Economic Substance Doctrine: Consequences of Codification

Codification of the ESD will have a significant chilling effect upon those who seek to engage in aggressive planning. However, less aggressive practitioners are not out of the danger due to the Code’s ambiguity. It is unclear what, if any, normal commercial or investment transactions with tax benefits will come under ESD scrutiny. The strict liability penalties are further cause for practitioners considering ordinary business transactions to pay special attention to the ESD.

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