A Critique of the Business-Purpose Doctrine

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Summers, Robert S.
Knetsch v. United States; Business-purpose doctrine; Business Organizations Law; Taxation-Federal; Tax Law
article description
The aims of this article are: (1) to define the nature and significance of the business-purpose doctrine as applied in the field of Federal income taxation; (2) to summarize several considerations that support abandonment of the doctrine; and (3) to consider whether a substitute doctrine is needed. Several recent cases indicate that the influence of the business-purpose doctrine is declining, and in the recent case of Knetsch v. United States the Supreme Court appears to have substituted an alternative doctrine. The dual thesis of the present article is that the business-purpose doctrine ought to be abandoned and that there is no need for a substitute.