Harbor Bancorp & Subsidiaries - Page 25

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               Courts have never regarded "the simple expedient of drawing            
          up papers" as controlling for tax purposes when the objective               
          realities are to the contrary.  Commissioner v. Tower, 327 U.S.             
          280, 291 (1946).  Here, the hastily drawn up papers used at the             
          putative closings on December 31, 1985, utterly fail to reflect             
          objective reality.  The alleged payment for the Bonds took the              
          form of share drafts from starter kits, drawn on nonexistent                
          accounts at a Jersey City credit union.  The agent of the trustee           
          promptly endorsed these items, without recourse to the trustee,             
          to the order of an undercapitalized institution located in Saipan           
          that had recently lost its banking license.  In exchange, the               
          trustee took the Saipan institution's investment agreements.  If,           
          on December 31, 1985,--the alleged "date of issue"--the trustee             
          had sought either to cash the share drafts or to collect upon its           
          investment agreements, it would have been unsuccessful.  Neither            
          the share drafts nor the investment agreements had any substance            
          behind them.  These items fell embarrassingly short of                      
          representing actual payment for the Bonds within the meaning of             
          the Commissioner's regulations.  Accordingly, the date of issue             
          of the Bonds was not December 31, 1985, but rather February 20,             
          1986, when actual funds were transferred from Security Pacific              

          (...continued)                                                              
               bond for federal income tax purposes.                                  

          Suffice it to say our determination as to the date of issue would           
          be the same under either version.                                           



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