Economic Substance Doctrine Analyzed by the Fifth Circuit Court of Appeals in Klamath Strategic Investment Fund
In Klamath Strategic Investment Fund, 103 AFTR 2d 2009-2220 (5th Cir. 2009), the Fifth Circuit adopted the same approach used by a majority of the other circuits by concluding that a taxpayer must, in order to avoid a lack of economic substance challenge, satisfy what is referred to as both a subjective test and an objective test that the transaction was entered into for profit. Meeting both parts or standards is challenging for the typical tax shelter in which the costs of entering into the transaction are substantially greater than the true economic gain that stands to be realized. that have concluded that a transaction lacks economic substance unless the taxpayer can satisfy both a subjective test and an objective test.
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