Threshold Relevancy Determination Rejected: Tenth Circuit Decides In IRS’s Favor On Economic Substance Doctrine

Published: 2026-04-30 10:11:12 ET LBTYA

Published on 04/30/2026 at 10:11 am EDT

What You Need to Know

Key takeaway #1

Contemporaneous documentation that support that transactions have economic substance is vital. Taxpayers and advisors cannot rely on technical compliance alone.

Key takeaway #2

Taxpayers should keep key transaction documents in anticipation of an IRS examination.

Key takeaway #3

Congressional intent should be considered in planning transactions.

In its April 21, 2026, opinion, the U.S. Court of Appeals for the Tenth Circuit affirmed the lower court's ruling in Liberty Global, holding that the codified economic substance doctrine applies even when a taxpayer mechanically utilizes the provisions of the Tax Code. The court also held that common mergers and acquisitions elements and basic business transactions are not categorically carved out from the economic substance doctrine. The court dismissed the taxpayer's argument that a separate relevancy determination needs to be made before the economic substance doctrine can be applied.

Liberty Global centers around a four-part, cross-border transaction called Project Soy, through which Liberty Global intended to take advantage of a timing mismatch in the Tax Cuts and Jobs Act between the Global Intangible Low-Taxed Income (GILTI) and subpart F regimes and the 245A dividends-received deduction to treat $2.4 billion in taxable gain as a dividends-received deduction. Liberty Global conceded in the district court that the first three steps of its four-part plan failed the economic substance test, leaving as the only question on appeal whether the codified economic substance doctrine was “relevant” to Project Soy.

One member of the Tenth Circuit panel dissented, finding support for a threshold relevancy determination in the text of the statute. This dissent may tee up the relevancy issue for further appeal in this case via a petition for en banc reconsideration or even certiorari, and even if not, increases the likelihood that the issue will be pursued in other cases in other circuits.

Key Takeaways

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