- 40 -
F.3d 231, 247 (3d Cir. 1998), affg. in part and revg. in part
T.C. Memo. 1997-115; United States v. Wexler, 31 F.3d 117, 122
(3d Cir. 1994). Denial of recognition means that such a
transaction cannot be the basis for a deductible expense. See
United States v. Wexler, supra at 122. Citing the Supreme
Court's decision in Gregory, the Court of Appeals for the
Eleventh Circuit in Kirchman v. Commissioner, supra, stated the
doctrine as follows:
The sham transaction doctrine requires courts and
the Commissioner to look beyond the form of a
transaction and to determine whether its substance is
of such a nature that expenses or losses incurred in
connection with it are deductible under an applicable
section of the Internal Revenue Code. If a
transaction's form complies with the Code's
requirements for deductibility, but the transaction
lacks the factual or economic substance that form
represents, then expenses or losses incurred in
connection with the transaction are not deductible.
[Id. at 1490.]
Because the transactional events at issue in this case actually
occurred, we limit our inquiry to the question of whether the
substance of the COLI transaction corresponds with its form.35
35In Kirchman v. Commissioner, 862 F.2d 1486, 1492 (11th
Cir. 1989), affg. Glass v. Commissioner, 87 T.C. 1087 (1986), the
court observed:
Courts have recognized two basic types of sham
transactions. Shams in fact are transactions that
never occur. In such shams, taxpayers claim deductions
for transactions that have been created on paper but
which never took place. Shams in substance are
transactions that actually occurred but which lack the
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