Amanda L. Yoder (J.D. 2011, Missouri-Columbia) has published Note, One Prong, Two Prong, Many Prongs: A Look into the Economic Substance Doctrine, 75 Mo. L. Rev. 1409 (2010). Here is the Conclusion:

The Supreme Court has articulated several factors to assess when determining whether a transaction should be recognized for federal income tax purposes. Several circuits have interpreted the Supreme Court’s language to require a finding of both prongs before a transaction is considered to have economic substance, whereas other circuits have held that the prongs are merely a list of factors to be considered in looking at a transaction. Congress has taken it one step further by codifying the conjunctive two-prong test in a very restrictive way. Although Supreme Court precedent could support either approach, what is more important is the reasoning behind the Supreme Court’s holding. The Supreme Court has articulated that it is important for a transaction to have a purpose other than tax avoidance, but also that a transaction should imbue those characteristics that were intended by Congress in enacting that particular code section. It is these two objectives that are most important in applying the economic substance test to any transaction. Therefore, it is critical to find a test that can best effectuate these two objectives.

Although the majority claims that the minority view is a “rigid” approach to this test, in fact, the approach used by the majority, and now codified by Congress, may at times contradict the two objectives that the Supreme Court has specifically articulated as critical to a finding of economic substance. Instead, the disjunctive approach used by the minority, an approach that will allow flexibility in structuring transactions, is the better approach. This flexibility will allow the reasonable businessperson to structure transactions in ways that are best for his or her business and yet also capitalize on the benefits intended by Congress through the Code. At times, the businessperson may find that a transaction is structured in a way that has a legitimate business purpose but may not change his or her economic position, and vice versa. By following the disjunctive two-prong test of the minority circuits, courts could still analyze such transactions for legitimate economic substance but have more flexibility in upholding a transaction.