The Haitian Vacation: The Applicability of Sham Doctrine to Year-End Divorces

This Note examines the propriety of applying the sham doctrine to tax-motivated divorces. Section I outlines the evolution of the sham doctrine from its exposition in Gregory v. Helvering through its expression in two different tests for commercial transactions. Section II then studies the relationship between state divorce law and the marital status provisions of the Internal Revenue Code to demonstrate the clear congressional preference for incorporating state law by reference rather than creating an independent federal law of marriage. It also examines the history of the 1969 Tax Reform Act in a vain effort to discern a congressional desire to impose a marriage penalty. Finally, Section III concludes that the IRS should not be permitted to use sham theory to attack year-end divorces until it receives an explicit congressional directive to that effect.