T.C. 386 (1987). First, the transaction must have economic
substance; the transaction cannot be a complete sham. Mahoney v.
Commissioner, supra at 1219. Second, if the transaction is found
to have economic substance, the question becomes whether the
taxpayer was motivated by profit to participate in the
transaction within the meaning of section 183. Id. If the
transaction is found to be a sham, then the entire transaction is
disregarded for Federal income tax purposes, and such niceties as
whether the transaction was engaged in primarily for profit are
simply not involved. Id. Therefore, in determining whether a
particular transaction was a sham, a court should not address
whether, in the light of hindsight, the taxpayer made a wise
investment; instead, the court must address whether the taxpayer
made a bona fide investment at all or whether the taxpayer merely
purchased tax deductions. Bryant v. Commissioner, 928 F.2d 745,
749 (6th Cir. 1991), affg. in part and revg. in part T.C. Memo.
1989-527.
The same two-part test is applied in determining whether a
deduction or credit with respect to investment in a tax shelter
is valid. Illes v. Commissioner, 982 F.2d 163 (6th Cir. 1992),
affg. T.C. Memo. 1991-449. A tax shelter can be reasonably
defined as a transaction entered into for the purpose of
generating (1) deductions in excess of investment contributions
claimed in a given taxable year to reduce income from other
sources that year, and/or (2) credits in excess of the tax
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