Step Transaction Doctrine – Paul Gaulkin CPA

TrustThe step transaction doctrine means that two or more transactions are mutually dependent so that only the overall end result is significant for tax purposes. This means that, two or more steps, significant in themselves, if view in isolation, may be disregarded altogether or consolidated into one transaction.

The Supreme Court has stated that “if one transaction is to be characterized as a ‘first step’, there must be a binding commitment to take the later steps.” The step transaction doctrine is invariably invoked against the taxpayer and is a special case of the general “substance over form” argument. It can be asserted in all areas of taxation.

Examples of Doctrine

In a type C reorganization, the acquiring corporation refuses to acquire certain assets. The unwanted assets are therefore sold or transferred to a new corporation prior to the reorganization. Combining the two transactions into one makes the acquisition taxable for failure to meet the “substantially all” assets requirement.

Or

A type A reorganization may be reclassified as a purchase of assets, if the acquired corporation’s shareholders promptly sell their new stock after the reorganization

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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