U.S. Appeals Court Upholds Application of Economic Substance Doctrine to Disallow §245A Deduction in Multibillion-Dollar TCJA Transaction

The U.S. Court of Appeals for the Tenth Circuit affirmed the district court’s ruling that a multinational corporation’s four-step transaction series, known internally as “Project Soy,” lacked economic substance and could not support a $2.4 billion deduction under IRC §245A. The taxpayer structured the transaction to exploit a timing mismatch in the Tax Cuts and Jobs Act’s international provisions by artificially generating earnings and profits in three preliminary steps to offset gains from a subsidiary sale in the fourth step. The court held that the codified economic substance doctrine under IRC §7701(o) applies even where a transaction mechanically complies with ...