- 454 -
conforms with business realities will be respected for tax
purposes. See Frank Lyon Co. v. United States, 435 U.S. 561,
584-585 (1978).
B. Section 267
Section 267 and its predecessors were enacted to correct
what Congress considered the abusive and frequently employed
practice of creating losses for purposes of avoiding income taxes
through transactions between related persons and groups. Because
of the identity of economic interests of such parties and the
control taxpayers had over the persons or entities involved, the
transfers were usually not thought to result in economically
genuine realization of loss. See McWilliams v. Commissioner, 331
U.S. 694, 699 (1947); H. Rept. 704, 73d Cong., 2d Sess., 1939-1
C.B. (Part 2) 554, 571. To prevent tax avoidance, Congress, in
section 267 and its statutory predecessors, denied deductions for
losses on all sales or exchanges between specified related
persons, regardless of such persons' subjective intent. Thus,
where section 267 is applicable, it is immaterial whether the
particular transaction involved is a bona fide, arm's-length
transaction. See McWilliams v. Commissioner, supra.
Generally, section 267(a) provides that no deduction shall
be allowed for any loss realized from the sale or exchange of
property between related persons or entities. Included among the
relationships are transactions between members of a family and
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