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Unwinding Unwinding


David Hasen


Santa Clara University - School of Law; University of Colorado School of Law

July 8, 2007

U of Michigan Public Law Working Paper No. 87
Emory Law Journal, Vol. 57, p. 871, 2008

Abstract:     
"Unwinding" is a common, if not ubiquitous, feature of tax practice. In a successful unwind, parties to a prior transaction or arrangement back out of it by means of a later transaction and are treated for tax purposes as having engaged in no transactions at all. In a failed unwind, the parties undertake the later transaction, but it is not treated as nullifying the effects of the first transaction; rather, two separate transactions are deemed to have taken place, each with its own tax consequences.

This Article develops the first unified theoretical framework for analyzing tax unwinding. It also provides an organizing principle applicable to other kinds of corrective action that individuals or the government may undertake in the income tax context. These types include equitable recoupment, the tax benefit rule, and the claim of right doctrine. Each involves resolution of a different kind of excusable inconsistency in taxpayer or, sometimes, government conduct. In the case of unwinding, the inconsistency arises between the taxpayer's understanding of the circumstances in which she acts and the circumstances as they actually are; it concerns the possible efficacy of a chosen action to realize an end the taxpayer seeks to achieve. In some such cases, unwinding relief may be appropriate, but it is usually appropriate only where the relevant taxes are themselves transactionally based. In the nontransactional tax context, more stringent requirements apply to the nature of the taxpayer's error, and administrative considerations militate against an expansive unwinding doctrine.

Number of Pages in PDF File: 76

Keywords: retroactivity, taxation

JEL Classification: H2, K34

working papers series


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Date posted: July 11, 2007 ; Last revised: September 7, 2009

Suggested Citation

Hasen, David, Unwinding Unwinding (July 8, 2007). U of Michigan Public Law Working Paper No. 87; Emory Law Journal, Vol. 57, p. 871, 2008. Available at SSRN: http://ssrn.com/abstract=999411 or http://dx.doi.org/10.2139/ssrn.999411

Contact Information

David Hasen (Contact Author)
Santa Clara University - School of Law ( email )
500 El Camino Real
Santa Clara, CA 95053
United States
University of Colorado School of Law ( email )
401 UCB
Boulder, CO 80309
United States
303-492-9684 (Phone)
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