30 NewsQuarterly 1 (2010-2011)

handle is hein.journals/newsqtrly30 and id is 1 raw text is: SPECIAL REPORT
The Internal Revenue Code:
Looking Ahead to 2020
Editor's Note: At the Southeastern Association of Law Schools 2010 Annual
Conference, panelists focused on areas needing clarification or major revision.
Two of their presentations are excerpted below.-Gail Levin Richmond, Nova
Southeastern University, Davie, FL
Three Once and Future Issues
By Charlene Luke  -
T en years is a long time in the world of tax; after all, few (if any) would have
predicted this year's estate tax conundrum ten years ago. In this short column, I
will restrict myself to commenting about a handful of tax issues.
Economic Substance Doctrine
I will begin with the recent codification of the economic substance doctrine, which
seems fitting since it has been about ten years since the first serious proposals for
codification were made. The result, section 7701(o), is not as bad as it could have
been. Codification has ended textualist arguments about whether courts could use the
doctrine, has resolved the question of whether both purpose and objective economic
change are required, and has adopted a qualitative approach to the problem of judging
pre-tax profit potential. Above all, section 7701(o) has preserved the flexibility of the
common law doctrine, which is of critical importance given the cat-and-mouse game of
tax avoidance. Now that the doctrine has been codified, it is doubtful that it will be
repealed anytime soon, particularly given the way revenue estimates play out. My
hopes are that, over the next ten years, section 7701(o) will remain fairly skeletal and
that any brighter line rules are worked out in regulations and litigation since such a
course seems more likely to keep the doctrine agile.
While section 7701(o) is itself fairly unobjectionable, the pairing of strict liability
penalties with such an open-ended doctrine is problematic. Section, 6662(b)(6)
imposes a strict 20% penalty if tax benefits are disallowed because a transaction lacks
economic substance, and that penalty is raised to 40% for nondisclosed noneconomic
substance transactions. I.R.C. § 6662(i). See also I.R.C. § 6664(c)(2) (no reasonable
cause exception for economic substance violations); I.R.C. § 6676(c) (strict liability for
excess refund claims). So long as the economic substance doctrine is raised only to
attack fairly obvious abuse, the penalties seem likely to remain in place. But should the
*Associate Professor of Law, University of Florida Levin College of Law, Gainesville, FL.

CONTENTS

Special Report
The Internal Revenue Code:
Looking Ahead to 2020
From the Chair
Charles H. Egerton
Interview
Steven A. Musher

1

3
4

Points to Remember            6
(1) Temporary Regulations on NOL
Carrybacks for Taxpayers Filing
Consolidated Returns
(2) Limitation by Regulation: Heads the
Service Wins, Tails the Taxpayer Loses?
Special Report                9
Retirement Planning: From the Last Day
at Work Until the Last Day of Life

Tax Bites

17
18

Book Review
The Supreme Court's Federal
Tax Jurisprudence

CLE Calendar

19
22

Boxscore

ci oM            AT        a oN
m A Section of the American Bar Association

Section of Taxation
NEWSQUARTERLY

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