The Limits of Literalism: The Effect of Substance Over Form, Clear Reflection and Business Purpose Considerations On the Proper Interpretation of Subchapter K

The Anti-abuse Rule applies to partnership transactions a business purpose requirement that does not comport with existing authority. It also formulates a novel overarching proper reflection of income standard that has no basis in the IRC, its legislative history, or any judicial authority. In sum, the Anti-abuse Rule cannot be defended as either a statement of preexisting law or as an application of normal interpretive rules. What is perhaps most troubling about the Anti-abuse Rule, however, is the implicit claim that it makes no matter how clear the statute is, no matter what the cases say, the appropriate answer can only be found by following the steps set forth in the Anti-abuse Rule. Congress enacted rules which taxpayers and the government must follow in addressing partnership transactions. The partnership rules are subject to the same canons and vagaries of statutory interpretation that govern and afflict the IRC in general. The Anti-abuse Rule, however, does not interpret Subchapter K; it purports to supplant it.