- 69 -
articulate some business purpose allegedly motivating the
indirect nature of the transaction or (2) point to an
economic effect resulting from the series of steps, would
frequently defeat the purpose of the substance over form
principle. Events such as the actual payment of money,
legal transfer of property, adjustment of company books,
and execution of a contract all produce economic effects
and accompany almost any business dealing. Thus, we do
not rely on the occurrence of these events alone to
determine whether the step transaction doctrine applies.
Likewise, a taxpayer may proffer some non-tax business
purpose for engaging in a series of transactional steps
to accomplish a result he could have achieved by more
direct means, but that business purpose by itself does
not preclude application of the step transaction
doctrine. * * *
Id. at 1177.
Under the step transaction doctrine, a series of formally
separate steps may be collapsed and treated as a single transaction
if the steps are in substance integrated and focused toward a
particular result. Courts have applied three alternative tests in
deciding whether the step transaction doctrine should be invoked in
a particular situation; namely, (1) if at the time the first step
was entered into, there was a binding commitment to undertake the
later step (binding commitment test), (2) if separate steps
constitute prearranged parts of a single transaction intended to
reach an end result (end result test), or (3) if separate steps are
so interdependent that the legal relations created by one step
would have been fruitless without a completion of the series of
steps (interdependence test). See Penrod v. Commissioner, supra at
1428-1430. More than one test might be appropriate under any given
set of circumstances; however, the circumstances need satisfy only
Page: Previous 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 NextLast modified: May 25, 2011