Top Federal Tax Cases to Watch in 2nd Half of 2025
Tax attorney Daniel Strickland was quoted in a Law360 article analyzing key federal tax cases making their way through court. He shared insights on a case involving the IRS' authority to apply the economic substance doctrine, a common law principle under which transactions that have a genuine economic purpose should be respected and the parties involved should receive access to tax benefits resulting from them. The IRS uses the doctrine to determine whether tax shelters are abusive. In a case before the U.S. Court of Appeals for the Tenth Circuit, Liberty Global argues the IRS should not have invoked the doctrine when rejecting its $2.4 billion deduction tied to the sale of a Belgian affiliate, contending a federal court must assess the doctrine's relevance before the IRS can rely on it to reject a transaction. A ruling in favor of the IRS would reinforce its authority to use the principle, codified at Section 7701 of the Internal Revenue Code, in future audits, appeals and litigation, including claims related to clean energy tax incentives established by the Inflation Reduction Act. Mr. Strickland noted investors in these types of projects are incorporating tax benefits into their plans, making the Tenth Circuit's decision a potentially momentous one. He added the outcome could also influence cases in other venues, such as the U.S. Tax Court.
"A majority of the investments are made taking into account the revenue stream generated – either directly or indirectly – by the federal tax benefits," he said. "A large percentage of these deals would never have been done [without] the encouragement that was codified by Congress."