Coltec Industries, Inc. v. U.S.

1. In determining that a transaction may be disregarded for tax purposes, should a federal court of appeals review the trial court's findings that the transaction had economic substance de novo (as three courts of appeals have held), or for clear error (as five courts of appeals have held)?

2. Where a taxpayer made a good-faith business judgment that the transaction served its economic interests, and would have executed the transaction regardless of tax benefits, did the court of appeals (in acknowledged conflict with the rule of other circuits) properly deny the favorable tax treatment afforded by the Internal Revenue Code to the transaction based solely on the court's "objective" conclusion that a narrow part of the transaction lacked economic benefits for the taxpayer?

NCLC urged the Supreme Court to consider the appropriate standard of review in economic substance doctrine cases. In its brief, NCLC argued the court below gave no deference to the defendant’s legitimate business judgment and instead adopted an “objective” test which required the court to make its own independent judgment. Naturally, courts do not have the capacity to make such judgments. In addition, NCLC argued that courts of appeals should defer to district court factual findings on the presence or absence of economic substance.

The Supreme Court declined to review this case.

Amicus brief supporting cert. filed 1/12/07. Cert. denied 2/20/07.