Codification of the Economic Substance Doctrine

Codification of the Economic Substance Doctrine

As part of the Health Care and Education Reconciliation Act of 2010, Congress enacted Internal Revenue Code (IRC) Section 7701(o), which provides statutory clarification of the judicial economic substance doctrine and imposes a new strict liability penalty for violating it. IRC Section 7701(o) is relevant for transactions entered into after March 30, 2010. The new statute has tax practitioners and taxpayers questioning its effect on everyday tax planning.