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Economic Substance And The Supreme Court, Amandeep S. Grewal

Andy Grewal

If an individual seeks a benefit under a congressionally-enacted statute, is a court obliged to examine that statute to determine whether he qualifies for that benefit? To many district and circuit courts, the answer to that question is a firm 'no.' This article argues that that approach is inappropriate and, despite the lower courts' assertion to the contrary, flatly inconsistent with applicable Supreme Court precedent.

Faced with a taxpayer's argument that he qualifies for a tax benefit, the lower courts have often chosen to apply the so-called economic substance doctrine rather than the internal revenue laws. Under that doctrine, courts …

Economic Substance And The Supreme Court, Amandeep S. Grewal

Andy Grewal

The Supreme Court grants certiorari in a wide variety of fascinating cases. Occasionally, it agrees to decide tax cases, too. Perhaps because of the perceived dryness of tax law, the Court has been hesitant to address the validity of the so-called economic substance doctrine. Although there are too many formulations of the doctrine to count, the lower courts often hold that even when a taxpayer has met a statute's requirements, he cannot enjoy any of its benefits unless his conduct reveals a business purpose and a reasonable expectation of profit. This article argues that the lower courts' application of an …