- 30 -30
Petitioner contends that AlliedSignal and ABN joined together for
the common purpose of investing in interest bearing instruments
and sharing the profits and losses therefrom. We disagree for
reasons that we summarize here and explain at greater length
below.
AlliedSignal and ABN had divergent business goals.
AlliedSignal entered into the venture for the sole purpose of
generating capital losses to shelter an anticipated capital gain.
In pursuing this goal, AlliedSignal chose to ignore transaction
costs, profit potential, and other fundamental business
considerations. In fact, AlliedSignal's Board and the Board's
Executive Committee focused only on potential tax benefits when
they approved the plan.
In contrast, ABN entered into the venture for the sole
purpose of receiving its specified return. This return was
independent of the performance of ASA's investments (e.g., the
profitability of the LIBOR notes) and the success of the venture
(i.e., whether AlliedSignal succeeded in generating capital
losses). Moreover, as will be explained, ABN did not have any
profit potential beyond its specified return and did not have any
intention of being AlliedSignal's partner. In essence, we agree
with Justice Frankfurter's statement that if an arrangement does
not put all parties "in the same business boat, then they cannot
get into the same boat merely to seek * * * [tax] benefits".
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