Economic Substance Doctrine Codification."
The article recounts topics discussed at the Federal Bar Association's 34th Annual Tax Law Conference, held March 5, 2010. Bassin was a panelist for the seminar, "Shelter Controversies: Penalties and Recent Developments."
According to the article, an important question facing tax administrators and practitioners alike is how codification of the economic substance doctrine will cause future substantive law on the issue to differ from current substantive law. A current legislative proposal would change the penalty structure and, perhaps to some degree, change the substantive application of the doctrine, according to the article.
Bassin said the penalties "could substantially change the balance between the taxpayer" and the IRS. "Adding these penalties will be more significant in the way people deal with tax controversies than codification because, for the most part, economic substance is well-established in the courts, but the new penalties could substantially change the balance between the taxpayer and the service," Bassin said.
The House-passed health care legislation included a strict liability penalty for noneconomic substance transactions that would apply broadly to them as well as to tax shelter transactions, he said. In addition, in S. 506, the Stop Tax Havens Act, interest would not be deductible for noneconomic assessments, Bassin said. The House bill includes a provision that applies the penalty for any refund claim that is ultimately disallowed on an economic substance rationale. "It's a new approach to compliance that we haven't seen before," Bassin said.