What's in a Name?: The Role of Danielson in the Taxation of Credit Card Securitizations

Abstract:     
While the doctrine of substance over form has been a part of tax law for over seventy years, courts look disfavorably upon taxpayers who invoke the doctrine to argue against the forms of their own transactions under what is commonly referred to as the Danielson rule. Although the Danielson rule appears sound on its face, it holds less force when applied outside of its original context. In particular, the Danielson rule should not apply when the form given to a transaction is given for non-tax reasons, such as to achieve a particular accounting treatment. The taxation of credit card securitizations provides a particularly acute example of how the Danielson rule could lead taxing authorities to erroneously base the taxation of a transaction on its form for accounting purposes. In this article, I explain why the Danielson rule should not apply to credit card securitizations. First, I describe how credit card securitizations are structured and how they are treated under both the accounting and the tax rules. I then explain the origins and purposes of the Danielson rule, why it should not apply to credit card securitizations, and how it could adversely affect their taxation if applied. By expressly excluding from the scope of the Danielson rule those transactions where the difference between substance and form is rooted in the difference between the accounting and tax regimes, the government will clarify a currently muddled area of law and provide greater certainty to participants in credit card securitizations and similar transactions.

Number of Pages in PDF File: 69

Keywords: Tax, Credit Card, Securitization, Danielson, Disavowal, Accounting, Substance-Form, Strong Proof, Debt, Equity

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