- 14 -
approximation of U.S. income tax on $1.9 million in income.) If
we follow petitioner's logic, however, we would conclude that
petitioner paid approximately $4 million in worldwide income
taxes on that $1.9 million in profit.
Petitioner cites several cases, including Levy v.
Commissioner, 91 T.C. 838, 859 (1988); Gefen v. Commissioner, 87
T.C. 1471, 1492 (1986); Pearlstein v. Commissioner, T.C. Memo.
1989-621; and Rubin v. Commissioner, T.C. Memo. 1989-484, that
conclude that the respective transactions had economic substance
because there was a reasonable opportunity for a "pretax profit".
These cases, however, merely use "pretax profit" as a shorthand
reference to profit independent of tax savings, i.e., economic
profit. They do not involve situations, such as we have in this
case, where petitioner used tax reporting strategies to give the
illusion of profit, while simultaneously claiming a tax credit in
an amount (nearly $3.4 million) that far exceeds the U.S. tax (of
$640,000) attributed to the alleged profit, and thus is available
to offset tax on unrelated transactions. Petitioner's tax
reporting strategy was an integrated package, designed to produce
an economic gain when--and only when--the foreign tax credit was
claimed. By reporting the gross amount of the dividend, when
only the net amount was received, petitioner created a fictional
$1.9 million profit as a predicate for a $3.4 million tax credit.
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011