Reading Reaction Journal

Reference

Jacobson Larry (2009, January 15). The Economic Substance Doctrine. Retrieved January 17, 2009, from http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2009/Tax/SubstanceDoctrine.jsp

Summary

This article shows two aspects of the economic substance doctrine. One aspect is the definition of the economic substance: it is a principle of tax and it is a way to against for the behavior of tax escaping and another one is influence of the economic substance doctrine for your practice: it limited the tax- motivated transactions because of law penalty.

Reaction

After I read this article, I think the economic substance is a good doctrine to avoid tax shelters which are against the law. Indeed, there are some cases involving the tax shelter in business and many cases have become more and more complicated. So, the previous principle didn't fit into the current tax shelter cases, and the new doctrine that is economic substance was determined by the United States Supreme Court.

The economic substance doctrine is an objective standard to judge the tax shelter transaction. So, it is received more easily by people and is more definite compared to the subjective standard. For example, the business purpose doctrine is a subjective standard to judge the case, because it has no exact proportion to offer people a judgement. So, people have trouble to judging if the case has a business purpose or not, and people judge cases by themselves subjectively. Therefore, it usually lacks definiteness.
In addition, there are many penalties to prevent people from taking an illegal tax shelter besides the doctrine, and they get some good results. Finally, the economic substance doctrine has become more and more important in tax cases.