How Big Is Sixth's Circuit's Attack On IRS Substance Over Form Rule?Anchin in the NewsFebruary 28, 2017
Barry Weisman, Tax Partner, reacts to the Sixth Circuit Summa Holdings ruling.
Barry Weisman of Anchin, Block & Anchin responded...as follows:
Few tax decisions contain references to both Caligula and Guy Helvering (Commissioner of Internal Revenue from 1933-1943). This unanimously-decided (Cincinnati based) Sixth Circuit case is less about Domestic International Sales Corporations (a fictional Congressional creation without any economic substance) and Senator William Roth’s eponymous legacy (aside from his hair piece) then it is about the “substance over form” doctrine. As with the “step doctrine”, substance over form has been an ingrained concept of jurisprudence and tax administration—except when the IRS or practitioners are displeased with the result and argue the other way.
Judge Jeffrey Sutton’s decision stressed the overriding economic foundation of substance over form. Absent economics, “substance over form” becomes merely a tool for arbitrary and capricious administration without Congressional consent. Similar to Justice Scalia’s dissent in King v. Burwell, Judge Sutton refused to rewrite the law the way the IRS wanted it to be and looked instead to the originalist meaning of the statute’s words. If the IRS can’t live with a result in which the taxpayer adhered to each related statute, then it should ask Congress to change the law and not have the courts and agencies act as parallel legislatures.
Either Judge Sutton or his clerk paid close attention in law school to probably their only tax course involving fundamental concepts of taxation. His survey decision contains some of the classic cases and the almost obligatory quotes from Learned Hand and Oliver Wendell Holmes forming the basis of tax doctrine and statutory construction: Gregory v. Helvering (1935) and Court Holding Co.(1945). It also demonstrates how District Court and Court of Appeals judges sometimes take a much broader view of statutory construction and legal principles than Tax Court judges.
This is an important decision because it provides a clear statutory construction framework for analyzing substance over form. Whether the IRS will appeal this case to the Supreme Court may depend on how it fares in two related cases in the First (Boston) and Second (New York) Circuits. This is a nebulous area in which asking for clarity from the tax-adverse Supreme Court may create even greater uncertainty
Read the complete article in Forbes.