Copyright (c) 2001 Southern Methodist University
SMU Law Review
BUSINESS PURPOSE, ECONOMIC SUBSTANCE, AND CORPORATE TAX SHELTERS: A Tax Practitioner's Perspective on Substance, Form and Business Purpose in Structuring Business Transactions and in Tax Shelters
54 SMU L. Rev. 47
Peter C. Canellos*
IT requires no citations to establish what is obvious to tax professionals within and without the government: corporate tax shelters are proliferating, in both type and number, and their terms are becoming ever more audacious. The problem has a demand side: corporations are increasingly willing to treat taxes as a cost to be avoided, with the efficacy of avoidance increasingly being measured purely in monetary, probabilistic terms with only passing attention to ethical and public perception concerns. But it also has a supply side, with tax practitioners, who historically have had ethical concerns stemming from professional responsibility, increasingly under competitive pressure to satisfy clients.
Tax practitioners are regularly called upon to review tax shelter products - preplanned transactions, like that involved in ACM Partnership v. Commissioner, 1 with elaborately choreographed steps motivated by the prospect of capturing unintended (though sometimes plausible) and unreasonable tax benefits rather than a true business purpose. While the dollar volume of transactions is not readily ascertainable, its significance is evident in the fact that the major accounting and investment banking firms, as well as some law firms, maintain large departments staffed with highly compensated professionals who devote all their efforts to generating tax shelter products, an expensive exercise which they would not undertake if it were not lucrative. Since the revenues of these departments are based directly or indirectly on the expected tax savings (generally representing a small sharing in the present value thereof) large tax revenue losses can reasonably be ...
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