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petitioner and Dr. Young would render valuable management and
consulting services to the foreign corporation as corporate
employees, and that these services would result in substantial
revenue. Finley Kumble anticipated that the corporation would
distribute the revenue to Dr. Young and petitioner in the form of
salaries over several years. Finley Kumble believed that,
although the corporation would most likely be a "controlled
foreign corporation" and a "foreign personal holding company", a
careful structuring of the arrangement would allow petitioner and
Dr. Young to escape the U.S. tax until they actually received
their salary payments. Finley Kumble believed that the
arrangement was subject to attack by the Commissioner under
section 367 or 482, or by arguing doctrines such as:
(1) Substance over form, (2) sham transaction, (3) assignment of
income, or (4) deductibility of compensation. Finley Kumble
relayed these understandings, anticipations, and beliefs to
petitioner and Dr. Young. Petitioner and Dr. Young chose to
organize the foreign corporation.
Finley Kumble, on behalf of petitioner and Dr. Young,
contacted Max Quin (Mr. Quin), an attorney with a Bermuda law
firm named Vaucrosson's, to organize the corporation because it
was customary to use Bermudan counsel to organize a Bermudan
corporation. On or about April 10, 1980, Mr. Quin organized the
corporation for petitioner and Dr. Young under the name of
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