The fabricated Unwind Doctrine: the True Meaning of Penn v. Robertson

The Tax Unwind Doctrine allows taxpayers, who are parties to a prior taxable transaction, to effectively "undo" the transaction and return to the status quo as if the transaction never occurred. This article finds that Penn v. Robertson is not authority for the unwind doctrine, contrary to the routine assertions of the Internal Revenue Service, practitioners, taxpayers, and legal academics. This article shows that the unwind doctrine, and the large structure of tax practice built upon it, has no foundation in case law. The article considers the practical significance of the misunderstanding of Penn v. Robertson in Revenue Ruling 80-85 by examining the example of Mr. Douglas Poling, an executive of the collapsed insurance company AIG, who received a bonus from Federal TARP funds and who is believed to have repaid the bonus.

The article also briefly addresses the question of whether the law should be reformed.