- 105 -
substance or business purpose.58 Petitioner controlled and
performed all activities and functions that resulted in EVC
revenue. The EVC profits that were transferred to OPL for the
benefit of petitioner's and OPL's shareholders were the fruition
of petitioner's EVC activity. OPL provided nothing of value to
petitioner. The purpose of the arrangement with NUF and OPL was
to confer tax-free benefits on petitioner's and OPL's
shareholders. Obviously, petitioner is not entitled to any
deductions for profits transferred to OPL. As a result,
petitioner must include EVC revenue in income for 1984 and is
liable for tax on the resulting profits.59
58In arriving at our finding, we recognize that some of
petitioner's witnesses testified that they considered State
insurance regulation and other nontax considerations to be
reasons for restructuring petitioner's EVC program. We have
fully considered that testimony, the demeanor of the witnesses,
and the statements they made before trial (in both
contemporaneous documents and interviews) in addition to the
aforementioned matters discussed in the text. In the final
analysis, we do not believe that nontax business considerations
were the reasons that motivated petitioner.
59Because we have held that petitioner's arrangement with
NUF and OPL was an assignment of income and a sham, we do not
reach the issue of whether an allocation must be made under sec.
482 or 845. Petitioner makes no argument that a sec. 482
analysis should be preferred over an assignment of income
analysis. Nevertheless, we are aware that several court opinions
appear to have expressed a general preference for application of
a sec. 482 analysis over the assignment of income analysis. We
believe those opinions are distinguishable because the facts in
the instant case are both "more extreme" and "heavily freighted
with tax motives". Cf. Foglesong v. Commissioner, 621 F.2d 865
(7th Cir. 1980), revg. and remanding T.C. Memo. 1976-294; Rubin
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