Comments on the Thomas Bill's codification of the economic substance doctrine: August 2, 2002.

On August 2, 2002 Tax Executives Institute sent the following comments to the House Ways and Means Committee and the Department of the Treasury regarding the Codification of Economic Substance Doctrine and Related Penalty Provisions in H.R. 5095 (The American Competitiveness Act of 2002).

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On behalf of Tax Executives Institute, I am pleased to submit the following comments on section 101 and related provisions of H.R. 5095 ("The American Competitiveness Act of 2002")(hereinafter "the Act" or "the bill"). As the preeminent association of business tax professionals, TEI has a significant interest in maintaining the integrity and vitality of America's self-assessment tax system and, hence, in the development of meaningful, effective, and properly balanced legislation relating to the abusive tax shelters. Because the codification of the judicially-developed economic substance doctrine will not further these goals, TEI urges the Committee to drop the current proposals to codify the economic substance doctrine as proposed in section 101 of H.R. 5095, and the corresponding proposal in section 104 to establish a penalty for understatements attributable to transactions lacking economic substance.

TEI applauds the Chairman's decision to release a draft of the Act for public comment on July 11, well before the Committee markup. Too frequently in the past, affected taxpayers have not had a reasonable opportunity to review legislative language on a meaningful before-the-fact basis. The approach here has made it possible to examine the specific proposals in a timely manner and therefore to identify issues in, or raise questions about, them when revisions can more easily be made, if appropriate. The comments that follow are based on the draft language released on July 11 and, where noted, on the description prepared by the staff of the Joint Committee on Taxation. (1)

From the outset, TEI has acknowledged that inappropriate tax-advantaged products have been marketed and agreed that this poses a challenge to the efficacy of the tax system. The Institute firmly believes that the key to stopping such abuses is the effective administration of the tax law. Effective administration of the law, in turn, depends upon the ability of IRS agents to identify and analyze transactions, and, where necessary, to challenge them. The IRS must do more to challenge and curtail questionable transactions, including raising practitioner standards, and where appropriate, asserting currently available penalties. For this reason, the Institute supported the creation of the IRS's Office of Tax Shelter Analysis to identify, quantify, and develop comprehensive approaches to dealing with tax shelters (including the issuance of needed substantive guidance). Moreover, TEI has consistently urged the Congress and the Treasury Department to focus on disclosure-based approaches to address tax shelters. H.R. 5095 mirrors proposals approved by the Senate Committee on Finance in many important regards. Like S. 2498, the Tax Shelter Transparency Act, the Committee's general approach to tax shelters represents a marked and we]come departure from previous proposals. It properly steps in the direction of enhancing taxpayer and--more important--promoter disclosures. (2) Indeed, we suggest that a fundamental problem with the administration of the current penalty regime is that the rate is so high that it is rarely asserted against corporate taxpayers. Where penalties are disproportionate to the conduct involved, agents may be inhibited from asserting such penalties. Witness, for example, the penalty for errors involving qualified plans before the intermediate sanction rules were enacted. Because the stated penalty--revocation of exempt status--was widely considered too harsh, agents rarely ever asserted it. Thus, while administrative steps should be taken to address the certainty of application, TEI does not believe the level of accuracy-related penalties should be increased. We do, however, have significant concerns about section 101.

Background

Tax Executives Institute was established in 1944 to serve the professional needs of business tax professionals. Today, the Institute has 53 chapters in the United States, Canada, and Europe. Our more than 5,300 members are accountants, attorneys, and other business professionals who work for 2,800 of the leading companies in North America and Europe. As a professional organization, the Institute is firmly dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. The Institute is committed to maintaining a system that works--one that builds upon the principle of voluntary compliance and is consistent with sound tax policy, one that taxpayers can comply with, and one in which the IRS can effectively perform its audit function without unduly burdening taxpayers. We also support efforts to ensure that companies fairly present their financial condition in financial statements and related documents filed with the SEC.

These goals can only be achieved through our members' adherence to the highest standards of professional competence and integrity. To ensure compliance with the law, TEI's Standards of Conduct exhort the members to "present the facts required in tax returns and all the facts pertinent to the resolution of questions at issue with representatives of the government imposing the tax." As important, the members "recognize an obligation to make an affirmative contribution to the sound administration of the tax laws, and to the adoption of sound tax legislation, by cooperation and consultation with the persons charged with those functions, having due regard for the interests of society, as well as the interests of the company and its employees." In short, a balance must be struck between public duty and private right.

TEI members are responsible for conducting the tax affairs of their companies and ensuring their compliance with the tax laws. TEI members deal with the tax code in all its complexity, as well as with the Internal Revenue Service, on almost a daily basis. Most of the companies represented by our members are part of the IRS's Coordinated Industry Case program, pursuant to which they are audited by a team of IRS agents on a continuing basis.

As a professional association of in-house tax executives, TEI offers a different perspective on tax shelters from other organizations. The Institute does not represent tax shelter promoters and developers (including investment bankers) who either sell or facilitate the transactions. Nor do we represent the professional advisors (be they attorneys or accountants) who opine on and hence assist in the development, promotion, and implementation of the arrangements. Rather, TEI's members work directly for the corporations that routinely enter into business transactions that require an analysis of their tax benefits and burdens. These companies have professional staffs dedicated to ensuring compliance with the law while minimizing their tax liability. We, along with the government, have the most at stake in trying to craft an equitable tax system that is as administrable and efficient as possible.

Recommendations

TEI urges the Committee to reject proposals to codify the economic substance doctrine as currently proposed in section 101 of H.R. 5095, as we have when such proposals were raised in the past. We similarly urge the Committee to drop the corresponding proposal in section 104 to establish a penalty for understatements attributable to transactions lacking economic substance.

As both a substantive change to the Code and a separate basis for a penalty for noncompliance, the proposals would mark a significant departure from our rules-based system, apply to an extraordinarily broad range of transactions, and would involve the application of vague and undefined subjective tests. They would make it extremely difficult for taxpayers to enter into their everyday business decisions with necessary clarity and certainty, and for the IRS to examine their returns in an evenhanded, objective, and consistent manner. Adopting such will prove at once both over-inclusive (ensnaring and severely punishing taxpayers for wholly legitimate transactions) and under-inclusive (failing to catch some abuses that should be stopped).

Further, in the complex economic environment in which businesses must currently operate, it is difficult to accurately assess the net economic effects of a transaction in advance of its implementation. As a result, many business transactions, if not arguably every business transaction, would be subjected to a risk of a 40-percent penalty. It would be difficult for a taxpayer to know in advance of engaging in a transaction whether or not doing so would subject the taxpayer to the penalty. Given the strict liability aspects of the proposal, (3) this would lead to particularly harsh results. We would hope that the Committee, upon further reflection, would find the results unacceptable and counter-productive.

Further, and apart from the proposals to which these comments are primarily addressed, we submit that the filter for other reportable transactions in section 103 of the bill (new section 6662A(b)(2)(B))--("a significant purpose of tax avoidance or evasion" (4))--is over broad. In our view, it should be changed to envelop transactions only where "the principal" purpose of a transaction is tax avoidance. (5) Otherwise the bill will overreach by not providing a meaningful basis for distinguishing legitimate tax planning for ordinary commercial transactions from potentially abusive transactions. Business taxpayers employ staff whose principal duties consist of advising the taxpayer how to comply with the law and to report the proper amount of tax liability. Thus, even the most mundane transactions are reviewed and structured with a purposeful intent of minimizing their tax liability within the constraints of a complex tax code.

Codification of The Economic Substance Doctrine is III-founded

a. General Comments

In introducing its description of the economic substance doctrine, the Joint Committee on Taxation states:

   The Internal Revenue Code ... provides specific rules regarding the
   computation of taxable income, including the amount, timing, source, and
   character of items of income, gain, loss and deduction. These rules are
   designed to provide for the computation of taxable income in a manner that
   provides for a degree of specificity to both taxpayers and the government.
   Taxpayers generally may plan their transactions in reliance on these rules
   to determine the federal income tax consequences arising from the
   transactions. (6)

In addition to specificity, these rules provide for a necessary degree of certainty as well.

Despite continuing efforts over the decades to address cases in which taxpayers have sought tax benefits unintended by Congress or otherwise crossing the nebulous line between legitimate tax avoidance and undesirable tax evasion, and despite numerous earlier opportunities to do so, Congress has consistently refrained from adopting one overall or general anti-abuse rule or general anti-avoidance rule ("GAAR"). (7) TEI believes that overlaying the U.S. Code with one complex, fixed, statutory, subjective anti-abuse rule would add significantly to the overall complexity of the tax system and significantly reduce the certainty of application of its rules, would make voluntary compliance difficult for many taxpayers, and would likely frustrate future efforts to combat abusive transactions rather than aid those efforts.

b. Current Judicial Doctrines

A number of judicial doctrines currently exist to combat abuse of the rules. One of the more widely used is the concept of "substance over form," as first developed in Helvering v. Gregory. (8) In addition, targeted statutory and regulatory anti-abuse provisions have been employed in response to specific patterns of taxpayer activity. Commentators have observed that the statutory and regulatory rules have generally been less effective than the judicial doctrines in combating abuse, because they have:

   (i) been too focused and therefore are easily circumvented by taxpayers,
   ... (ii) set a threshold for application that, while sensible, places a
   high burden of proof on the IRS, ... or (iii) been so general and therefore
   broad in their application that they apply to both legitimate transactions
   and avoidance schemes and as a result courts generally do not rely on them
   as the principal basis for any decision.... (9)

The judicial doctrine of substance over form holds that a court may determine it is not bound by the form of a transaction (or benefits that may flow from that form) where that form does not match the substance or economic realities of the transaction, (10) The doctrines of business purpose and economic substance are related doctrines that are sometimes hard to distinguish; they have been applied to determine whether tax benefits literally available under a statute or regulation should be denied because of insufficient non-tax reasons for the transaction. Requirements for the imposition of these doctrines have understandably varied from court to court. (11) The imposition of the step transaction doctrine by the courts has generally involved considering together the various formalistic steps of a transaction, or seemingly unrelated transactions, to determine the tax consequences of an overall substantive plan. (12) The sham transaction doctrine is related to the substance over form doctrine and has been applied by courts where the form of a transaction does not match its economic substance or when a transaction, although not a sham in fact, is deemed to lack business purpose and economic substance; steps or even whole structures are ignored for tax purposes and results determined by the substance of the transaction. (13) The assignment of income doctrine has also been invoked to tax income or disallow deductions shifted from one taxpayer to another. (14) Finally, several judicial doctrines have evolved and developed over time to attack the deferral of income or the acceleration of deductions in inappropriate cases. (15)

One recent court decision described the economic substance doctrine:

   The tax law ... requires that the intended transactions have economic
   substance separate and distinct from economic benefit achieved solely by
   tax reduction. The doctrine of economic substance becomes applicable, and a
   judicial remedy is warranted, where a taxpayer seeks to claim tax benefits,
   unintended by Congress, by means of transactions that serve no economic
   purpose other than tax savings. (16)

c. Codifying the Economic Substance Doctrine Would Be Unwise

Section 101 of the bill would provide that a transaction has economic substance (and thus satisfies the economic substance doctrine) only if the taxpayer establishes that (1) the transaction changes in a meaningful way (apart from federal income tax consequences) the taxpayer's economic position, and (2) the taxpayer has a substantial non-tax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose. The analysis is conjunctive--a transaction must both change the taxpayer's economic position in a meaningful way apart from the federal income tax consequences and must be entered into for a substantial non-tax purpose. The proposal would thus change present rules of common law where satisfaction of either (but not both) of these tests is sufficient to satisfy the economic substance doctrine. (17)

The proposal creates a number of issues that, in our view, substantially impair rather than improve the tax system.

First, the statute itself leaves open to question many important issues that are necessary to its application. For example, how does one determine what a "meaningful" change in economic position may be? It is unclear what level of profit would be required; in fact, is a profit required? (18) Must the transaction's non-tax profits cover at least the expected transaction costs? (19) How is the transaction to be defined? (20) Must there be contemporaneous evidence showing the relevant facts before the transaction is consummated and, therefore, must all taxpayers carefully document all such transactions beforehand? Who determines whether the transaction is a reasonable means of accomplishing a substantial non-tax purpose or, rather, when should the taxpayer's determination be allowed to stand? What broad standards could apply to the diversity of transactions that occur every day in the economy?

The Joint Tax Committee has acknowledged these concerns:

   The proposal would not provide specific definitions regarding what
   constitutes a "change in a meaningful way" or "substantial non-tax
   purpose." Defining these terms in the Code could prove problematic, be an
   inadequate deterrent, and could hinder valid business transactions; because
   a codified definition likely could not properly address the variety of
   circumstances in which the economic substance doctrine should be applied.
   For example, requiring a pre-tax profit test as part of an economic
   substance analysis could raise concerns with respect to certain customary
   leveraged lease transactions, financing arrangements in general, and
   transactions where the tax benefits are both intended by Congress and
   significant, but the transaction itself is expected to yield little (if
   any) profit. For this reason, the proposal would grant the Treasury
   Department the authority to further define these terms to carry out the
   purposes of the proposal.... The proposal would provide that a taxpayer's
   non-tax purpose for entering into a transaction must be "substantial," and
   that the transaction must be "a reasonable means" of accomplishing such
   purpose. A single, statutory definition of what is "substantial" or what
   constitutes "a reasonable means" could not adequately address the various
   situations in which the purported business purpose of the transaction may
   be examined under the economic substance analysis. However, by requiring a
   substantial non-tax purpose, it is intended that more than a mere showing
   that a transaction was not motivated solely by tax considerations would be
   needed to satisfy this standard. Rather, the non-tax purpose for the
   transaction would have to bear a reasonable relationship to the taxpayer's
   normal business operations or investment activities. For example, an
   objective of achieving a favorable accounting treatment for financial
   reporting purposes generally should not be treated as having a substantial
   non-tax purpose. Furthermore, a transaction ... that is expected to
   increase financial accounting income as a result of generating tax
   deductions or losses without a corresponding financial accounting charge
   (i.e., a permanent book-tax difference) would not be considered to have a
   substantial non-tax purpose unless a substantial non-tax purpose exists
   apart from the financial accounting benefits. (21)

A more significant problem with the proposal is that it will engender significant and intolerable uncertainty. Taxpayers can live with some uncertainty, but the vague definition of tax avoidance transaction contained in these rules will be disruptive and provide no comfort. The answer to a simple question now completely answered by a specific provision of law will become a matter of subjective opinion that will vary from person to person. Taxpayers should not be expected to operate their businesses on such a basis.

The proposal is not a simple clarification of existing law as its title suggests. Broad judicial standards are currently employed to interpret the statutes, but are applied in a relatively narrow class of transactions or circumstances. The statutory system in the proposal does not simply define an abusive tax shelter and then disallow the tax benefits that flow from the transaction in question. Instead, the current system is turned on its head. Regardless of what particular Code provisions may allow in myriad situations, each is to be ignored unless a taxpayer proves both a meaningful change in economic position and a substantial non-tax purpose in each circumstance in which the rule is applied.

And while the target of the proposal is taxpayers that engage in abusive tax shelters, all taxpayers--taxpayers not engaged in "tax shelter" transactions--would be required to live in this world; they would have to apply an economic substance analysis and related requirements to every tax attribute claimed. Notwithstanding what a particular Code provision provides, it must be ignored unless the requirements of the subjective overlay have been satisfied. The nature of our tax system and voluntary compliance would be upended, the perverse result of an attempt to staunch a limited number of troublesome transactions. For example, if a taxpayer chose to invest in an individual retirement account, would the resulting IRA deduction be subject to disallowance? Would all ordinary and necessary business expenses otherwise qualifying under section 162 also have to be documented as producing a meaningful change in economic position and having a substantial non-tax purpose? How would the standards apply to accelerated depreciation taken on business equipment? Similarly, such questions would pervade every routine business transaction. (22) Applying these requirements in contexts outside that of the abusive tax shelter would likely make it impossible to comply with an already complex Code.

As the Joint Committee has suggested, the simple answer to the absurdities raised by these concerns is to leave the enforcement of the standards to administrative discretion. Codification of such broad anti-abuse standards, however, raises serious concern about such equally broad administrative discretion. Absent such a statutory anti-abuse rule, government officials should be loath to attempt to override an express or specific rule in the Code or regulations with individual notions of fairness or appropriateness of a transaction. What assurance is there, however, such restraint will continue to be exercised? Most changes in rules require the active consent if not participation of the Congress in a considered amendment of the provisions of the Code. Is the Congress fully prepared to delegate so much of its authority to the Treasury Department and the IRS?

The economic substance doctrine was developed by the courts to complement, or provide a backstop, to the Internal Revenue Code's substantive provisions, not vitiate them. It is clear that, when abuses occur, the courts are willing to utilize existing doctrine or to create new ones to prevent abuse. (23) Regrettably, codifying the economic substance doctrine would further complicate and confuse the system and undermine not only legitimate tax planning but the courts' willingness and ability to apply other judicial doctrines in the event the codified rule does not reach a particular type of transaction.

Conclusion

We urge the Committee to drop the current proposals to codify the economic substance doctrine as proposed in section 101 of H.R. 5095, and the corresponding proposal in section 104 to establish a penalty for understatements attributable to transactions lacking economic substance.

Tax Executives Institute appreciates this opportunity to present its views on the tax shelter provisions of the draft of H.R. 5095 ("The American Competitiveness Act of 2002"). Any questions about the Institute's views should be directed to either Timothy J. McCormally, TEI's Executive Director, or Fred F. Murray, the Institute's General Counsel and Director of Tax Affairs. Both individuals may be contacted at 202.638.5601.

(1) Technical Explanation of H.R. 5095 ("The American Competitiveness Act of 2002"), Staff of the Joint Committee on Taxation, JCX-78-02, July 19, 2002 (here-inafter "JCX-78-02").

(2) TEI filed comments on S. 2498, the Tax Shelter Transparency Act, with the Committee on Finance on June 28, 2002, and copies of the comments were provided to Committee on Ways and Means. Those comments are applicable to similar proposals in H.R. 5095.

A provision of H.R. 5095 not included in S. 2498 would enact new Code section 6662B which would impose an additional penalty on nonpersonal transactions at levels up to 40 percent with respect to any portion of a "noneconomic substance transaction understatement" (an "NSTU"). An NSTU would include transactions defined in new section 7701(m) or a transaction that "fails to meet the requirements of any similar rule of law." In addition to our long-standing concerns about the codification of the economic substance doctrine, TEI has significant reservations about the proposed penalty rate. There is no evidence, anecdotal or otherwise, that the efficacy of the current penalty regime would be increased by raising rates above an already high 20 percent. TEI believes that consistency, certainty, and fairness in the application of the penalty play a bigger role in deterring noncompliance than viscerally ratcheting the penalty rate up.

(3) JCX-78-02, at 16.

(4) Imposition of liability upon the existence of "a principal" purpose of tax avoidance does not serve to effectively isolate those transactions entered into with the proscribed subjective intent. See Santa Fe Pacific Corporation v. Central States, Southeast and Southwest Areas Pension Fund, 22 F.3d 725 (7th Cir. 1994): "It needn't be the only purpose; it need only have been one of the factors that weighed heavily in the seller's thinking. We can find no decisions discussing situations in which there is more than one principal (major, weighty, salient, important) purpose, but we would be doing violence to the language and purpose of the statute if we read `a principal' as `the principal.'" In one of the most often cited tax avoidance cases, the United States Supreme Court affirmed the right of taxpayers to at the least consider the tax effects of transactions into which they enter and to consciously plan their affairs in a way to minimize or even eliminate their taxes by means that the law permits. Gregory v. Helvering, 293 U.S. 465 (1935) (upholding IRS challenge to transaction). Of course, deciding what is legitimate tax avoidance has always been both the beginning and end points of such exercises.

(5) A statute with similar "intent" is section 269, which as passed by the House in 1943 would have applied if tax avoidance was one of the principal purposes of the acquisition. The language was changed by the Senate on the theory that "the section should be operative only if the evasion or avoidance purpose outranks, or exceeds in importance, any other one purpose." See S. REP. No. 627, 78th Cong., 1st Sess. 59 (1943), reprinted in 1944 C.B. 973, 1017. While the application of the test in that context has not been without problem, the jurisprudence is now fairly well defined. See Boris I. Bittker & James S. Eustice, FEDERAL INCOME TAXATION OF CORPORATIONS AND SHAREHOLDERS [paragraph] 14.4[14] [a] & nn. 150-154 (7th Ed. 2002). This would seem to be a better indicator of the proscribed conduct.

(6) JCX-78-02, at 2 (emphasis added).

(7) Other countries with different tax systems have either adopted or examined such rules. Cf. Section 245, Income Tax Act (Revised Statutes of Canada 1985, c. 1 (5th Supp.). The application and administration of this statute has been quite controversial. See also A General Anti-avoidance Rule for Direct Taxes: Consultative Document, Inland Revenue, London, 5 October 1998 [United Kingdom]. This proposal was ultimately withdrawn by the Chancellor of the Exchequer in favor of a "substantial package of specific anti-avoidance measures" together with an announcement that Inland Revenue would "not be proceeding any further with the development of a GAAR" unless the specific measures proved ineffective. Letter of Inland Revenue to TEI dated 25 March 1999.

(8) 69 F.2d 809 (2d Cir. 1934), aff'd Gregory v. Helvering, 293 U.S. 465 (1935).

(9) Jeffrey H. Paravano & Melinda L. Reynolds, Corporate Tax Shelters: Evaluating Recent Developments, PLI Course Handbook, Tax Strategies for Corporate Acquisitions, Dispositions, Spin-offs, Joint Ventures, Financings, Reorganizations and Restructurings, Vol. 16 (2002), at 13 (internal footnotes omitted).

(10) Gregory. See also Rogers v. United States, 281 F.3d 1108 (10th Cir. 2002).

(11) See, e.g., Frank Lyon Co. v. United States, 435 U.S. 561 (1978); Rice's Toyota World, Inc. v. Commissioner, 81 T.C. 184 (1983), aff'd in part, rev'd in part, 752 F.2d 89 (4th Cir. 1985); ACM Partnership v. Commissioner, 157 F.3d 231 (3d Cir. 1998), cert denied, 526 U.S. 1017 (1999); Compaq Computer Corp. v. Commissioner, 113 T.C. No. 17 (Sept. 21, 1999), rev'd--F.3d--(5th Cir. 2002) (pet. for reh'g en banc filed, Feb. 11, 2002).

(12) See, e.g., Gordon v. Commissioner, 391 U.S. 83 (1968); Redding v. Commissioner, 630 F.2d 1169 (7th Cir. 1980); King Enterprises v. United States, 418 F.2d 511 (Ct. Cl. 1969).

(13) See, e.g., Gregory; Higgins v. Smith, 308 U.S. 465 (1935); Knetsch v. United States, 364 U.S. 361 (1961); Internal Revenue Service v. CM Holdings, Inc., 254 B.R. 578 (D. Del. 2000).

(14) See, e.g., Lucas v. Earl, 281 U.S. 111 (1930); Schulde v. Commissioner, 372 U.S. 128 (1963); Frank Lyon.

(15) See, e.g., Glassell v. Commissioner, 15 B.T.A. 223 (1929) (economic benefit rule); Burnet v. Logan, 283 U.S. 404 (1931) (open transaction method); Ross v. Commissioner, 169 F.2d 483 (1st Cir. 1948), and A.D. Saenger, Inc. v. CIR, 84 F2d 23 (5th Cir.) , cert. denied, 299 US 577 (1936) (constructive receipt doctrine); Hines v. Commisioner, 65 A.F.T.R.2d 90-488 (3d Cir. 1989), and Herrington v. Commissioner, 854 F.2d 755 (5th Cir. 1988) (duty of consistency).

(16) ACM Partnership v. Commissioner, T.C. Memo 1997-115 at 723, aff'd in part, rev'd in part, 157 F.3d 231 (3rd Cir 1998), cert denied, 526 U.S. 1017 (1999).

(17) JCX-78-02, at 5-6.

(18) How would the statute apply to the situation in Cottage Savings Association v. Commissioner, 499 U.S. 554 (1991) (swapped pools of mortgages for the purpose of triggering tax losses)? The Supreme Court held that the exchanged mortgages were substantially identical for regulatory and book purposes and had legally distinct entitlements that were material for tax purposes. Can one sell other loss assets?

(19) See, e.g., Sheldon v. Commissioner, 94 T.C. 738 (1990); Cook v. Commissioner, 90 T.C. 975 (1988); Glass v. Commissioner, 87 T.C. 1087 (1986); and Fox v. Commissioner, 56 T.C.M. (CCH) 863 (1988). How much is enough?

(20) For example, in ACM, the court looked to the purchase and sale of Citicorp notes by the partnership and not the Colgate investment in ACM.

(21) JCX-78-02, at 6-8 (internal footnotes omitted).

(22) We know that one transaction is acceptable. The Joint Committee notes "[t]he repealed foreign sales corporation rules would be an example of such a transaction." JCX-78-02, at 7. This is only one of thousands of transactions that occur and that will have to be evaluated.

(23) The Committee should proceed cautiously in considering action based upon the holding in one case, or even a line of cases. Decisions are often heavily dependent on the facts and circumstances underlying them, the litigating decisions of the parties, and other factors that influence the outcomes. Targeted legislation may deal with abuses. Further, some of the cases of recent note are being appealed at this time. For example, Compaq may well be reconsidered pursuant to a petition for rehearing en banc, and Boca Investerings Partnership v. U.S., 167 F. Supp. 2d 298 (D.D.C. 2001) appeal docketed, No. 01-5429 (D.C. Cir. Dec. 5, 2001) has been appealed.