On November 10, the Fifth Circuit decided Enbridge Energy Company, Inc. v. United States, 2009 U.S. App. LEXIS 24713 (5th Cir. 2009). The guts of the holding was that (i) the district court properly denied the tax benefits from a common so-called midco transaction because of lack of economic substance and (ii) the district court properly imposed the accuracy related penalty because the transaction lacked substantial authority and, in any event, the transaction was a tax shelter for which even the presence of substantial authority could avoid the penalty.
The decision is per curiam and unpublished (meaning that it's precedential status is limited), nevertheless I think the opinion is interesting – and perhaps cautionary – because of its tenor and relationship to some of my other blogs on economic substance. I have questioned the use of the economic substance concept in criminal cases, but the government and courts in criminal cases do use it.
Focusing on Enbridge, the Fifth Circuit and the district court viewed the structure employed to avoid tax as lacking economic substance. The question I ask my readers is whether the Enbridge gambit should or at least could have been a criminal case? Wouldn't a few criminal cases with this genre of allegedly abusive tax shelters go a long way toward getting at least the major players (taxpayers and their enablers) out of the hokey tax shelter market?
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