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The only business conducted by BTG was the receipt of property
in a claimed section 351 transaction and the transfer of property
to the joint venture. The $1.1 million bank loan supposedly made
to the joint venture, lent again to BTG, and then to petitioner, in
our opinion, was simply an attempt to create a basis for interest
deductions for petitioner. Further, petitioner's sale of BTG stock
to EPIC was, in our opinion, done in order to create an increase in
petitioner's basis in the property (from $582,039 to $3.6 million)
prior to the sale of developed lots; and the 20-year, $3.6 million
note petitioner received in exchange for the stock was an attempt
to defer recognition of gain.
Respondent contends that the purported sale of the Escondido
property to BTG and the subsequent sale of the BTG stock to EPIC
were a series of sham transactions devoid of economic substance.
We have defined that which constitutes a sham in substance as "the
expedient of drawing up papers to characterize transactions
contrary to objective economic realities and which have no economic
significance beyond expected tax benefits." Falsetti v.
Commissioner, 85 T.C. 332, 347 (1985).
We find that petitioner's transactions with BTG and the sale
of BTG's stock to EPIC had no economic substance and were intended
only to accomplish tax-motivated objectives. They were sham
transactions, and we will disregard them.
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