The Economic Substance Doctrine

The following was posted on the TrumpAccountable.org website March 3, 2017:

In the midst of discussions around the repeal of Obamacare is the fate of a little known IRS policy, the economic substance doctrine, that has been used to help fund the Affordable Care Act. As President Obama’s team worked with House and Senate committees to figure out how to pay for health insurance for millions of Americans, they found and closed loopholes with policies like the economic substance doctrine that the ultra-wealthy had been using to reduce their tax burden.

Very simply: The economic substance doctrine gives the IRS the latitude to determine if an action has a “substantial purpose” beyond simply reducing taxes. The tax-avoidance action, in other words, needs to have economic substance beyond reducing the investor’s exposure to taxes. The doctrine has dramatically limited complex tax-avoidance schemes favored by ultra-wealthy Americans; it is not an IRS policy that middle class Americans can easily use to pay less on April 15. Continue reading “The Economic Substance Doctrine”