Tag: Step transaction doctrine

The step transaction doctrine is a legal doctrine that treats a series of formally (artificially) separate steps as a single integrated event for tax purposes. The step transaction doctrine is part of the broader substance over form doctrine, which is often applied in tax avoidance cases.

US vs GSS HOLDINGS (LIBERTY) INC., September 2023, U.S. Court of Appeals, Case No. 21-2353

US vs GSS HOLDINGS (LIBERTY) INC., September 2023, U.S. Court of Appeals, Case No. 21-2353

GSS Holdings had claimed a loss of USD 22.54 million which the IRS disallowed. In disallowing the loss, the IRS claimed that the loss was not an ordinary business loss, but was incurred as part of a series of transactions that resulted in the sale of capital assets between related parties. The trial court upheld the IRS’s adjustment and GSS Holdings appealed to the Court of Federal Claims. The Court of Federal Claims applied a combination of substance over form and step transaction doctrines to combine two transactions and dismissed GSS Holdings’ claims on that basis. GSS Holdings then appealed to the US Court of Appeals. Opinion of the Court The Court of Appeals found that the Federal Claims Court had misapplied the step transaction doctrine and remanded the case for reconsideration under the correct legal standard. Excerpt “As part of this examination, the Claims Court must determine the outset of the series of transactions, keeping in mind that the ... Read more
Japan vs. IBM, March 2015, Tokyo High Court, Case no 第265号-56(順号12639)

Japan vs. IBM, March 2015, Tokyo High Court, Case no 第265号-56(順号12639)

An intermediate Japanese holding company in the IBM group acquired from its US parent all of the shares of a Japanese operating company. The Japanese holdings company then sold a portions of shares in the operating company back to the issuing company for the purpose of repatriation of earned profits. These sales resulted in losses in an amount of JPY 400 billion which for tax purposes were offset against the operating company’s taxable income in FY 2002 – 2005. The Japanese tax authorities did not allow deduction of the losses resulted from the sales referring to article 132 of the Corporation Tax Act of Japan (general anti avoidance regulation). The tax authorities found that the reduction of corporation tax due to the tax losses should be disregarded because there were no legitimate reason or business purpose for the transactions. According to the authorities the transactions would not have taken place between independent parties and the primary purpose of the transactions ... Read more
Gregory v. Helvering, January 1935, U.S. Supreme Court, Case No. 293 U.S. 465 (1935)

Gregory v. Helvering, January 1935, U.S. Supreme Court, Case No. 293 U.S. 465 (1935)

The first rulings where the IRS proposed recharacterizing transactions that could be considered abusive through use of transfer pricing provisions. Judgement of the Supreme Court The court instead applied the general anti-abuse doctrine. “It is earnestly contended on behalf of the taxpayer that, since every element required by the foregoing subdivision (B) is to be found in what was done, a statutory reorganization was effected, and that the motive of the taxpayer thereby to escape payment of a tax will not alter the result or make unlawful what the statute allows. It is quite true that, if a reorganization in reality was effected within the meaning of subdivision (B), the ulterior purpose mentioned will be disregarded. The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. United States v. Isham, 17 Wall. 496, 84 U. S. 506; Superior Oil Co ... Read more