Liberty Global Seen Boosting IRS on Economic Substance Doctrine

An appeals court’s rejection of Liberty Global Inc.’s attempt to claim a $110 million tax refund stands to give the IRS a freer hand in using a key legal doctrine, business advocates and tax-world observers said.

The Tenth Circuit Court of Appeals sided with the IRS’s application of the “economic substance doctrine”—the idea that a company’s transactions must have a legitimate business purpose to qualify for tax benefits—in disallowing deductions that Liberty Global had claimed.

As a result, the IRS “will likely be more aggressive in using economic substance doctrine,” said Tyler Martinez, director of litigation for the National Taxpayers ...