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the formality of pleading the set-off would be the only
barrier to cancellation of mutual debts contracted on
the credit of each other. The agreement here
eliminates even the formality of having to plead the
set-off since by contract the parties agree that if the
taxpayer fails to pay the company, the company is
authorized to effect a private set-off by making the
bookkeeping entry mentioned above. The agreement
speaks for itself and makes clear that the taxpayer had
to perform no additional act for the debt to be
discharged. * * * [Id. at 146.]
The Court of Appeals in Ingalls concluded there was no
nontax business purpose for the installment aspect of the
contract compromise even though the corporation had a nontax
purpose in reaching the general settlement.
Ingalls is an example of the taxpayer’s use of form to
attempt to avoid taxes. We disagree with respondent that
petitioners’ netting the loans is an attempt to disavow the form
of the loan transactions to avoid taxes.12 The form of
petitioners’ transactions is not dispositive to the issue in this
case.
Although netting the loans may save taxes, there is an
important nontax business purposes for petitioners’ loan
transactions. The two open running accounts were set up to keep
track of everyday business transactions and for commonsense
efficiency reasons. Mr. Cutts was due rent from ATV. Mr. Cutts
12Even with our generous briefing schedule, respondent
failed to address in his reply brief petitioners’ citation of
United States v. Ingalls, 399 F.2d 143 (5th Cir. 1968). Because
Ingalls is distinguishable from the case at hand, we find that
respondent did not concede any argument supported by Ingalls.
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