Don’t Try This at Home: Equitable Doctrines Are for Governments, Not for Taxpayers

tax, equitable doctrineThe IRS utilizes a variety of equitable doctrines to recast transactions for tax purposes, including step transaction, substance over form, economic substance, and sham transaction, and they are quite effective for unwinding efforts to escape tax. State and local tax authorities utilize these doctrines as well. While taxpayers may think that turnabout is fair play, the doctrines don’t work that way, as was illustrated by the Tax Court last week. See Messina v. Comm’r, Nos. 25510-15 & 25567-15, T.C. Memo 2017-213, 2017 Tax Ct. Mem. LEXIS 214 (Oct. 30, 2017).

Messina involved two taxpayers, Mr. Messina and Mr. Kirkland, who each owned a 40% interest in an S corporation.… Read More