Compaq v. Commissioner - Where Is the Tax Arbitrage?

Posted: 8 Mar 2002  

William A. Klein

University of California, Los Angeles (UCLA) - School of Law

Kirk J. Stark

University of California, Los Angeles (UCLA) - School of Law

Abstract

The transactions that gave rise to the Fifth Circuit decision in Compaq Computer Corporation v. Commissioner and to the Eighth Circuit decision in IES Industries Inc. v. Commissioner have been characterized as blatant tax avoidance schemes, undeserving of respect by decent people. The pro-taxpayer decisions in those cases have been attacked as illogical and dangerous. Professors Klein and Stark attempt to cast a different light on the transactions. They offer a more benign characterization of the transactions and suggest that the proper judicial treatment is far from clear. Their analysis is based on the propositions that the transactions involved true economic arbitrage rather than classic tax arbitrage and that the foreign tax credit was not, analytically, a crucial element. They conclude that the circuit courts properly rejected the Commissioner's theory that the transactions were economic losers apart from taxes. They suggest, however, that the transactions could possibly have been rejected because of their contrived nature or because of the particular taxpayers' state of mind in entering into them.

Suggested Citation

Klein, William A. and Stark , Kirk J., Compaq v. Commissioner - Where Is the Tax Arbitrage?. Tax Notes, Vol. 94, No. 10, March 11, 2002. Available at SSRN: https://ssrn.com/abstract=303565

William A. Klein (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-825-1485 (Phone)
310-825-6023 (Fax)

Kirk J. Stark

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-825-7470 (Phone)

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