What Would Henry Simons Do?: Using an Ideal to Shape and Explain the Economic Substance Doctrine

98 Pages Posted: 24 Jul 2010  

Charlene D. Luke

University of Florida - Levin College of Law

Abstract

This Article discusses the potential results of injecting the Haig-Simons (H-S) income concept into the debate over the economic substance doctrine (ESD) - a debate that seems unlikely to diminish in spite of the recent codification of the ESD. The conclusion reached is that the H-S income concept could provide an organizing principle for anchoring the ESD’s substantive content and defining its role in tax litigation and planning. This Article proposes an H-S ESD that would move away from the current ESD’s approach of disregarding an entire transaction as a substantive sham to an approach that taxes whatever a transaction actually accomplished, as measured using the H-S concept. Application of the proposed H-S ESD to five case studies (Knetsch, ACM, Castle Harbour, Compaq, and UPS) suggests possible additional benefits of thinking about tax-avoidance transactions in terms of H-S: it may help delineate the boundaries of the ESD’s applicability to suspect transactions, and it may help explain the outcomes of ESD cases.

Suggested Citation

Luke, Charlene D., What Would Henry Simons Do?: Using an Ideal to Shape and Explain the Economic Substance Doctrine. Houston Business and Tax Law Journal, Forthcoming; University of Florida Levin College of Law Research Paper No. 2010-18. Available at SSRN: https://ssrn.com/abstract=1647666

Charlene D. Luke (Contact Author)

University of Florida - Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States
352.273.0658 (Phone)

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