“Relevant” Under the Economic Substance Doctrine – The Case of Patel v. Commissioner
One of the basic principles of tax law is the economic substance doctrine. As recognized for many years in case law, under the economic substance doctrine, courts would generally examine both whether a transaction had economic substance beyond tax benefits and whether there was a nontax business purpose for entering the transaction; transactions that could not meet the economic substance doctrine could be disregarded or disallowed for tax purposes. The Tax Court in the Patel case concluded that (1) the taxpayer’s captive insurance company transactions did not have economic substance under the two-part “economic substance doctrine” test.
