Claymont Investments, Inc., As Successor in Interest to New CCI, Inc. and Subsidiaries - Page 23

                                       - 23 -                                         
          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             





Page:  Previous  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  Next

Last modified: May 25, 2011