In this month's Blue J Predicts column, we examine the
parties' economic substance arguments in the ongoing
litigation in Chemoil. The case involves tax refunds denied by the
IRS for excise tax credits related to alcohol-fuel mixtures. The
topic discussed in Chemoil bears a close relationship to last
month's installment of Blue J Predicts, in which we correctly
predicted that the D.C. Circuit in Cross Refined Coal would rule
for the taxpayer, holding that a business venture that was
guaranteed to be unprofitable pretax (and became profitable only
after tax credits) could still be considered a bona fide
partnership for federal income tax purposes.
Similarly, the Chemoil dispute provides an opportunity to
explore the relationship between the economic substance doctrine
and unprofitable transactions that are rendered economically viable
by tax credits.
