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v. Heininger, 320 U.S. 467, 475 (1943); Thompson v. Commissioner,
631 F.2d 642, 646 (9th Cir. 1980), affg. 66 T.C. 1024 (1976).
Tax laws affect the shape of many business transactions.
The parties to a transaction are entitled to take into account
and to maximize favorable tax results so long as the transaction
is compelled or encouraged by nontax business reasons. Frank
Lyon Co. v. United States, 435 U.S. 561, 580 (1978); James v.
Commissioner, 87 T.C. 905, 918 (1986), affd. 899 F.2d 905 (10th
Cir. 1990). We agree with respondent, however, that the payments
of the processing fees by Dura-Craft to Northwest were shams.
Dura-Craft is a subchapter C corporation, and Northwest is a
subchapter S corporation as defined in section 1361. The profits
of a C corporation are subject to corporate income tax, sec. 11,
and any distributions to shareholders are then subject to the
shareholders' personal income tax, secs. 61(a), 316. The profits
of a subchapter S corporation, however, are generally not subject
to a corporate tax, sec. 1371(a), but pass through to be taxed on
the individual shareholders' returns, sec. 1366, thereby
eliminating the double taxation of distributions to the
shareholders of C corporations. Moreover, petitioners have
failed to show that Dura-Craft had a business purpose in making
the payments. Furthermore, the payments served no purpose other
than the generation of tax benefits by shifting money and income
between Dura-Craft and Northwest. The record is devoid of
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