- 11 -
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
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011