Rodriguez v. FDIC: The Supreme Court’s Federal Common Law Hostility & Its Effects on the Economic Substance Doctrine

Beckett G. Cantley* and Geoffrey C. Dietrich**


           On February 25, 2020, the U.S. Supreme Court in Rodriguez v. FDIC unanimously ruled that there should be no federal common law, including in the area of taxation, except in extraordinary circumstances.  Some commentators have raised the concern that this hostility to federal common law may eventually extend to the judicial economic substance doctrine.  The economic substance doctrine was codified in 2010; however, Congress made it clear that the new statute would not eliminate the judicial version of the doctrine.  Although a case directly addressing the codified version of the economic substance doctrine has yet to be litigated, courts have continued to invoke the judicial doctrine in cases post-codification.  In this article, we: (1) provide an overview of federal common law; (2) describe the judicial economic substance doctrine; (3) discuss the tension between the economic substance doctrine and textualism; (4) provide an overview of the Rodriguez case; (5) discuss how the U.S. Supreme Court’s hostility to federal common law in Rodriguez may eventually curtail the judicial economic substance doctrine; and (6) provide an example of how such a curtailment could potentially affect a current issue in Internal Revenue Service (“Service”) enforcement—syndicated conservation easement transactions.

* Prof. Beckett G. Cantley teaches International Taxation at Northeastern University and is a shareholder in Cantley Dietrich, P.C. Prof. Cantley would like to thank Melissa Cantley and his law clerk, Emily Dace, for their contributions to this article.

** Geoffrey C. Dietrich, Esq. is a shareholder in Cantley Dietrich, P.C.