Economic Substance May Take Away U.S. Tax Benefits: BGOV Study-bgov.com:
Tax enforcers and U.S. jurists who have relied on a judicial doctrine known as “economic substance” to determine whether a business transaction was undertaken solely to garner a tax benefit now have a statute to govern its application.
A Bloomberg Government Study, “Economic Substance: Age-Old Legal Doctrine Joins the U.S. Tax Code,” introduces the common law doctrine, summarizes the new statute passed by Congress in 2010, and examines Internal Revenue Service’s guidance released in August 2011 on how to apply the economic-substance test to a company’s transaction.
Putting the doctrine into the tax code may have important implications for the tax benefits companies claim, the study concludes. The holding company Altria Group Inc., owner of Philip Morris International Inc., may owe about $2.1 billion in federal and state taxes, excluding potential penalties, due to application of the economic-substance doctrine.
Codification of the doctrine is expected to improve tax compliance and raise $4.5 billion over 10 years, according to the Congressional Budget Office.
