Economic Substance Field Directive Intended to Be Tool, Not Guidance

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An IRS Large Business & International Division directive to field agents on the codified economic substance doctrine and its related strict liability penalties was intended as a flexible tool to help with examinations, not as formal guidance, a Treasury Department official says. Lisa Zarlenga, deputy tax legislative counsel (regulatory affairs) at Treasury, says the directive offers some transparency for the process agents will use in determining whether to assert the doctrine. Issued in July, the directive lays out steps for examiners and managers to follow when looking into economic substance.

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