Stephen Rigsby


The corporate division, however, lends itself to schemes for avoidance of tax. These schemes are attempts to convert ordinary income into income taxable at capital gains rates. An elaborate statutory mechanism has been created to prevent this conversion. In addition, the courts have created judicial doctrines which sometimes work by adding to the statutory framework and sometimes overlap. The resulting confusion of statute and judicial doctrine is the subject of this article. The investigation will focus on that part of the statute known as the device clause and its interaction with the judicial doctrines which together are known as the business purpose doctrine.

First will be considered the origins of the problem found in case law and in the legislative response before 1954. Then the statute in its present form and the cases decided since the enactment of Section 355 will be examined in detail. Finally, a new judicial trend will be considered and a modification proposed.