Taxation-Federal Commons^™

Compaq Redux: Implicit Taxes And The Question Of Pre-Tax Profit, Michael S. Knoll

All Faculty Scholarship

This paper takes a new look at the cross-border dividend-stripping transactions that gave rise to the Fifth Circuit’s opinion in Compaq v. Commissioner and the Eighth Circuit’s opinion in IES Industries v. Commissioner. In both cases, the circuit courts held for the taxpayers and rejected the Commissioner’s claim that the transactions lacked economic substance because the taxpayers were sure to lose money on the transactions before taxes. These cases generated extensive commentary that was split into two diametrically opposed camps. One group argued that the decisions were correct because the transactions were economically profitable business transactions. The other group argued …