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[print version]
FEI's Committee On Taxation Continues To Oppose Congressional Efforts To Codify The "Economic Substance" Judicial Doctrine
July 2, 2007
FEI Summary
Provisions to codify the economic substance doctrine have been included in bills passed by the Senate and introduced in the House, as well as in Joint Committee on Taxation (JCT) staff recommendations. S. 1321, the Telephone Excise Tax Repeal and Taxpayer Protection and Assistance Act of 2006, approved by the Senate Finance Committee on June 28, 2006, includes the most recent proposal that has been affirmatively approved in Congress. S. 1321 provides that a transaction has economic substance only if the taxpayer establishes that 1) the transaction changes in a meaningful way (apart from federal income tax consequences) the taxpayer's economic position and 2) the taxpayer has a substantial non-tax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose. S. 1321 would impose strict liability penalties of up to 40 percent on understatements of tax arising from transactions deemed to lack economic substance.
As mentioned above, Financial Executive International’s (FEI) Committee on Taxation (COT), along with the Treasury Department, Internal Revenue Service (IRS) and others, opposes Congressional efforts to codify the economic substance doctrine. A letter sent by FEI’s Committee on Taxation with recommended changes to the policy is available here.
Prepared July 2, 2007 by Mark Prysock, mprysock@FinancialExecutives.org General Counsel, Financial Executives International (FEI).
[print version]
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