- 54 -
A. Did the Underlying Transactions Have Economic
Substance?
1. Generally
If a transaction is found not to have economic substance,
the form of the transaction may be disregarded in determining the
proper tax treatment to be accorded that transaction. Numerous
courts have held that a transaction that is entered into
primarily to reduce tax and which otherwise has minimal or no
supporting economic or commercial objective, has no effect for
Federal tax purposes. Frank Lyon Co. v. United States, 435 U.S.
561 (1978); Gregory v. Helvering, 293 U.S. 465 (1935); ACM Pship.
v. Commissioner, 157 F.3d 231, 246-247 (3d Cir. 1998), affg. in
part and revg. in part T.C. Memo. 1997-115; United States v.
Wexler, 31 F.3d 117, 122, 124 (3d Cir. 1994); Yosha v.
Commissioner, 861 F.2d 494, 498-499 (7th Cir. 1988), affg. Glass
v. Commissioner, 87 T.C. 1087 (1986); Goldstein v. Commissioner,
364 F.2d 734, 740-741 (2d Cir. 1966), affg. 44 T.C. 284 (1965);
Nicole Rose Corp. v. Commissioner, 117 T.C. 328, 336 (2001),
affd. 320 F.3d 282 (2d Cir. 2002).
The determination of whether a transaction lacks economic
substance requires a consideration of the facts and circumstances
surrounding the transaction, with no single factor being
determinative. United States v. Cumberland Pub. Serv. Co., 338
Page: Previous 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 NextLast modified: May 25, 2011