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proving that the form of a transaction should be respected is on
the taxpayer. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992).5
Generally, a contractual allocation will be upheld if it has
"economic reality", i.e., some independent basis in fact or some
arguable relationship with business reality so that reasonable
persons might bargain for such an agreement. Schulz v.
Commissioner, supra at 55. To determine whether a contractual
allocation has economic reality, we examine the facts and
circumstances of the particular case. See id. at 54; Major v.
Commissioner, supra at 250. If the parties to a contract have
adverse tax interests, we give more deference to the form of
their agreement. The rationale for this rule was articulated by
one court as follows:
The tax avoidance desires of the buyer and seller in such a
situation are ordinarily antithetical, forcing them, in most
cases, to agree upon a treatment which reflects the parties'
true intent with reference to the covenants, and the true
value of them in money. [Ullman v. Commissioner, supra at
308.]
However, if the parties to a contract do not have adverse tax
interests, we carefully scrutinize their contractual allocations.
Schulz v. Commissioner, supra; Buffalo Tool & Die Manufacturing
Co. v. Commissioner, 74 T.C. 441, 447-448 (1980); Lemery v.
5 Respondent has the burden of proof regarding the increased deficiencies
asserted in her amended answer, and we have jurisdiction to consider such
increased deficiencies. Sec. 6214(a); Rule 142(a); Rudie v. Commissioner, 49
T.C. 131, 138 (1967).
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