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deduction and defer recognition by Petitioner of a currency
exchange gain.” Respondent further contends that the CIC/CIHI
transaction should be restructured because it had no objective
economic consequences. Respondent concedes that his economic
substance contention is a new matter and, as a result, he bears
the burden of proof. We conclude that respondent has failed to
carry his burden and that the economic substance doctrine is
inapplicable.
In determining whether the CIC/CIHI transaction has
sufficient economic substance for tax purposes, the Court must
consider both the objective economic substance and the subjective
business motivation behind the transaction. See IRS v. CM
Holdings, Inc., 301 F.3d 96, 102-103 (3d Cir. 2002). If the
transaction has no substance other than to create deductions, it
must be disregarded for tax purposes. See United States v.
Wexler, 31 F.3d 117, 122 (3d Cir. 1994).
There is no credible evidence that the Holding/CIC and
CIC/CIHI transactions were designed solely for the reduction of
taxes or that the above-market interest rate alone would have
precluded an arm’s-length party from entering into a similar
transaction. Indeed, petitioners had independent and legitimate
business purposes for the CIC/CIHI transaction. As previously
discussed in section II.A.2, Carlton decided to fund a portion of
the RSA and Cinema Media, Ltd. acquisition with funds from CIHI
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