Section of Taxation Publications
  VOL. 60
NO. 2

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Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

An Elephant in the Room: Double Deductions and the Economic Substance Doctrine in Coltec Industries, Inc. v. United States
Leland Gardner


In Coltec Industries, Inc. v. United States, the United States Court of Appeals for the Federal Circuit denied the suit for a federal tax refund by Coltec Industries, Inc. (Coltec). Coltec’s refund was based on a business transaction involving the transfer of assets and contingent liabilities to Garrison Litigation Management Group, Ltd. (Garrison), pursuant to a purported section 351 exchange. Coltec subsequently sold the Garrison stock for a significant loss. The Federal Circuit affirmed the trial court’s finding that the transaction met the literal requirements of section 351. However, it ultimately held that the transaction lacked economic substance and, therefore, would not be entitled to tax benefits.

This Note discusses the Federal Circuit’s use of the economic substance doctrine to attack a seeming double deduction and argues that the Coltec court applied an unduly strict standard. Part I summarizes the facts of the case and the Federal Circuit’s opinion. Part II discusses the history of the economic substance doctrine and argues that the Federal Circuit should have utilized a more balanced approach in applying the doctrine. Part III concludes by discussing potential ramifications of the Coltec decision and the future outlook for the economic substance doctrine.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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