Black & Decker in the Fourth Circuit: Tax Shelters and Textualism

13 Pages Posted: 14 Apr 2006 Last revised: 12 Sep 2015

See all articles by Karen C. Burke

Karen C. Burke

University of Florida Levin College of Law


While the Fourth Circuit's recent decision in Black & Decker Corp. v. United States represents an important victory for the government on the economic substance issue, the court rejected the government's statutory arguments. In this article, Burke examines how the Fourth Circuit's textualist approach, relying on the taxpayer's aggressive arguments, led to a skewed interpretation of the relevant statutory provisions. The court refused to acknowledge that the statutory language of section 357(c)(3) was indeed unclear. Moreover, somewhat surprisingly, the court embraced a nonpurposive, nonliteral interpretation of section 358(d)(2) as applied to section 357(b) tax-avoidance liabilities. The Fourth Circuit's textualist approach, according to Burke, underscores the practical significance of the economic substance doctrine as part of the government's litigation strategy in combating tax shelters that are designed to comply with the literal words of the statute while circumventing its purpose. On remand, the taxpayer's initial victory in the district court may well prove pyrrhic, Burke believes, given the difficulty of demonstrating a reasonable pre-tax profit potential for the transaction. Although heralded as justifying opposition to codifying the economic substance doctrine, the Fourth Circuit's decision might also (and perhaps more appropriately) be viewed as strengthening the argument for codification. This article flows from Burke's earlier commentaries on Black & Decker (Tax Notes, Jan. 31, 2005, p. 577; July 11, 2005, p. 211) as well as her discussion of the Supreme Court's Hendler decision in Business Tax Stories (Bank & Stark eds., Foundation Press 2005).

Keywords: Black & Decker, liability, contingent, textualism, literalism, statutory interpretation, economic substance, tax shelter

JEL Classification: K34

Suggested Citation

Burke, Karen C., Black & Decker in the Fourth Circuit: Tax Shelters and Textualism. Tax Notes, Vol. 111, No. 3, April 17, 2006, San Diego Legal Studies Paper No. 08-045, Available at SSRN:

Karen C. Burke (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

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