Philip Sancilio (J.D. 2013, Columbia), Clarifying (or Is It Codifying?) The “Notably Abstruse”: Step Transactions, Economic Substance, and the Tax Code, 113 Colum. L. Rev. 138 (2013) (Second Place, 2012 Tannenwald Writing Competition):

The economic substance and step transaction doctrines are two
specific examples of courts’ general willingness to sometimes look past
transactions’ technical form and impose taxes based on their underlying
substance. As judicial creations, the two doctrines served as
complements and functional equivalents. However, they also generated a
wide variety of vague, overlapping, and conflicting formulations.

In 2010, Congress incorporated the economic substance doctrine into
the Internal Revenue Code by defining its content and tying it to a
heightened strict liability penalty. When it did so, Congress did not
address when the doctrine is available. Instead, it left that
determination to the preexisting common law and articulated a functional
definition of the doctrine to which its new statutory scheme applies.
However, the definition of the codified economic substance doctrine
creates uncertainty by encompassing some, but not all, of the various
formulations of the step transaction doctrine. Terminological messiness
that used to have little effect beyond confusing dicta could now control
the imposition of statutory requirements and heightened liability.

After laying out the doctrinal background, this Note applies the
definition of the newly codified economic substance doctrine to the
various formulations of the step transaction doctrine and demonstrates
problematic inconsistency in the results. It then traces that
inconsistency to the uncertain relationship between the doctrines and
argues for conceptual clarification. Finally, it proposes that the
codified economic substance doctrine should apply first and that the
step transaction doctrine should stand behind it as a backstop.