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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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