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position that the substance of the transaction is a financing
arrangement.
As stated above, the labels used in formal written documents
do not necessarily control the tax consequences of a given
transaction; 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); Frank
Lyon Co. v. United States, 435 U.S. 561 (1978). Thus, the fact
that the documents contain labels that the transaction is a lease
does not govern, and this Court must consider the substance of
the transaction between petitioners.6
Whether a transaction is a sale-leaseback or a financing
arrangement for Federal tax purposes depends on all of the facts
and circumstances. See Frank Lyon Co. v. United States, supra
6 Nominally, there are three parties to the transaction at
issue--the Guaderramas, Benavidez, and L&G. While some corporate
formalities with respect to L&G appear to have been satisfied,
L&G lacks any real economic involvement in this transaction. It
was incorporated after the transaction was completed, had no
employees, conducted no business, was formed solely for this
transaction and, according to Guaderrama, functioned for the
purpose of shielding the Guaderramas from liability for the
liquor sales. Furthermore, payments by Benavidez under the
“lease” were made directly to the Guaderramas. Despite the lack
of corporate formalities, however, it is unnecessary for us to
decide whether L&G should be disregarded for Federal tax purposes
because it is a pass-through entity and thus, any taxable income
from the transaction is attributed to the Guaderramas, the real
parties in interest to the transaction.
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Last modified: May 25, 2011