Economic substance
Encyclopedia
Economic substance is a doctrine
in the tax law
of the United States
under which a transaction must have an economic purpose aside from reduction of tax liability in order to be considered valid. This doctrine is used to determine whether tax shelter
s, or strategies used to reduce tax liability, are considered "abusive" by the Internal Revenue Service
.
It was adopted into law as part of the 2010 Patient Protection and Affordable Care Act
.
Doctrine
Doctrine is a codification of beliefs or a body of teachings or instructions, taught principles or positions, as the body of teachings in a branch of knowledge or belief system...
in the tax law
Tax law
Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...
of the United States
Taxation in the United States
The United States is a federal republic with autonomous state and local governments. Taxes are imposed in the United States at each of these levels. These include taxes on income, property, sales, imports, payroll, estates and gifts, as well as various fees.Taxes are imposed on net income of...
under which a transaction must have an economic purpose aside from reduction of tax liability in order to be considered valid. This doctrine is used to determine whether tax shelter
Tax shelter
Tax shelters are any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments...
s, or strategies used to reduce tax liability, are considered "abusive" by the Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
.
It was adopted into law as part of the 2010 Patient Protection and Affordable Care Act
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...
.
External links
- The Economic Substance Doctrine in the Current Tax Shelter Environment: Remarks by Donald L. Korb, Chief Counsel of the Internal Revenue Service