U.S. Court of Appeals for the Second Circuit

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Second Circuit upholds use of economic substance doctrine

September 09, 2015

The Second Circuit affirmed the tax court’s ruling that the “economic substance doctrine” allowed it to deny foreign tax credits claimed by taxpayers on certain international loan products called “Structured Trust Advantaged Repackaged Securities” or “STARS.”

U.S. Chamber urges Second Circuit to hold that economic substance doctrine does not apply to foreign tax credits

July 07, 2014

In its brief, the Chamber asked the Second Circuit to reverse the district court's decision which incorrectly adopted a broad view of the economic substance doctrine that greatly expanded its proper scope. The Chamber argues that as a non-statutory doctrine, it is inherently uncertain and unpredictable and as a doctrine applied post hoc, it undermines taxpayers’ settled expectations about their tax liability potentially years after the relevant transactions occurred. Therefore, as precedents of the Supreme Court and the Second Circuit both confirm, the doctrine should be applied narrowly, and only when clearly warranted. The brief points out that the holdings of the Fifth and Eighth Circuits, both preclude the Commissioner from invoking the economic substance doctrine to manipulate the application of the foreign tax credit. The decisions of these Circuits were correct, and the Second Circuit should not diverge to create a Circuit conflict but rather, follow those decisions and avoid creating nationwide uncertainty in this important area of tax law.

Scott P. Martin of Gibson, Dunn, & Crutcher LLP represented the U.S. Chamber as co-counsel to the U.S. Chamber Litigation Center in this case.

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