- 106 -
sales or exchanges of property need not be respected where "the
challenged tax event is * * * a sham”, and that the Government
may look at the realities of a transaction and "disregard the
effect of the fiction as best serves the purposes of the tax
statute." Higgins v. Smith, 308 U.S. 473, 477 (1940). In
Higgins v. Smith, supra, the Supreme Court held that a taxpayer
did not sustain a loss within the meaning of section 23(e) of the
Internal Revenue Code of 1939 when he sold securities below cost
to his wholly owned corporation. Because the taxpayer retained
dominion and control over the stock transferred through his
ownership of the corporate transferee, the Court found that "no
loss in the statutory sense could occur upon a sale by a taxpayer
to * * * [a wholly owned corporation]", notwithstanding the fact
that an actual transfer of the stock had occurred. Id. at 476;
see also Frank Lyon Co. v. United States, 435 U.S. 561 at 573
("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.");
Commissioner v. Court Holding Co., 324 U.S. 331, 334 (1945) ("To
permit the true nature of a transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would
seriously impair the effective administration of the tax policies
of Congress.")
Page: Previous 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 NextLast modified: May 25, 2011