Richard J. and Carol C. Spera - Page 10

                                       - 10 -                                         

          Because transactions between shareholders and their closely held            
          corporations are easily manipulated, we examine such a                      
          transaction with special scrutiny.  See Electric & Neon, Inc. v.            
          Commissioner, 56 T.C. 1324, 1339 (1971), affd. without published            
          opinion 496 F.2d 876 (5th Cir. 1974).  We evaluate the realities            
          or substance of the transaction and are not bound by the form the           
          transaction may take.  Commissioner v. Court Holding Co., supra;            
          Higgins v. Smith, 308 U.S. 473 (1940).  Specifically, when                  
          evaluating a lease arrangement between a taxpayer and his wholly            
          owned corporation, we consider not only the lease itself, but               
          also the testimony of witnesses and the surrounding                         
          circumstances.  See Weigel v. Commissioner, supra.                          
               Based on our detailed review of the record, we conclude that           
          there was no economic reality behind petitioners' and GRC's lease           
          agreement and that section 109 and M.E. Blatt Co. v. United                 
          States, supra, are inapposite.  First, we find that the terms of            
          the lease are not commercially reasonable.  We do not believe               
          that a lessee dealing at arm's length would agree to rent                   
          property worth approximately $4,000 for 50 years of equal                   
          payments totaling $60,000.  Indeed, such a stream of payments               
          would constitute a 30-percent annual return to the lessor over              
          the 50 years, exclusive of any appreciation on the underlying               








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