In Tax Notes, Reuven Avi-Yonah (Michigan) has a new piece, “Liberty Global and the Revival of Economic Substance.” From the piece:

This decision [Liberty Global, Inc. v. United States] is the third victory of the government in [economic substance doctrine (ESD)] cases, following Patel and Otay. But it is the most significant because it strikes a decisive blow against tax shelters built on a literal application of the statutory text but ignore Congress’s purpose in enacting that text. Patel established that the ESD can be relevant to tax shelter cases even if the shelters follow the text of the statute, and Otay held that a transaction that had a valid overall business purpose can still fail the ESD if that purpose did not require an elaborate tax-motivated structure. Liberty Global goes beyond these cases by holding that a tax shelter that complies with the text of the code can be disregarded because it deviates from Congress’s purpose in enacting that text. This is a welcome departure from the narrow textualism followed by the Tax Court in Varian.

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Liberty Global strikes a decisive blow against the renewed tax shelter wave. But it rests on a purposivist interpretation of the code that is at odds with the modern reliance on textualism, as exemplified by opinions like Varian.

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But even for textualists, there is one crucial distinction from a purely purposivist analysis — Congress codified the ESD as part of the code. If the Court applies the text of the codified ESD, the key question is how it will define relevancy: Is the ESD relevant only if the text is ambiguous, or is it relevant if Congress did not intend the tax benefit? Given the rise of the third tax shelter wave, billions of dollars in revenue depend on the result.

For previous TaxProf Blog coverage of Liberty Global, see below:

• Liberty Global and the Economic Substance Problem (Apr. 29, 2026)