The Rescission Doctrine: Clothes Without an Emperor?

8 Pages Posted: 25 May 2011

See all articles by John Prebble KC

John Prebble KC

Victoria University of Wellington, Te Herenga Waka - Faculty of Law; Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien; University of Notre Dame Australia - School of Law

Chye-Ching Huang

New York University School of Law

Date Written: May 16, 2011

Abstract

The rescission doctrine, sometimes called the unwind doctrine, is understood to provide that a transaction may be disregarded for federal income tax purposes if the parties return to the status quo ante in the same tax year. Its origin is Rev. Rul. 80-58, which relied on Penn v. Robertson. In August 2010 the New York State Bar Association Tax Section explained that the requirements for a valid rescission are confused. This report analyses Penn v. Robertson and finds that it does not in fact support the principle of rescission. The lack of a legal basis for rescission accounts for the confusion about what are the requirements for a valid rescission.

To be coherent, any clarification about what constitutes a valid rescission must first address the absence of legal authority for the doctrine. In considering whether the government should remedy this absence and, if so, how, policymakers must establish that there are convincing arguments grounded in either legal principle or tax policy for tax law to give effect to rescissions. It should not be assumed that those arguments exist.

Keywords: rescission doctrine, rescission, tax rescission, tax unwinding, unwinds, TARP, TARP Bonuses, Penn v. Robertson, Rev. Rul. 80-58

Suggested Citation

Prebble KC, John and Huang, Chye-Ching, The Rescission Doctrine: Clothes Without an Emperor? (May 16, 2011). Tax Notes, Vol. 131, No. 7, 2011, Available at SSRN: https://ssrn.com/abstract=1840732

John Prebble KC (Contact Author)

Victoria University of Wellington, Te Herenga Waka - Faculty of Law ( email )

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Wellington, 6140
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HOME PAGE: http://www.victoria.ac.nz/law/staff/prebble-scholarly.aspx

Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien ( email )

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Vienna, Wien 1020
Austria

University of Notre Dame Australia - School of Law

Sydney Campus, New South Wales
Australia

Chye-Ching Huang

New York University School of Law ( email )

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