- 28 - Respondent disallowed the processing fees on the grounds that the transactions were shams lacking a business purpose and economic substance. Petitioners, however, argue that the separate corporate entity status of Northwest should be recognized, citing the test in Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943), and the line of cases resting thereon. We are not required to find Northwest was a sham in order to uphold respondent's determinations. The notice of deficiency focuses on the sham nature of the transactions rather than the sham nature of the corporation. A "sham" transaction is one that lacks economic substance beyond the creation of tax benefits. Knetsch v. United States, 364 U.S. 361, 365-366 (1960); Karr v. Commissioner, 924 F.2d 1018, 1022-1023 (11th Cir. 1991), affg. Smith v. Commissioner, 91 T.C. 733 (1988). Petitioners bear the burden of proving that the challenged transactions were not shams. Rule 142(a); Sheldon v. Commissioner, 94 T.C. 738, 753 (1990). Alternatively, petitioners appear to argue that the proper test for sustaining the deduction of the processing fee is the test in Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C. 1221, 1237-1238 (1981). In Grodt, we set forth eight factors by which to determine whether the benefits and burdens of ownership havePage: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Next
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