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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.
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