Rethinking the Timing of Tax Decisions: Does a Taxpayer Ever Deserve a Second Chance?
54 Pages Posted: 2 May 2012
Date Written: May 1, 2012
When a taxpayer contemplates engaging in a transaction, the taxpayer will often assess the tax consequences of various versions of the transaction, and the taxpayer’s decision regarding whether and how to engage in the transaction will be informed, in part, by the anticipated tax consequences. This type of tax planning is common and is allowed within certain limitations. What is much rarer (because it is prohibited in many circumstances) is attempting to obtain more favorable tax consequences after a transaction occurs.
This paper will refer to actions taken to achieve beneficial tax consequences as “Pre-Transactional Tax Decisions” when they occur before a transaction has begun and as “Post-Transactional Tax Decisions” when they occur after a transaction has concluded or, at least, commenced. This paper focuses on Post-Transactional Tax Decisions and discusses the ways in which tax law limits such decisions, the underlying goals that might be served by the existing limitations, and how the law could better address these underlying goals. This paper concludes that limiting Post-Transactional Tax Decisions sometimes exacerbates the negative effects of allowing Pre-Transactional Tax Decisions because the limitations bestow an even greater advantage upon taxpayers who plan prior to a transaction.
Keywords: Tax Planning, Actual Transaction Doctrine, Non-Disavowal Doctrine, Tax Elections
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