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U.S. 451, 456 (1950). Whether a taxpayer’s characterization of a
transaction should be respected depends upon whether there is a
bona fide transaction with economic substance, compelled or
encouraged by business or regulatory realties, imbued with tax-
independent considerations, and not shaped primarily by tax
avoidance features that have meaningless labels attached. See
ACM Pship. v. Commissioner, supra; Casebeer v. Commissioner, 909
F.2d 1360 (9th Cir. 1990), affg. Sturm v. Commissioner, T.C.
Memo. 1987-625; Winn-Dixie Stores, Inc. v. Commissioner, 113 T.C.
254 (1999), affd. 254 F.3d 1313 (11th Cir. 2001).
In deciding whether a transaction or series of transactions
lacks economic substance, courts have used a two-pronged inquiry:
(1) A subjective inquiry as to whether the transaction(s) was
carried out for a valid business purpose; and (2) an objective
inquiry concerning the economic effect of the transaction(s).
ACM Pship. v. Commissioner, supra at 247-248; Casebeer v.
Commissioner, supra at 1363; Kirchman v. Commissioner, 862 F.2d
1486, 1490-1491 (11th Cir. 1989), affg. Glass v. Commissioner, 87
T.C. 1087 (1986); Nicole Rose Corp. v. Commissioner, supra. We
note that the two tests have much in common and are not
necessarily discrete prongs of a “rigid two-step analysis”.
Casebeer v. Commissioner, supra at 1363.
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