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purposes because it had no nontax business purpose and lacked
economic substance.
C. Analysis
The focus of each party’s position, in essence, is in terms of
substance over form and related (e.g., sham and step transaction)
judicial doctrines. Under these judicial doctrines, although the
form of a transaction may literally comply with the provisions of
a Code section, the form will not be given effect where it has no
business purpose and operates simply as a device to conceal the
true character of a transaction. See Gregory v. Helvering, 293
U.S. 465, 469-470 (1935). “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.” Commissioner v.
Court Holding Co., 324 U.S. 331, 334 (1945). Conversely, if the
substance of a transaction accords with its form, then the form
will be upheld and given effect for Federal tax purposes. See
Blueberry Land Co. v. Commissioner, 361 F.2d 93, 100-101 (5th Cir.
1966), affg. 42 T.C. 1137 (1964).
A transaction may be treated as a sham where (1) the taxpayer
is motivated by no business purpose other than obtaining tax
benefits, and (2) the transaction has no economic substance because
no reasonable possibility of a profit exists. Rice’s Toyota World,
Inc. v. Commissioner, 752 F.2d 89, 91-95 (4th Cir. 1985), affg. on
this issue 81 T.C. 184 (1983). But a transaction that has a valid
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