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former category are Cottage Sav. Association v. Commissioner, 499
U.S. 554 (1991); and Esmark, Inc. & Affiliated Cos. v.
Commissioner, 90 T.C. 171 (1988), affd. without published opinion
886 F.2d 1318 (7th Cir. 1989). In the latter category are ACM
Partnership v. Commissioner, 157 F.3d 231 (3d Cir. 1998), affg.
in part T.C. Memo. 1997-115; Goldstein v. Commissioner, 364 F.2d
734 (2d Cir. 1966); and Friendship Dairies, Inc. v. Commissioner,
90 T.C. 1054 (1988). Referring to tax shelter transactions in
which a taxpayer seeks to use a minimal commitment of funds to
secure a disproportionate tax benefit, the Court of Appeals for
the Seventh Circuit stated, in Saviano v. Commissioner, 765 F.2d
643, 654 (7th Cir. 1985), affg. 80 T.C. 955 (1983):
The freedom to arrange one's affairs to minimize taxes
does not include the right to engage in financial
fantasies with the expectation that the Internal
Revenue Service and the courts will play along. The
Commissioner and the courts are empowered, and in fact
duty-bound, to look beyond the contrived forms of
transactions to their economic substance and to apply
the tax laws accordingly. * * *
Petitioner repeatedly argues, and asks the Court to find,
that it could not have had a tax savings or tax benefit purpose
in entering into the ADR transaction because:
In this case, a tax savings or tax benefit purpose
cannot be attributed to Compaq because Compaq did not
enjoy any tax reduction or other tax benefit from the
transaction. Compaq's taxable income increased by
approximately $1.9 million as a result of the Royal
Dutch ADR arbitrage. Compaq's worldwide tax liability
increased by more than $640,000 as a direct result of
the Royal ADR arbitrage. The reason for this increase
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