Yoram Keinana


Thus, as this article will conclude, the role of the step transaction doctrine has been diminishing over the years from a primary weapon against tax shelters into an alternative test. In order to revive its role, the step transaction principle could be codified. As opposed to the controversial proposed codification of the economic substance doctrine, in my view, the codification of the step transaction principle will be more acceptable. The last part of this article sets forth a basic proposal for such codification.

This article will continue as follows. The first part discusses the fundamentals of the general principle of substance-over-form from which the step transaction doctrine (as well as other common law anti-abuse rules) has emerged. The second part sets forth the building blocks of the step transaction doctrine and its application in practice. Part III elaborates on the three alternative threshold tests that courts have developed over the years pertaining to the step transaction doctrine. Part IV discusses another important element in determining whether the doctrine should apply to a given transaction-the lapse of time between each step. The fifth part discusses the main controversial element of the step transaction doctrine, which is whether the IRS can prevail in a step transaction case where each step in the disputed transaction has economic substance and business purpose. Three recent cases in which the step transaction doctrine was only used by the IRS as an alternative weapon are discussed in Part VI to emphasize my point that the doctrine's role has diminished over the years. Part VII sets forth a proposal to codify the step transaction doctrine in accordance with existing case law. Finally, Part VII contains my conclusions.

Included in

Tax Law Commons