Legislative and Regulatory Responses to Tax Avoidance: Explicating and Evaluating the Alternatives

Abstract:     
This article examines statutory and regulatory developments in American anti-avoidance law. After a look at the nature of tax shelters — with that concept defined broadly for these purposes — the article examines and evaluates several methods of dealing with them: enacting statutes or promulgating regulations aimed at particular abusive transactions; enacting “outcomes-oriented” legislation, like the passive activity loss rules, intended to deal with wider patterns of behavior; codifying the economic substance doctrine; imposing anti-abuse doctrines through regulations; requiring disclosure of potentially abusive transactions; and creating national standards that govern advice provided by tax professionals. The article unexcitingly concludes that no one method will by itself bring abusive behavior to acceptable levels. Flexibility is going to work better than rigidity in attacking shelters, and a combination of methods will work better than a single one.

Number of Pages in PDF File: 73

Keywords: tax shelters, tax avoidance, Black & Decker, Cottage Savings, passive activity loss rules, economic substance doctrine, anti-abuse rules, disclosure of avoidance transactions, Circular 230

JEL Classification: K34

Accepted Paper Series