Liberty Global, Inc. v. United States, No. 23-1410 (10th Cir. Apr. 21, 2026)

For tax practitioners navigating the complex landscape of international tax provisions under the Tax Cuts and Jobs Act (TCJA), the recent Tenth Circuit decision in Liberty Global, Inc. v. United States, No. 23-1410 (10th Cir. Apr. 21, 2026), serves as a crucial warning. The case centers on a highly sophisticated tax planning strategy, codenamed "Project Soy," and addresses a fundamental question of tax law: whether technical, mechanical compliance with the Internal Revenue Code can shield an economically meaningless transaction from the codified economic substance doctrine under 26 U.S.C. § 7701(o). The court ultimately affirmed the district court’s ruling, disregarding the taxpayer's manufactured earnings and profits and denying a massive deduction under § 245A.

Factual Background and Project Soy

Liberty Global, Inc. (LGI) is a domestic corporation and the parent of a consolidated affiliated group of multinational companies. Following the enactment of the TCJA, LGI and its tax advisors identified a structural loophole, which they termed a "last day of year rule/mismatch". Specifically, this mismatch existed "between (1) the rules for paying tax on global intangible low taxed income (GILTI) and subpart F tax on a gain generated by a controlled foreign corporation (CFC), and (2) the qualification of an entity as a CFC".

To exploit this, LGI executed a tightly integrated four-step transaction (Project Soy) over four days in December 2018. Through steps one through three, LGI "manufactured $4.8 billion of E&P [earnings and profit] for TGH," a Belgian CFC, utilizing "springing to life debt" and issuing profit certificates. The generation of these artificial earnings and profits was pivotal because it allowed LGI to treat the proceeds from the sale of the CFC (Step 4) as a dividend to the extent of those earnings under 26 U.S.C. §§ 964(e)(1) and 1248(a). In Step 4, an LGI affiliate sold its interest in TGH to LGI's United Kingdom parent company. If successful, LGI could offset a $2.4 billion taxable gain by claiming a 100% dividends-received deduction under 26 U.S.C. § 245A.

Initially, LGI complied with a retroactive Treasury regulation (26 C.F.R. § 1.245A-5T) aimed at closing this gap, reporting nearly $2 billion of GILTI and claiming a modest $360 million § 245A deduction. However, LGI subsequently filed an amended return taking the position that the regulation was invalid. In the amended return, LGI reported no GILTI and claimed a full § 245A deduction of $2.4 billion.

The Taxpayer's Request for Relief

Before the IRS concluded its examination of the amended 2018 return, LGI filed a refund suit seeking approximately $110 million. In the district court proceedings, LGI achieved an initial victory when the court found the temporary Treasury regulation procedurally invalid due to a lack of notice and comment.

However, upon cross-motions for summary judgment regarding the economic substance doctrine, LGI argued that 26 U.S.C. § 7701(o) was fundamentally not "relevant" to Project Soy. While LGI conceded that the first three steps of Project Soy "did not change, in a meaningful way, LGI’s economic position" and "served no substantial non-tax purpose for LGI" under § 7701(o)(1), the taxpayer hinged its argument on the premise that literal statutory compliance overrides the common law doctrine. Furthermore, LGI argued that the steps utilized in Project Soy were exempt from the doctrine because they constituted "basic business transactions" (such as entity selections and corporate organizations under 26 U.S.C. § 351).

The Court's Analysis of the Law

The Tenth Circuit firmly rejected the taxpayer's formalistic arguments. Writing for the court, Judge Murphy stated that the appeal turned entirely on whether the codified economic substance doctrine was relevant to an attempt "to exploit a 'last day of year rule/mismatch'".

Addressing the argument that literal compliance with the Internal Revenue Code protects a transaction, the court looked to longstanding judicial precedent and the explicit text of the statute. Section 7701(o)(5)(A) defines the economic substance doctrine as "the common law doctrine under which tax benefits . . . with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose". The court noted that for decades, federal common law has dictated that transactions which "comply with the literal terms of the tax code" can be disregarded if they are "mere tax-avoidance schemes". Drawing on precedent including Blum v. Comm’r, 737 F.3d 1303 (10th Cir. 2013), and Sala v. United States, 613 F.3d 1249 (10th Cir. 2010), the court reaffirmed that the doctrine operates as a safeguard to ensure that particular uses of tax benefits comply with Congress's legislative intent.

The court further emphasized that § 7701(o)(5)(C) mandates that the relevance of the doctrine be determined "in the same manner as if this subsection had never been enacted". Accordingly, the doctrine remains inherently relevant whenever "a taxpayer seeks to claim tax benefits, unintended by Congress, by means of transactions that serve no economic purpose other than tax savings".

Application of the Law to the Facts

In applying the law to Project Soy, the Tenth Circuit first addressed the proper "unit of measurement" for the economic substance analysis. Pursuant to 26 U.S.C. § 7701(o)(5)(D), "[t]he term 'transaction' includes a series of transactions". The court found that Project Soy was a "tightly integrated series of transactions that took place over a short, four-day period".

Because the transaction had to be analyzed as an integrated whole, the court rejected LGI's attempt to categorize specific steps (such as the 26 U.S.C. § 351 exchange) as categorically exempt "basic business transactions". The court highlighted that immunizing an entire tax-avoidance scheme simply because it incorporates basic business steps would "stymy[] the doctrine’s purposive application by an arid formalism". If the court allowed this, taxpayers could easily "inoculate their complex transactions from application of § 7701(o) by including therewithin 'basic business transactions'".

Because LGI had already admitted that steps one through three lacked both economic substance and a substantial non-tax purpose under the two-prong test of § 7701(o)(1), the application of the law was straightforward. The court concluded that Project Soy was "designed to, and does, unlink the § 245A deduction from the appropriate anti-base erosion safeguards that the legislature intended". By disregarding the artificial earnings and profits generated in steps one through three, the actual Step 4 transaction resulted in a $2.4 billion taxable gain, rendering the claimed § 245A deduction completely unallowable.

Conclusion

The Tenth Circuit arrived at a definitive conclusion: "The economic substance doctrine codified in § 7701(o) is relevant to attempts by taxpayers to mechanically utilize the provisions of the Tax Code to obtain a benefit not intended by Congress".

For CPAs and tax practitioners structuring complex international transactions, this ruling is a definitive reminder that strict adherence to the mechanical rules of the Tax Code is insufficient to guarantee a tax benefit if the overarching transaction lacks a non-tax business purpose and economic substance. A taxpayer "cannot escape the application of § 7701(o) by including within its integrated structure steps that might, if standing alone, be considered basic business transactions". The Tenth Circuit's affirmation of the district court acts as a robust validation of the IRS's ability to collapse economically hollow, multi-step tax planning maneuvers, regardless of their technical precision under the Code.

Prepared with assistance from NotebookLM.