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In justifying the partnership, petitioner argues that it was
designed to perform functions integral and useful to Colgate's
liability management strategy. On the other hand, petitioner
argues that to evaluate whether the LIBOR Notes served a useful
hedging function it is the effects "within the four corners of
the partnership" that are relevant. The implication is that we
should treat the position that Colgate held within the
partnership through the instrumentality of Southampton as
functionally unrelated to Colgate's liability management
strategy: The utility of the LIBOR Notes is to be judged without
regard to the primary purposes for which the partnership was
created. It should be borne in mind that we are inquiring not
whether a partnership should be treated as an entity or an
aggregate for tax purposes or whether Southampton and ACM are
entitled to be respected as separate legal entities, but whether
there is any coherence to petitioner's economic explanation for
the existence of the partnership and Southampton's role in it.
The shift in focus that petitioner proposes is simply a
sophistical sleight of hand. With a little analysis, the
absurdity of the implications of this proposition can be
appreciated. In any event, we emphasize that while we make this
analysis we nevertheless decline to unbundle the transaction in
order to isolate one element that might have economic substance.
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