The Full Deduction Rule and the Substance Over Form Doctrine

Abstract

In this essay, we discuss the application of substance over form and related common-law interpretive doctrines to the new donation credit proposals, the so-called “SALT workarounds.” The authors conclude that, unlike in the context of corporate tax shelters, application of these doctrines would involve the IRS and courts in decisions best left for Congress. This is not only because applying these doctrines will require making intrusive and controversial policy decisions, but also because there is no rush. The classic tax shelters were developed in secret and often took years to come to the attention of the IRS, and still longer before legislation could prospectively reduce their benefits. Promoters could be three shelters down the road before an earlier one was uncovered. If shelters worked until they were legislated against, there would always be shelters that worked, and new shelters in development. Application of backup common law doctrines was, as a practical matter, a necessity. That is not the case here; Congress is clearly aware of the issue and can make distinctions between different programs and beneficiaries as it sees fit. Authors’ Note: This Essay was written before the promulgation of regulations in connection with state responses to the capping of the SALT deduction.