ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 136

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          recognized for tax purposes they must have economic substance."             
          Id. at 52.                                                                  
               More recently, the Third Circuit reiterated that "[t]he                
          general rule on sham transactions in this circuit is well-                  
          established: 'If a transaction is devoid of economic substance              
          * * * it simply is not recognized for federal taxation purposes,            
          for better or for worse.  This denial of recognition means that a           
          sham transaction, devoid of economic substance, cannot be the               
          basis for a deductible loss.'"  United States v. Wexler, 31 F.3d            
          117, 122 (3d Cir. 1994) (quoting Lerman v. Commissioner, supra at           
          45).  In Wexler, the taxpayer claimed deductions resulting from             
          financial arrangements known as "repo to maturity" transactions.            
          Id. at 118.  The taxpayer argued that the economic substance                
          doctrine did not apply to the deduction of interest payments                
          pursuant to section 163 if the taxpayer's obligation to pay the             
          interest is binding and enforceable.  Id. at 122.  The Third                
          Circuit analyzed a series of related cases and noted that the key           
          requirement that permeated each of those cases was that the                 
          financial transaction be "economically substantive".  Id. at 127            
          (emphasis omitted).  The Third Circuit stated that "transactions            
          with no economic significance apart from tax benefits lack                  
          economic substance."  Id. at 124.                                           
               The "principle laid down in the Gregory case is not limited            
          to corporate reorganizations, but rather applies to the federal             






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