- 101 -
Concluding that it was inappropriate to apply the sham
transaction doctrine to section 108, the Court of Appeals
reasoned as follows:
The sham transaction doctrine is an important judicial
device for preventing the misuse of the tax code; but
the doctrine cannot be used to preempt congressional
intent. As Government counsel properly conceded at
oral argument, Congress has the power to authorize
these transactions, whether or not they are economic
shams. And the language of section 108(a)--providing
that the deduction shall be allowed if the transaction
was in a trade or business or engaged in for profit--
coupled with the irrebuttable presumption of section
108(b) [that every straddle loss incurred by a
commodities dealer shall be treated as a loss incurred
in a trade or business], makes it clear that that is
exactly what Congress intended to do. [Horn v.
Commissioner, 968 F.2d at 1236.]
Citing Gregory v. Helvering, 293 U.S. 465 (1935), and Horn
v. Commissioner, supra, petitioner contends that "Application of
the 'economic substance' doctrine must therefore begin with the
Code, and the lack of a business purpose and the absence of a
prospect of profit are irrelevant unless the underlying Code
provisions require the presence of those elements". (Emphasis
added.) Petitioner misconstrues both cases.
As previously discussed, Gregory v. Helvering, supra, stands
for the principle that a court is not obliged to respect the form
of a transaction for tax purposes where the record shows that the
transaction was in fact a contrivance designed to obtain an
unintended tax benefit. Although the Supreme Court made it clear
that a transaction cannot be disregarded solely because it was
Page: Previous 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 NextLast modified: May 25, 2011