The Business, Entrepreneurship & Tax Law Review

Article Title

Pinch-Hitting for the IRS: Second Circuit Adopts Phantom Regulations to Curb a Monster Abuse of Financial Derivatives


In Estate of McKelvey v. Commissioner, the Second Circuit Court of Appeals adopted the IRS’s position that probability analysis should be employed to determine that the taxpayer’s particular performance under the terms of a financial instrument was “virtually certain.” However, the IRS had steadfastly refused to promulgate regulations that, under a statutory delegation of authority to issue regulations to interpret and enforce the statute, could have administratively imposed that outcome.