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In Liberty Global, Inc. 174 F.4th 1208 (10th Cir. 2026), the Tenth Circuit Court of Appeals applied the "codified" or statutory economic substance doctrine set forth in Section 7701(o) (26 U.S.C.) to a complex set of cross-border transactions consummated by an affiliated group which were specifically designed to take advantage of a “last day of year rule/mismatch” in the international tax provisions enacted into law by Congress as part of the 2017 Tax Cuts and Jobs Act (“TCJA”). In a 2-1 majority opinion written by Circuit Judge Michael R. Murphy, the Tenth Circuit affirmed the lower court's decision, per R. Brooke Jackson, J., granting summary judgment in favor of the United States (“Liberty Global II”) in denying LGI its claimed overpayment in federal income taxes for 2018 of close to $110 million, based on its claimed deduction for 100% dividends received deduction (DRD) under Section 245A of approximately $2.4B. The Tenth Circuit, in deciding the conflicting positions of LGI and the government over the statutory construction, sought to resolve Congress' intent in whether there should first be a determination of whether Section 7701(o) is “relevant” in order to apply the conjunctive test under the statute (and resulting strict liability penalties). The trial court and the Tenth Circuit held that a preliminary test on “relevant” was not required and that the proper legal standard was whether Congress intended the statutory economic substance doctrine be applied (or not) based on a broad view of whether the substance of a series of transactions, as well as each step that is part of such series, was intended to generate the resulting tax benefits or savings sought by the taxpayer.

The Tenth Circuit recognized the separate preliminary test of relevancy as possibly reflecting legislative intent as well as application of general principles of statutory construction. The Court was apparently persuaded by the facts in this case, reviewing the tax advisor labeled "Project Soy "program which occurred with a four-day period, to determine that Congress intended the relevant factor to evaluate the facts in their entirety, the desired tax benefits and outcome and application of the conjunctive test of economic substance in determining if it was relevant to apply Section 7701(o). While this reasoning may be viewed as circular, such impression is arguably a “mismatch” in itself. The statute is not perfect, and the Tenth Circuit burdened the “mismatch” to be proved up by the taxpayer. Liberty Global has filed a motion for the Tenth Circuit Court to grant en banc review. Industry groups have petitioned for filing amicus briefs in support of Liberty Global. See Case No. 23-1410 (4/21/2026)

The Liberty Global decision must be given full consideration by taxpayers in determining whether a recommended tax planning strategy, including an entity restructuring, acquisition or divestiture, and regardless of whether such a transaction is completely effectuated within the U.S. or involves a step or series of steps consummated in cross-border jurisdictions, will be respected by the Internal Revenue Service upon audit and review and further, by a court of applicable jurisdiction in the event of a challenge by the United States (refund suit) or Internal Revenue Service (deficiency litigation). If economic substance is in issue, the taxpayer must further determine whether it wants to "disclose" the transaction in order to avoid an automatic 40% penalty to the amount of the resulting underpayment tax resulting from a judicially determined or otherwise conceded lack of economic substance under Section 7701(o).

I recently published an article on this important decision in The Journal of Corporate Taxation (WG&L) July/August 2026 which is also published on Thomson Reuters Checkpoint and WESTLAW. A reprint of the entire article is made available for your review or review of your tax counsel or tax advisor. Warren Gorham & LaMont has notified me that the article will be published in The Journal of International Taxation as well in a forthcoming issue. The article is obviously not a "short read". The link to the article in RIA Checkpoint.

Article on Tenth Circuit Court of Appeals Decision on Liberty Global

The economic substance doctrine is sourced from a series of Supreme Court cases and other federal court decisions that span approximately one hundred years. These cases are still applicable as well. Taxpayers seeking to minimize business taxation in the United States must run through the gauntlet of the judicial doctrines involving substance over form and economic substance, and then disclosure with the return to avoid stiff penalties, in order effectively and properly minimize the impact of Section 7701(o) and the judicial economic substance doctrine.

This post is intended for educational and information purposes only and along with the published article, may not be relied upon by the reader as legal or tax advice. Please consult with your tax advisor or tax counsel on the subjects raised in this post or the article. I also welcome your inquiry or inquiry of such tax counsel or advisor.