- 12 -
Inkax a promissory note for the $90,000, nor did Inkax require
any security on the purported loan.
Moreover, 3-Koam never paid, nor will it ever pay Inkax,
because Inkax was dissolved immediately after engaging in the
alleged research and development transaction. In fact, the only
business that Inkax ever engaged in was the one transaction with
Dooyong, and once Inkax's "limited function had been exercised,
it was immediately put to death." Gregory v. Helvering, 293 U.S.
465, 470 (1935).
Thus, the circular movement of money in 3-Koam's case and
the use of Inkax, a partnership created and controlled by Houston
and Paik, as a conduit for such funds, establish that 3-Koam did
not in substance incur the $90,000 expense it claimed for
research and development. Karme v. Commissioner, 73 T.C. at
1193.
Another key factor we consider in analyzing a sham
transaction is a grossly inflated purchase price. Falsetti v.
Commissioner, 85 T.C. 332, 349 (1985); Grodt & McKay Realty, Inc.
v. Commissioner, 77 T.C. 1221, 1240-1241 (1981). In Grodt, we
analyzed whether a transaction was a true sale and found that a
normal attribute of an arm's-length sale is a purchase price "at
least approximately equal to [the item's] fair market value".
Grodt & McKay Realty, Inc. v. Commissioner, supra at 1240-1241.
A "totally disproportionate" purchase price belies a taxpayer's
contention that a true sale occurred. Id. at 1240-1241.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011