BNA's Daily Tax Report: IRS Sustaining Good Track Record On Economic Substance, Official Says
Washington, D.C., partner Stuart Bassin was quoted in the November 20, 2009, Bureau of National Affairs' Daily Tax Report article, "IRS Sustaining Good Track Record On Economic Substance, Official Says."
The article is based on a Tax Audits and Litigation meeting of the District of Columbia Bar Association, Tax Section, at which Bassin and associate John Lehrer were speakers (click here for more on the event). At the meeting Bassin and Lehrer discussed three tax shelter cases as examples of cases where issues may be developing in the courts, including Southgate Master Fund LLC v. United States, TIFD III-E Inc. v. United States, (often referred to as Castle Harbour II) and Consolidated Edison Company of New York Inc. v. United States, according to the article.
In the third case, Bassin said the court applied a test of substance-over-form rather than economic substance, applied a quantitative analysis of profit potential, and measured that potential without consideration of present value, foreign tax or transaction costs. He also said subjective nontax business purpose was given limited scrutiny. "It's an interesting case," Bassin said, noting that the government's notice of appeal is due at the end of December.
Also discussed at the luncheon were the House and Senate legislative proposals to codify the economic substance doctrine (H.R. 3692, S. 506), according to the article. Bassin said "the big question we all have to ask is, 'Does codification change anything? Are the standards going to be higher? Are the standards going to be lower? How does that change the advice we give?'"