Economic substance is an anti-abuse doctrine that analyzes
suspect business transactions for a motive other than the obtaining
of a tax advantage. Certain strategies involving, for example,
corporate reorganizations, acquisitions or sales, financings,
partnership structures, loans and deductions, or various tax
shelter arrangements may offend the purpose underlying sections in
the Internal Revenue Code (IRC) that minimize tax
liability.1
While some transactions technically comply with the rules that
lead to a tax benefit, they violate the spirit in which those
benefits are offered. When this happens, the Internal Revenue
Service (IRS) is not obligated to respect the transaction or the
tax effects that would flow from it, because such a transaction has
no "economic substance." Factors such as the origin,
structure, and economic effects of the transaction; effects of the
transaction besides profit; and the risk level undertaken by the
taxpayer have been considered by
