Compaq Computer Corporation and Subsidiaries - Page 11




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               Petitioner had no business purpose for the purchase and sale           
          of Royal Dutch ADR's apart from obtaining a Federal income tax              
          benefit in the form of a foreign tax credit while offsetting the            
          previously recognized capital gain.                                         
                                       OPINION                                        
               Respondent argues that petitioner is not entitled to the               
          foreign tax credit because petitioner's ADR transaction had no              
          objective economic consequences or business purpose other than              
          reduction of taxes.  Petitioner argues that it is entitled to the           
          foreign tax credit because it complied with the applicable                  
          statutes and regulations, that the transaction had economic                 
          substance, and that, in any event, the economic substance                   
          doctrine should not be applied to deny a foreign tax credit.                
               In Frank Lyon Co. v. United States, 435 U.S. 561, 583-584              
          (1978), the Supreme Court stated that "a genuine multiple-party             
          transaction with economic substance * * * compelled or encouraged           
          by business or regulatory realities, * * * imbued with tax-                 
          independent considerations, and * * * not shaped solely by tax-             
          avoidance features" should be respected for tax purposes.                   
          Innumerable cases demonstrate the difference between (1) closing            
          out a real economic loss in order to minimize taxes or arranging            
          a contemplated business transaction in a tax-advantaged manner              
          and (2) entering into a prearranged loss transaction designed               
          solely for the reduction of taxes on unrelated income.  In the              





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