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to be used as a "rigid two-step analysis." Id. at 1363.
Instead, business purpose and economic substance are simply more
precise factors to be considered in the application of the
traditional sham analysis; that is, whether the transaction had
any practical economic effects other than the creation of income
tax losses. Sochin v. Commissioner, 843 F.2d 351, 354 (9th Cir.
1988).
The business purpose factor often involves an examination of
the subjective factors which motivated a taxpayer to enter into
the transaction at issue. Bail Bonds By Marvin Nelson, Inc. v.
Commissioner, supra at 1549. The economic-substance factor
involves a broader examination of whether the substance of a
transaction reflects its form, and whether from an objective
standpoint the transaction was likely to produce economic
benefits aside from a tax deduction. Id.
Dura-Craft and Northwest, both of which acted under the
effective control or direction of Milo Chapman and David
Christie, were related parties. In determining whether the form
of a transaction between related parties has substance, we
compare their actions with what would have occurred if the
transaction had occurred between parties who were dealing at
arm's length. Maxwell v. Commissioner, 95 T.C. 107, 117 (1990).
The question of whether an expense is lacking in economic
substance is essentially a factual determination. Commissioner
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