- 55 -
293 U.S. 465 (1935). The objective economic realities of a
transaction control the tax consequences of a given transaction
rather than the particular form the parties employed. E.g.,
Frank Lyon Co. v. United States, supra at 572-573; Commissioner
v. Court Holding Co., supra at 334; Estate of Franklin v.
Commissioner, 64 T.C. 752 (1975), affd. on other grounds 544 F.2d
1045 (9th Cir. 1976). As the Court of Appeals for the Seventh
Circuit has noted:
The freedom to arrange one's affairs to minimize taxes
does not include the right to engage in financial
fantasies with the expectation that the Internal
Revenue Service and the courts will play along. The
Commissioner and the courts are empowered, and in fact
duty-bound, to look beyond the contrived forms of
transactions to their economic substance and to apply
the tax laws accordingly. [Saviano v. Commissioner,
765 F.2d 643, 654 (7th Cir. 1985), affg. 80 T.C. 955
(1983).]
After reviewing the record in the instant cases, we agree in
substance with respondent that JDP did not pay the $360,000
contract fee for research or experimentation to be conducted by
HJI on JDP's behalf. Rather, for the reasons discussed below, we
conclude that the moneys JDP remitted to HJI for the putative
research or experimentation, in actuality, were paid for the
limited partners' right to participate in the jojoba farming
enterprise being operated by HJI in Hyder, Arizona. We are
convinced that, from the inception of JDP, rather than being a
stand-alone operation, Turtleback I functioned and was viewed as
part of one integrated jojoba farming operation conducted by HJI.
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