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owner-operators are represented to Interstate’s insurance carrier
as leased trucks.
Petitioners contend that the owner-operators were engaged in
two separate activities: (1) Leasing of their trucks to the
carrier companies for a rental which is the equivalent of their
expenses; and (2) providing the service of driving the trucks for
wages. Respondent contends that petitioners engaged in a single
activity; namely, providing transportation of cargo for the
carriers by use of their own vehicle. In this context, we must
determine whether the leases had independent significance so as
to give rise to a separate business activity.
Labels used in formal written documents do not necessarily
control the tax consequences of a given transaction. See Frank
Lyon Co. v. United States, 435 U.S. 561, 573 (1978). This Court
may look to the substance of the transaction in order to
determine the correct tax consequences. It is well established
that the economic substance of a transaction, rather than its
form, controls for Federal tax purposes. See Gregory v.
Helvering, 293 U.S. 465 (1935). Thus the fact that the documents
state that the transactions are leases does not govern, and this
Court must consider the substance of the transactions between the
owner-operators and the carriers. After a careful review of this
record, we conclude that petitioners did not engage in two
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