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(1946); Lusthaus v. Commissioner, 327 U.S. 293 (1946);
Commissioner v. Culbertson, supra; Alexander v. Commissioner, 194
F.2d 921 (5th Cir. 1952)); and shareholder-corporation
arrangements (Gregory v. Helvering, 293 U.S. 465 (1935);
Griffiths v. Commissioner, 308 U.S. 355 (1939); Higgins v. Smith,
308 U.S. 473 (1940); Moline Properties, Inc. v. Commissioner, 319
U.S. 436 (1943); Commissioner v. Court Holding Co., 324 U.S. 331
(1945)).
If, as in these cases, the issue involves income paid to
corporations, we encounter the important policy of the law
favoring recognition of a corporation as a legal person and
economic actor. If corporations are formed for substantial
business purposes, or are actually engaged in substantial
business activities, the corporate forms must be recognized for
tax purposes. See Moline Properties, Inc. v. Commissioner,
supra. On the other hand, if the subject entities are unreal or
shams, the corporate form must be disregarded for tax purposes.
See Higgins v. Smith, supra.
A finding that a corporation is a sham allows the
Commissioner to disregard the corporation altogether for tax
purposes. See Haberman Farms, Inc. v. United States, 305 F.2d
787 (8th Cir. 1962); James Realty Co. v. United States, 280 F.2d
394 (8th Cir. 1960). A finding that a corporation is not a sham,
however, does not preclude reallocation under the assignment of
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