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On May 7, 2024, the NAM filed an amicus brief urging the 10th Circuit to clarify the proper application of the economic substance doctrine, a tax doctrine found in the Internal Revenue Code. That doctrine allows the Commissioner of the IRS to disallow a tax benefit for engaging in a transaction not likely to produce economic benefits aside from reducing tax liability. In this case, the District of Colorado granted summary judgment to the government and determined that the economic substance doctrine applied to disallow Liberty Global Inc.’s $110 million tax refund claim based on its sale of stock in a controlled foreign corporation. In doing so, the district court misinterpreted the economic substance doctrine to apply to all transactions which is an overbroad view of the economic substance doctrine’s scope. Liberty appealed the decision to the 10th Circuit.

We will argue that the doctrine does not apply to transactions for which the tax code authorizes tax-beneficial treatment and courts are required to first determine whether the doctrine should apply before proceeding to apply it to disallow a tax benefit. Failing to first determine whether the economic substance doctrine is relevant to a transaction has the consequence of expanding the reach of the doctrine in ways that could nullify Congress’s policy judgment regarding which transactions should receive tax benefits that allow manufacturers to compete in a global economy.