- 16 -
quid pro quo that taints what otherwise may have qualified under
section 118 as a tax-free contribution of capital.
Petitioner and the amici curiae argue that the Court
misapplies the step transaction doctrine. Petitioner cites J.E.
Seagram Corp. v. Commissioner, 104 T.C. 75 (1995). To the
contrary, we believe we have followed the reasoning of that case
by taking into account the "overall" transaction at issue. Id.
at 94.
As we understand it, the overriding function of the step
transaction doctrine is to combine individually meaningless or
unnecessary steps into a single transaction. See Tandy Corp. v.
Commissioner, 92 T.C. 1165, 1172 (1989); Esmark, Inc. v.
Commissioner, 90 T.C. 171, 195 (1988), affd. without published
opinion 886 F.2d 1318 (7th Cir. 1989).
However, a step in a series of transactions or in an overall
transaction that has a discrete business purpose, a discrete
economic significance, and that appropriately triggers an
incident of Federal taxation, is not to be disregarded. Further,
the simultaneous nature of a number of steps does not require all
but the first and the last (or "the start and finish") to be
ignored for Federal income tax purposes. Tandy Corp. v.
Commissioner, supra at 1172 (“step transaction doctrine is not
appropriate in every transaction that takes place in one or more
steps”); Rev. Rul. 79-250, 1979-2 C.B. 156, 157 (“the substance
of each of a series of steps will be recognized * * * if each
such step demonstrates independent economic significance, is not
subject to attack as a sham, and was undertaken for valid
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011