- 19 - taxpayer and his partners subsequently formed a separate corporation for the purpose of developing and selling real estate. The partners held ownership interests in the corporation in the same proportions as they did in the partnership. The partnership later sold land to the corporation for development. The Court of Appeals for the Fifth Circuit held that the record reflected that the business activities of the corporation were not attributable to the partnership. The Court of Appeals for the Fifth Circuit relied on the holding of the Supreme Court to the effect that where the form chosen by the taxpayer “'is compelled or encouraged by business or regulatory realities, is imbued with tax-independent considerations, and is not shaped solely by tax-avoidance features'”, the form should be honored by the Government. Id. at 533 (quoting Frank Lyon Co. v. United States, 435 U.S. 561, 583 (1978)); see also Lemons v. Commissioner, T.C. Memo. 1997-404. The Court of Appeals for the Fifth Circuit found it significant that the Commissioner had accepted the fact that the partnership and corporation were separate business entities and that the corporation was not a sham. The Court of Appeals also found significant the fact that there was an independent business reason to organize the corporation, that being to protect the partnership from unlimited liability from a multitude of sources.Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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