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Alvin C. Warren, Jr. The Requirement of Economic Profit in Tax Motivated Transactions, 59 Taxes 985 (1981).

Abstract: The Internal Revenue Service and the courts have used several not entirely distinguishable doctrines to deny transactions their intended effect for tax purposes on the ground that the transactions lacked economic substance. This article examines the requirement that tax motivated transactions must involve a pretax economic profit to be given effect. Three stages in the development of that requirement are traced, followed by discussion of its function under current law. The conclusions advanced are that the requirement of economic profit should not be applied to transactions involving provisions specifically enacted by Congress as incentives, and that, where applicable, the doctrine should require only that the pretax return be positive.