- 93 -
in comparison with the claimed deductions" had no economic
substance.22 Id. at 768. The Court noted that "[i]f the
transactions had been fully offset, straddled, or hedged to
obviate the possibility of any loss or gain, the form of the
transaction could have been more readily attacked by respondent."
Id. Accord Merryman v. Commissioner, 873 F.2d 879, 881 (5th
Cir. 1989), affg. T.C. Memo. 1988-72; Levin v. Commissioner, 87
T.C. 698, 699, 728 (1986), affd. 832 F.2d 403 (7th Cir. 1987);
Julien v. Commissioner, 82 T.C. 492, 509 (1984).
In Lerman v. Commissioner, 939 F.2d 44 (3d Cir. 1991), affg.
Fox v. Commissioner, T.C. Memo. 1988-570, the Court of Appeals
for the Third Circuit analyzed the economic substance doctrine.
In Lerman, the taxpayers claimed to be commodities dealers and
sought to deduct losses resulting from their option-straddle
transactions. Id. at 45. The Third Circuit held that the
transactions were "shams, devoid of economic substance, and thus
any losses generated thereby cannot be the basis for deductions."
Id. at 56. The court noted that "Per Gregory v. Helvering * * *
it is settled federal tax law that for transactions to be
22 The Court of Appeals for the Third Circuit commented that
"Sheldon actually expanded the sham transaction doctrine because
it barred interest deductions from arrangements motivated by tax
benefits even if the transactions could have generated a profit."
United States v. Wexler, 31 F.3d 117, 124 n.9 (3d Cir. 1994).
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