The Relevance Games: Congress’s Choices for Economic Substance Gamemakers

69 Pages Posted: 2 Sep 2012

See all articles by Charlene D. Luke

Charlene D. Luke

University of Florida Levin College of Law

Date Written: September 1, 2012


The main textual hint as to the intended scope of the codified economic substance doctrine is ambiguous. It provides “The determination of whether the economic substance doctrine is relevant to a transaction shall be made in the same manner as if this subsection had never been enacted.” This Article argues that this language should be read in light of the codification history, which stretches back over ten years prior to enactment. This history suggests that the relevance provision is primarily about maintaining the pre-codification balance of decision-making between tax agencies and courts. The history also indicates that the provision reflects congressional concurrence in the pre-codification trajectory of the doctrine, particularly in terms of the types of transactions that were being litigated.

The movement from the common law to codified statute brought with it the potential application of a complex web of authority regarding interactions between tax agencies and courts in their administration, enforcement, and interpretation of the Internal Revenue Code. Included in this web is the general ability of the tax agencies to obtain strong deference from the courts as to the agencies’ authoritative, reasonable interpretations of textual ambiguities. The economic substance legislative history acknowledges the general interpretive authority of the tax agencies but does not suggest a specific path for reconciling that authority with the preference that development of the doctrine continue “in the same manner” as under the common law. This Article proposes that the various strands in the legislative history can be reconciled by interpreting the relevance provision as adding two directions to tax agencies and courts: (1) The statute does not apply to transactions that are clearly consistent with the form and purpose of claimed tax benefits and (2) the courts have final discretion over whether a specific, litigated transaction ultimately fails the requirements of the economic substance doctrine.

Suggested Citation

Luke, Charlene D., The Relevance Games: Congress’s Choices for Economic Substance Gamemakers (September 1, 2012). Available at SSRN: or

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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