The NAM filed amicus briefs on Jan. 12, 2007, in a pair of cases on appeal to the Supreme Court involving the economic substance doctrine. In order to claim tax deductions or credits for business transactions, companies must meet the technical requirements of the tax code provision and also show that the transaction serves a real economic purpose and is not entered into solely for the tax benefits.
In this case, the NAM and the U.S. Chamber of Commerce urged the Court to review a Federal Circuit decision that overturned a judge's ruling that Coltec's plan to manage future asbestos liabilities satisfied the economic substance doctrine. The appeals court used a de novo standard of review, meaning that they ignored the findings of the trial court and drew their own conclusions from the evidence. Our brief argued that appeals courts should review trial decisions using a "clearly erroneous" standard of review.
In addition, we argued that the appellate court's approach jeopardizes important principles of judicial deference to business judgment. Historically, the business judgment rule has meant that courts should not second-guess business decisions. Excessive governmental intrusion into business affairs chills commercial activity, increases costs and makes decisions more risky. The appeals court's decision sows confusion into the availability of a variety of deductions and credits under the Internal Revenue Code, and calls into doubt a variety of familiar, beneficial activities previously approved by the courts. Several of these common activities are described in the brief.
On Feb. 20, 2007, the Court declined to review this appeal.