Codification of the Economic Substance Doctrine and the Gregory Case

Abstract

ABSTRACT Gregory v. Helvering is a landmark case in the area of corporate reorganizations. The concepts that evolved from Gregory include the business purpose test, continuity of business, the taxpayer's right to minimize tax liability, step transaction doctrine, and the economic substance doctrine. The Treasury Department sought a codification of the economic substance doctrine as a necessary weapon to curb the growth of corporate tax shelters. While the doctrine had been part of the fabric of our tax system since Gregory, it had been eroded by some confusing and conflicting case law. In 2010 (the 75th anniversary of Gregory), Congress codified the economic substance rules. In order to understand this new legislation it is necessary to explore the long and grand history of the Gregory case as a backdrop for consideration of the merits and demerits of the codification of the economic substance doctrine.