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Economic Substance Doctrine Federal Income Tax Tax

The Broad Reach of the Economic Substance Doctrine

Congress provides tax incentives to change taxpayer behavior. If a taxpayer changes their behavior to take advantage of the incentive, they have to do so carefully. The IRS and the courts can apply the economic substance doctrine to take away the tax benefit. This doctrine can apply to more transactions than what one would consider […]

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Economic Substance Doctrine Federal Income Tax

Intercompany Fee Arrangement Lacks Economic Substance

If the employees and owners of a profitable C corporation set up a related entity and lease the employee-owner’s services back to the C corporation, can the C corporation deduct the payments?  Taking it a step further, what if the related entity is owned by a retirement plan so that most of the payments by […]

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Economic Substance Doctrine Federal Income Tax Tax

Court Considers Economic Substance in S Corp Transactions

The IRS challenges some tax positions by asserting that the transactions lack economic substance. This can allow the government to unwind or ignore transactions that comply with our tax laws if there is no legitimate business purpose for the transactions other than tax savings. There is a growing body of court cases that helps define […]