Tax Shelters and the Search for the Silver Bullet

This article describes the ongoing legislative and administrative efforts to curtail tax shelters. It concludes that these efforts, which rely largely on disclosure requirements and penalties, cannot succeed as long as taxpayers continue to win many of the litigated shelter cases. It also concludes that the recent proposal of the Joint Committee on Taxation, to codify the economic substance doctrine, is unlikely to solve the problem. Although the proposal would have the salutary effect of preventing courts from deciding that the economic substance doctrine does not exist, courts would remain free to conclude that the doctrine is not applicable in particular situations, or to find that the doctrine is satisfied in highly dubious circumstances. Narrowly tailored legislative responses to particular types of shelters are also not adequate as a solution to the overall shelter problem; since the legislative fixes are prospective only, taxpayers merely move on to new types of shelters not yet legislated against. Accordingly, the article suggests a new approach to the shelter problem, based on the general disallowance of noneconomic losses. This could be accomplished by either (1) the enactment of a Code provision flatly disallowing noneconomic losses, subject to an exception for noneconomic losses the deduction of which is clearly contemplated by Congress, or (2) a legislative grant of authority to the Treasury to promulgate regulations retroactively disallowing noneconomic losses, as necessary to prevent abuse

Tax Shelters and the Search for the Silver Bullet

This article describes the ongoing legislative and administrative efforts to curtail tax shelters. It concludes that these efforts, which rely largely on disclosure requirements and penalties, cannot succeed as long as taxpayers continue to win many of the litigated shelter cases. It also concludes that the recent proposal of the Joint Committee on Taxation, to codify the economic substance doctrine, is unlikely to solve the problem. Although the proposal would have the salutary effect of preventing courts from deciding that the economic substance doctrine does not exist, courts would remain free to conclude that the doctrine is not applicable in particular situations, or to find that the doctrine is satisfied in highly dubious circumstances. Narrowly tailored legislative responses to particular types of shelters are also not adequate as a solution to the overall shelter problem; since the legislative fixes are prospective only, taxpayers merely move on to new types of shelters not yet legislated against. Accordingly, the article suggests a new approach to the shelter problem, based on the general disallowance of noneconomic losses. This could be accomplished by either (1) the enactment of a Code provision flatly disallowing noneconomic losses, subject to an exception for noneconomic losses the deduction of which is clearly contemplated by Congress, or (2) a legislative grant of authority to the Treasury to promulgate regulations retroactively disallowing noneconomic losses, as necessary to prevent abuse

Towards a Federal Fiduciary Standards Act

Despite the economic identity that exists between the firm and its security holders, fiduciary obligation is at present dichotomized between federal and state legal systems which have no very close connection to one another; the federal system dominates the security holder level while the various state systems dominate at the firm level. The position argued for in this article is favorable to the idea of federal legislation in the field of managerial conduct. In Part II, next following, I try- using the freezeout of minority shareholders as my main illustration- to develop the idea of specific solutions for fiduciary problems and to show why nothing short of legislative action will meet the current need. In Part III, I argue the case for federal legislation a bit further, and I offer some suggestions about the administration of the federal statute that might emerge and the role of the SEC. My conclusion, overall, is that the adoption of a federal fiduciary standards act would be a progressive development in the field of company law, and that the time to begin working on the shape and substance of such a statute is now

Fair Shares in Corporate Mergers and Takeovers

Professors Brudney and Chirelstein urge a new approach to judi-cial supervision of mergers between parent and subsidiary corpora-tions. They argue that a fair merger requires that gains generated by the combination should be shared by the two corporations rather than wholly absorbed by either, and they posit a sharing formula to provide fair treatment to all parties to the merger. Rather than at-tempting to intuit or deduce the result of an arm\u27s-length bargain that does not and cannot exist in the parent-subsidiary context, the authors emphasize the joint obligation of management to the public stockholders of both companies. The sharing formula for mergers may be used to determine the fairness of other decisions made by the parent during the period of affiliation. Finally, the authors sug-gest a somewhat different sharing formula for mergers which are the contemplated second step following an acquisition of control

Learned Hand\u27s Contribution to the Law of Tax Avoidance

The extent to which taxpayers are free to minimize their tax obligations by choosing one legal form rather than another as the vehicle for a transaction or relationship has preoccupied lawyers and administrators since the inception of the federal income tax. There is a common awareness among practitioners that different legal procedures will often lead to different tax consequences, although in economic terms the end results are essentially the same. In selecting the form in which a proposed business transaction shall be cast, therefore, it is said to be vital for the tax planner to consider and evaluate all of the possible routes to his client\u27s destination, and the ability to generate a multiplicity of formal alternatives, however sterile the exercise in any other context, is usually thought to be the true mark of a creative tax adviser. But one hastens to add that the planning job does not end there. The Internal Revenue Service does not regard itself in every case as bound by the taxpayer\u27s choice of form, so that a plan which is jigsaw cut to the letter of the law may nevertheless be challenged by the government for one reason or another. Hence the ability to perceive alternatives in great number can sometimes be a dangerous intelligence unless it is combined with a power to forecast the likely reaction of the Service and the courts to each of the alternatives in view

Learned Hand\u27s Contribution to the Law of Tax Avoidance

The extent to which taxpayers are free to minimize their tax obligations by choosing one legal form rather than another as the vehicle for a transaction or relationship has preoccupied lawyers and administrators since the inception of the federal income tax. There is a common awareness among practitioners that different legal procedures will often lead to different tax consequences, although in economic terms the end results are essentially the same. In selecting the form in which a proposed business transaction shall be cast, therefore, it is said to be vital for the tax planner to consider and evaluate all of the possible routes to his client\u27s destination, \u27 and the ability to generate a multiplicity of formal alternatives, however sterile the exercise in any other context, is usually thought to be the true mark of a creative tax adviser.2 But one hastens to add that the planning job does not end there. The Internal Revenue Service does not regard itself in every case as bound by the taxpayer\u27s choice of form, so that a plan which is jigsaw cut to the letter of the law may nevertheless be challenged by the government for one reason or another.3 Hence the ability to perceive alternatives in great number can sometimes be a dangerous intelligence unless it is combined with a power to forecast the likely reaction of the Service and the courts to each of the alternatives in view