Corporate Shams

Joshua D. Blank

New York University School of Law

Nancy C. Staudt

USC Gould School of Law

March 23, 2012

New York University Law Review, Vol. 87, 2012
NYU Law and Economics Research Paper No. 12-09
USC Law and Economics Research Paper No. C12-8
USC Legal Studies Research Paper No. 12-12

Many people — perhaps most — want to make money and lower their taxes, but few want to unabashedly break the law. These twin desires have led to a range of strategies, such as the use of “paper corporations” and offshore tax havens, that produce sizable profits with minimal costs. The most successful and ingenious plans do not involve shady deals with corrupt third parties, but strictly adhere to the letter of the law. Yet the technically legal nature of the schemes has not deterred government lawyers from challenging them in court as “nothing more than good old-fashioned fraud.”

In this Article, we focus on government challenges to corporate financial plans — often labeled “corporate shams” — in an effort to understand how and why courts draw the line between legal and fraudulent behavior. The scholars and commentators who have investigated this question nearly all agree: Judicial decision making in this area of the law is erratic and unpredictable. We build on the extant literature with the help of a new, large dataset, and uncover important and heretofore unobserved trends. We find that courts have not produced a confusing morass of outcomes (as some have argued), but instead have generated more than a century of opinions that collectively highlight the point at which ostensibly legal planning shades into abuse and fraud. We then show how both government and corporate attorneys can exploit our empirical results and explore how these results bolster many of the normative views set forth by the scholarly and policymaking communities.

Number of Pages in PDF File: 73

Keywords: sham, corporate tax, corporate tax abuse, Supreme Court, judicial decision making, business purpose

JEL Classification: C12, H20, K00, H23, H24, H25, H26, H29, K34, K14

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Date posted: April 5, 2012 ; Last revised: November 12, 2013

Suggested Citation

Blank, Joshua D. and Staudt, Nancy C., Corporate Shams (March 23, 2012). New York University Law Review, Vol. 87, 2012; NYU Law and Economics Research Paper No. 12-09; USC Law and Economics Research Paper No. C12-8; USC Legal Studies Research Paper No. 12-12. Available at SSRN: http://ssrn.com/abstract=2035057

Contact Information

Joshua D. Blank (Contact Author)
New York University School of Law ( email )
40 Washington Square South, Room 430AA
New York, NY 10012
United States
(212) 998-6479 (Phone)
HOME PAGE: http://its.law.nyu.edu/facultyprofiles/profile.cfm?personID=23511
Nancy Christine Staudt
USC Gould School of Law ( email )
699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-9281 (Phone)
HOME PAGE: http://lawweb.usc.edu/who/faculty/directory/contactInfo.cfm?detailID=70058

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