Morrison & Foerster LLP on the Health Reform Law, the Economic Substance Doctrine and Estate Planning

The Health Reform Act of 2010 enacted IRC § 7701(o), entitled "Clarification of economic substance doctrine." This doctrine can be seen in the estate planning field, being a part of various types of transactions. Examples include: when business entities are created and valuation discounts sought for gifts of fractional interests in the entities; where installment sales involve promissory notes among family members and the notes are not treated as valid debts; and where donors contribute appreciated property to a charity with an understanding that the charity will use the proceeds to purchase other assets from the donor.

Money binds health care reform and economic substance reform.  Health care reform will be expensive, notwithstanding its goals to save health care costs and better its efficiency.  When transactions don't meet the strict economic substance rules, taxpayers can incur stiff penalties.  The expectation is that enough taxpayers will incur enough penalties for lacking economic substance (over a ten year period - $4.5 billion) to help defray the cost of health care reform . . . .

Read the entire article from Morrison & Foerster's Joseph L. Wyatt, Jr. - An Odd [Internal Revenue Code] Couple: The Health Reform Law and - The Economic Substance Doctrine? How Come? And What Effect on Estate Planning?

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