- 29 -
passed and a sale has occurred between contracting parties.13
While the shifting of benefits and burdens of ownership is a key
indicator of the presence or a lack of economic substance, it is
only one of several considerations. Rose v. Commissioner, 88
T.C. 386, 410 (1987), affd. 868 F.2d 851 (6th Cir. 1989).
The U.S. Court of Appeals for the Ninth Circuit, the circuit
in which this case is appealable, Golsen v. Commissioner, 54 T.C.
742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), determines
whether a transaction is a sham by the following two-part test:
(1) Has the taxpayer shown a business purpose for engaging in the
transaction other than tax avoidance? (a subjective test) and
(2) has the taxpayer shown that the transaction had economic
substance beyond the creation of tax benefits? (an objective
test), Casebeer v. Commissioner, 909 F.2d 1360, 1363 (9th Cir.
1990) (citing Bail Bonds By Marvin Nelson, Inc. v. Commissioner,
820 F.2d 1543, 1549 (9th Cir. 1987), affg. T.C. Memo. 1986-23),
affg. T.C. Memo. 1987-628. This two-part test, however, is not
13The factors included:
(1) Whether legal title passes; (2) how the parties
treat the transaction; (3) whether an equity was
acquired in the property; (4) whether the contract
creates a present obligation on the purchaser to make
payments; (5) whether the right of possession is
vested in the purchaser; (6) which party pays the
property taxes; (7) which party bears the risk of
loss or damage to the property; and (8) which party
receives the profits from the sale of the property.
[Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C.
1221, 1237-1238 (1981); citations omitted.]
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