Legislating Uncertainty: The Implications of the Codification of Economic Substance Doctrine under the Health Care Reconciliation Act

After numerous attempts at legislation, the economic substance doctrine has been codified as part of the Health Care Reconciliation Act. While the codification assures that courts cannot simply ignore the economic substance doctrine, the form in which the doctrine was codified is problematic as it incorporates a focus upon taxpayer motive that has weak doctrinal roots, and is subject to misinterpretation. These problems are compounded by the fact that courts are left to determine when the doctrine is relevant to a particular transaction without meaningful guidance. As a result, textualist judges are likely to remain unwilling to apply the doctrine in situations where the taxpayer appears to have complied with the literal language of the Code and Treasury Regulations, particularly if the government asserts the doctrine in a novel context. Thus the primary benefit that the legislation has achieved appears to be the promulgation of a uniform standard, resolving a conflict among the circuits.