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Respondent disallowed the deductions on the basis that the
expenses did not belong to MDT but were startup expenses of
separate entities, GCI/SDCI and MCI. Petitioners agree that the
subsidiaries were separate legal entities but argue that the
issue is whether the expansion was carried out by GCI/SDCI and
MCI or by petitioners.
"While a taxpayer is free to organize his affairs as he
chooses, nevertheless, once having done so, he must accept the
tax consequences of his choice, whether contemplated or not,
* * * and may not enjoy the benefit of some other route he might
have chosen to follow but did not." Commissioner v. National
Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149 (1974). The
issue is whether petitioners may retroactively change their form
once petitioners realized that there was a tax advantage to a
different type of organizational structure.
A taxpayer generally may not successfully contend that the
substance of a transaction was other than the form he chose:
As a general rule, the government may indeed bind a
taxpayer to the form in which he has factually cast a
transaction. The rule exists because to permit a
taxpayer at will to challenge his own forms in favor of
what he subsequently asserts to be true "substance"
would encourage post-transactional tax-planning and
unwarranted litigation on the part of many taxpayers
and raise a monumental administrative burden and
substantial problems of proof on the part of the
government. * * * [Citations omitted.]
In re Steen, 509 F.2d 1398, 1402-1403 n.4 (9th Cir. 1975); J.A.
Tobin Constr. Co. v. Commissioner, 85 T.C. 1005, 1021 (1985).
C&L's August 1988 tax planning letter to Santandreu set out the
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