What is economic substance?
1) the transaction must change in a meaningful way the taxpayer's economic position and
2) the taxpayer must have a substantial business purpose for the transaction.
Neither the change in economic position or the business purpose may be saving taxes! This legal doctrine allows the IRS to unravel more complicated/tiered business structures, many times disregarding a tier. It is not allowed t o devlop such structured simply to save taxes. A lack of economic substance can result in an additional 20% or 40% penalty.