William J. Cutts - Page 29

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          The taxpayer too has a right to assert the priority of substance            
          --at least in a case where his tax reporting and actions show an            
          honest and consistent respect for the substance of a transaction.           
          Estate of Weinert v. Commissioner, supra at 755.  The taxpayer’s            
          right to assert the primacy of substance over form is the law of            
          the Fifth Circuit that is binding precedent in the Eleventh                 
          Circuit, to which this case would be appealable if it were not a            
          small tax case.  See Shepherd v. Commissioner, 283 F.3d 1258,               
          1262 n.6 (11th Cir. 2002), affg. 115 T.C. 376 (2000).11  We                 
          examine the particular transactions at issue to determine whether           
          the form used by ATV and Mr. Cutts reflects the substance of what           
          was accomplished.                                                           
               United States v. Ingalls, supra, addressed the setoff                  
          question in a pre-section 7872 context.  The question in Ingalls            
          was whether the compromise of an employment contract claim was              
          legally effective to defer income over the compromise period.               
          The taxpayer was a shareholder in a family-owned corporation.               
          The taxpayer had borrowed heavily from the corporation prior to             
          entering into a long-term employment contract with the                      
          corporation.  The shareholders got into a dispute over the                  
          validity of the employment contract and the amount of debt the              

               11 Because any appeal in this case, if it were permissible,            
          would lie to the Court of Appeals for the Eleventh Circuit, we              
          follow the precedent established in that Circuit.  See Golsen v.            
          Commissioner, 54 T.C. 742, 756-757 (1970), affd. 445 F.2d 985               
          (10th Cir. 1971).                                                           





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