The Fabricated Unwind Doctrine: The True Meaning of Penn v. Robertson

Abstract:     
When taxpayers discover that their transactions have unwanted tax consequences, they routinely rely on the unwind doctrine found in Internal Revenue Service Revenue Rulings 80-58. Nowadays, “unwinding” has become a “common if not ubiquitous feature of tax practice.” This article finds that the unwind doctrine has no firm basis in case law. Instead, the unwind doctrine is an Internal Revenue Service (IRS) fabrication based on the IRS’s misinterpretation of the case Penn v. Robertson 115 F2d 167 (4th Cir 1940). If the authors are correct one result may be that recipients of TARP-funded bonuses who gave the money back in the face of public opprobrium may (a) be taxable on the bonuses and (b) be unable to set the repayment off against taxable receipts in calculating their taxable income.

Number of Pages in PDF File: 52

Keywords: income tax, tax law refrom, unwind doctrine, unwanted tax consequences, rescission doctrine

JEL Classification: K34

Accepted Paper Series