Taxpayer Watchdog Files Amicus Brief in Harty v. Commissioner

FOR IMMEDIATE RELEASE

Contact: Kara Zupkus (224) 456-0257

WASHINGTON, D.C. – This week, the Taxpayers Protection Alliance filed an amicus brief at the United States Tax Court in the case Harty v. Commissioner. The case concerns the “economic substance doctrine,” which enables the Internal Revenue Service (IRS) to disregard transactions conducted for tax reasons instead of business purposes—and disallow tax benefits as a result. The lack of clear rules and guardrails around this doctrine’s application by the IRS—and reliance on courts to govern its use—has resulted in uncertainty for taxpayers and has put far too much power in the hands of unelected bureaucrats. TPA argues, “A clear statement of the metes and bounds of the economic substance doctrine—when it applies and when it doesn’t—is integral to a fair and predictable tax system.”

Ross Marchand, Executive Director of the Taxpayers Protection Alliance, offered the following comment:

“The economic substance doctrine was never meant to be a blank check of power for bureaucrats to write and enforce their own tax law. Congress imposed clear limits in Section 7701(o) of the Internal Revenue Code, requiring a threshold relevancy determination before the doctrine can even be applied. As the Tax Court has previously recognized, collapsing that threshold inquiry into the doctrinal test would erase Congress’s deliberate statutory language and hand regulators sweeping discretion untethered from the law. Words matter because they are how the law constrains power.

“IRS bureaucrats are blatantly ignoring the law, wielding the economic substance doctrine as an all-purpose weapon against taxpayers. The doctrine was never intended to punish taxpayers for choosing one lawful business structure over another, financing operations through debt instead of equity, or utilizing incentives and benefits written directly into the Code. Courts have repeatedly warned against replacing statutory text with bureaucratic notions of what transactions should look like economically. When the IRS ignores the Code’s actual language in favor of subjective anti-abuse theories, it undermines fair notice and exposes taxpayers to crushing strict-liability penalties without clear rules of the road.

“The stakes are larger than tax administration. Allowing regulators to disregard statutory limits threatens fundamental constitutional principles, including separation of powers and due process. Congress writes the tax laws, not unelected officials. TPA urges the Court to rein in the IRS and restore fair notice to taxpayers.”

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The Taxpayers Protection Alliance (TPA) is a non-profit, non-partisan organization dedicated to educating the public through the research, analysis, and dissemination of information on the government’s impact on the economy.