- 21 -
meaningless step.16 As we stated in Esmark, Inc. & Affiliated
Cos. v. Commissioner, 90 T.C. at 195:
The existence of an overall plan does not alone,
however, justify application of the step-transaction
doctrine. Whether invoked as a result of the "binding
commitment," "interdependence," or "end result" tests,
the doctrine combines a series of individually
meaningless steps into a single transaction. * * *
At the time the original transaction documents, which establish
the form of the transactions, were executed the parties were
unaware of the tax benefit in issue. The absence of a tax motive
lends credence to petitioners' position that the transaction is
what it purports to be; i.e., that the structure of the
transaction was dictated by a business purpose and that substance
and form are aligned.
In order to recharacterize the transaction, respondent must
have a logically plausible alternative explanation that accounts
for all the results of the transaction. The explanation may
16Respondent cites Estate of Schneider v. Commissioner, 88
T.C. 906 (1987), affd. 855 F.2d 435 (7th Cir. 1988), for the
proposition that the step-transaction doctrine need not solely be
employed to eliminate meaningless steps. We do not read that
case to stand for that proposition. That case explicitly adopts
the elimination of meaningless steps analysis contained in
Minnesota Tea Co. v. Helvering, 302 U.S. 609, 613-614 (1938).
Additionally, the case itself cites the existence of meaningless
steps (issue of preendorsed checks to employees for purported
stock purchase) as the reason for the application of the step-
transaction doctrine. The Court of Appeals for the Seventh
Circuit affirmed this Court's recharacterization; however, it
chose to arrive at the same conclusion using a substance-over-
form analysis (parties' rights different from form used).
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