CCA 1311023: CCA advises that the taxpayer is generally bound by transaction form

Plain-English summary

Chief Counsel advice addresses whether a taxpayer could use the substance-over-form doctrine to recast a transaction. The advice states that taxpayers are generally bound by the form they chose, although the cited case law recognizes a possible exception when strong proof shows that the economic realities differ from the intended form. On the facts presented, the taxpayer was not expected to meet that standard.

Ruling snapshot

• Question: What did the IRS determine under the cited Code provisions?
• Outcome: advice.
• Key authorities: IRC § 7701

Full text (IRS public release)

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ID: CCA-101582-12 Number: 201311023
Release Date: 3/15/2013
Office:
UILC: 9999.97-00

From: --------------------------
Sent: Monday, October 15, 2012 8:20 AM
To: ------------------------------
Cc: ------------------------
Subject: ---------------------request for advice

RE: ----------------------------

In response to your September 16, 2012 request for this office's advice on whether the taxpayer could
utilize the substance over form doctrine to recast the transaction at issue, --------concurs with your
assessment of the case. In general, the taxpayer is bound by the form of the transaction that it chose.
See Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967). The Seventh Circuit in United States v.
Fletcher, 562 F.3d 839, 842 (7th Cir. 2009), relied on Commissioner v. National Alfalfa Dehydrating and
Milling Co., 417 U.S. 134 (1974), for the general proposition that the taxpayer cannot disavow the form of
the transaction that it chose to enter into. The Seventh Circuit, however, appears to stop short of a full on
prohibition against taxpayers disavowing their transactional forms, by requiring them to have "strong
proof" that the economic realites are something different than what they intended. See also Comdisco,
Inc. v. United States, 756 F.2d 569, 577-79 (7th Cir. 1985). In this case, based on the facts that have
been presented to date, it appears that the taxpayer will not be able to meet the "strong proof" standard.
Therefore, --------concurs with the field's overall conclusion: the taxpayer should not be entitled to utilize
substance over form to recast the transaction now into a form that better suits it.

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