Compaq Computer Corporation and Subsidiaries - Page 17




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          floor of the NYSE.  Thus, there was virtually no risk of price              
          fluctuation.  Special next-day settlement terms and large blocks            
          of ADR's were also used to minimize the risk of third parties               
          breaking up the cross-trades, and, because the cross-trades were            
          at the market price, there was no risk of other traders breaking            
          up the trades.  None of the outgoing cash-flow resulted from                
          risks.  Accordingly, we have found that this transaction was                
          deliberately predetermined and designed by petitioner and Twenty-           
          First to yield a specific result and to eliminate all market                
          risks.                                                                      
               To satisfy the business purpose requirement of the economic            
          substance inquiry, “the transaction must be rationally related to           
          a useful nontax purpose that is plausible in light of the                   
          taxpayer's conduct and * * * economic situation.”  AMC                      
          Partnership v. Commissioner, T.C. Memo. 1997-115, affd. in part,            
          revd. in part, and remanded 157 F.3d 231 (3d Cir. 1998); see also           
          Levy v. Commissioner, supra at 854.  This inquiry takes into                
          account whether the taxpayer conducts itself in a realistic and             
          legitimate business fashion, thoroughly considering and analyzing           
          the ramifications of a questionable transaction, before                     
          proceeding with the transaction.  See UPS of Am. v. Commissioner,           
          T.C. Memo. 1999-268.                                                        
               Petitioner contends that it entered into the ADR transaction           
          as a short-term investment to make a profit apart from tax                  





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