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whether a taxpayer may disavow the form he has chosen. Estate of
Durkin v. Commissioner, 99 T.C. at 574-575 (explaining
application of Danielson rule and strong proof standard to facts
of that case). In any case in which the taxpayer fails to show
an honest and consistent respect for the substance of a
transaction, it may be difficult (if not impossible) for the
taxpayer to convince a court that he should be allowed to disavow
his chosen form, but we cannot say that, as a rule of law, he is
precluded from trying.12 Respondent’s Weinert rule is too broad;
the taxpayer’s lack of an honest and consistent respect for the
substance of a transaction may be an important (indeed, even
decisive) factor in determining that the taxpayer cannot disavow
his chosen form; it is not, however, a sufficient factor. See
infra sec. II.D.3.e.
d. Estate of Durkin v. Commissioner
12 In Federal Natl. Mortgage Association v. Commissioner,
90 T.C. 405, 426-428 (1988), affd. 896 F.2d 580 (D.C. Cir. 1990),
we set forth two grounds for not allowing the taxpayer to disavow
the form of transaction reported on its original income tax
return and financial reports. The first “more procedural” ground
was that the taxpayer’s tax reporting and other actions did not
show an honest and consistent respect for what, at trial, it
claimed to be the substance of the transaction. With respect to
the first ground, we said that we were “disinclined” to
recharacterize the transaction by hindsight. The second ground
“[m]ore importantly” was that the form of the transaction
corresponded to its substance. The Court of Appeals for the
District of Columbia Circuit affirmed our decision on the basis
of our substantive analysis. Federal Natl. Mortgage Association
v. Commissioner, 896 F.2d at 586. Had the first ground been
sufficient, we would have had no reason to discuss the second
(more important) ground.
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