Liberty Global's Tax Scam Fails in Tenth Circuit (4/30/26)

In Liberty Global, Inc. v. United States, ___ F.4th ___ (10th Cir. 2026), CA10 here, GS here, and CL here, using tax lingo and analysis, rejected Liberty Global’s tax scam. The panel majority correctly holds that Liberty Global’s farcical multiple steps did not pass economic substance doctrine (“ESD”) scrutiny.

The key issue upon which the majority of the panel and the dissenting judge differ is over what role, if any, § 7701(o)’s requirement that whether the ESD is “relevant.” § 7701(o)(1) & (o)(5)(C). So that readers can understand the statute’s textual context, I offer it here (with key word in red):

(o) Clarification of economic substance doctrine
    (1) Application of doctrine. In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—
        (A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and
        (B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
* * * *
    (5) Definitions and special rules
    For purposes of this subsection—
    * * * *
        (C) Determination of application of doctrine not affected. The determination of whether the economic substance doctrine is relevant to a transaction shall be made in the same manner as if this subsection had never been enacted.

I have written previously on the issue of the term “relevant” in § 7701(o). The Economic Substance Doctrine ("ESD")--the Common Law and § 7701(o) (Federal Tax Procedure Blog 3/31/26; 4/8/26), here. I believe that ESD as the term is used both in the common law and in § 7701(o) means the same thing, except that § 7701(o) adds some specific rules that apply in applying certain features of the ESD. These specific rules address some taxpayer claims about how those features of the common law ESD work. For example, § 7701(o)(2) & (4) provide rules for applying the ESD requirement that a taxpayer have a non-tax profit potential. Section § 7701(o) rejects certain claims that taxpayers made in prior cases to avoid the ESD. Thus, I think that the threshold inquiry is whether the common law ESD applies (not that it is just relevant, but certainly, if ESD applies, it is relevant for purposes of § 7701(o) because the special rules of § 7701(o) may then apply).

Basically, what I am saying is that the panel majority gets it right and the dissent gets it wrong.

Correction 4/30/26 6:45 pm: I had a major bust on identifying the judges for the Liberty Global opinion. I misidentified the panel judges and made a snarky comment. I have deleted the comment. The panel judges were Moritz (Obama appointee, Wikipedia here), Murphy (Clinton appointee, Wikipedia here, and Eid (Trump appointee, Wikipedia here). I forego any comment. Apologies to my readers.

Of course, the underlying issue going forward may be the special accuracy-related civil penalty applying to “Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(o)) or failing to meet the requirements of any similar rule of law.” § 6672(b)(6) (see also (§ 6672(i) increasing the penalty 40% for nondisclosed ESD transactions). But whether or not this type of transaction is "relevant" to the ESD for § 7701(o) purposes, the common law ESD applies; in any event, the transaction fails under a rule of law similar to § 7701(o), so the penalty should apply.