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Tuesday, May 11, 2010
2:38 PM EDT
Ryan Ellis

IRS Begins Enforcing
"Economic Substance Doctrine"

You might remember during the healthcare bill that ATR detailed each of the tax increases at each stage of the legislative process.  The final list can be found here.

One of the most Orwellian of these nineteen new tax hikes is something called the "codification of the economic substance doctrine."  This new law gives blanket authority to the IRS to deny to taxpayers perfectly-legal tax deductions and tactics.  The only standard the IRS must assert is that the action was done merely to lower the tax burden (as if that's a bad thing), and not for any economically-substantial reason. 

If that sounds like an invitation for the IRS to play God and decide on a whim that a taxpayer must have been wrong when the law said he was right, it should.  This gives far too much power to the IRS.

Now, the IRS has developed a new tax form ("Form UTP") which compels companies to disclose tax positions which are or might be red flags in an audit.

Yes, you read that correctly--companies will now be required to red flag themselves for an audit.

When combined with the new "economic substance doctrine" power, the IRS' hand in negotiating with taxpayers is about to get considerably-strengthened.  Is the government short on cash one year?  No problem.  The IRS will simply get a little less understanding when they start pouring through the UTP positions.  Need to exert political retribution without getting in trouble?  Here's your way to do it.

Posted by Ryan Ellis on Tuesday, May 11, 2010 2:38 PM EDT

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