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GRAT’s trustees as limited partners pursuant to section 3.06 of the
KFLP partnership agreement.
Taxpayers generally are free to structure a business
transaction as they please, even if motivated by tax avoidance
considerations. See Gregory v. Helvering, 293 U.S. 465, 469
(1935); Yosha v. Commissioner, 861 F.2d 494, 497 (7th Cir. 1988),
affg. Glass v. Commissioner, 87 T.C. 1087 (1986); Johnson v.
Commissioner 86 F.2d 710, 712 (2d Cir. 1936), affg. 33 B.T.A. 1003
(1936). However, the tax effects of a particular transaction are
informed by the substance of the transaction rather than its form.
In Frank Lyon Co. v. United States, 435 U.S. 561, 573 (1978), the
Supreme Court has articulated the principle as follows:
In applying this doctrine of substance over form, the
Court has looked to the objective economic realities of
a transaction rather than to the particular form the
parties employed. The Court has never regarded “the
simple expedient of drawing up papers,” Commissioner v.
Tower, 327 U.S. 280, 291 (1946), as controlling for tax
purposes when the objective economic realities are to the
contrary. “In the field of taxation, administrators of
the laws, and the courts, are concerned with substance
and realities, and formal written documents are not
rigidly binding.” Helvering v. Lazarus & Co., 308 U.S.
[252, 255 (1939).] * * *
The doctrine that the substance of a transaction will prevail
over its form has been applied in Federal estate and gift tax
cases. See Heyen v. United States, 945 F.2d 359, 363 (10th Cir.
1991); Estate of Murphy v. Commissioner, T.C. Memo. 1990-472; see
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