Medieval Attractions N.V - Page 26

                                       - 114 -                                        
          considered the totality of the facts and circumstances and                  
          determined that the purported purchase of certain real property             
          was a sham because of the absence of transfer of legal title or             
          other indicia of arm’s-length dealing, drastically inflated sales           
          prices, and complete disregard of contractual terms.                        
               In these cases, we have considered the entire record and               
          conclude that the financing arrangements for the royalty payments           
          to Manver lacked economic substance and were shams, entered into            
          solely for tax-avoidance purposes.  This conclusion is based on             
          many factors, including the lack of arm's-length dealing,                   
          circular money movements, and other questionable business                   
          practices.                                                                  
               A close examination of the entities involved in the                    
          purported transactions reveals a complete lack of arm's-length              
          dealing.  See Karme v. Commissioner, 73 T.C. 1163, 1186 (1980),             
          affd. 673 F.2d 1062 (9th Cir. 1982).  The Spanish investors                 
          controlled every entity involved in the transactions.  They                 
          controlled the companies that were the source of the payments,              
          the companies that were to receive the payments, and the                    
          companies through which the payments passed as part of the                  
          commercial paper and other transactions.  See Pittler v.                    
          Commissioner, T.C. Memo. 1986-320.  Petitioners argue that the              
          transaction had economic substance because it was difficult to              
          finance petitioners' planned corporate expansion and pay                    
          royalties of 12.5 to 15 percent to Manver simultaneously.                   




Page:  Previous  104  105  106  107  108  109  110  111  112  113  114  115  116  117  118  119  120  121  122  123  Next

Last modified: May 25, 2011