- 56 - The consideration of whether there is a valid business purpose has been described as an inquiry into whether the transaction is motivated by profit or economic advantage so as not to be considered a “sham for purposes of analysis under I.R.C. � 165(c)(2).” Kirchman v. Commissioner, supra at 1491. That inquiry has been similarly described as one where the court considers whether the transaction is “rationally related to a useful nontax purpose that is plausible in light of the taxpayer’s conduct and * * * economic situation”. ACM Pship. v. Commissioner, T.C. Memo. 1997-115. This evaluation of the practicability or utility of the stated nontax purpose and the rationality of the means used to achieve that nontax purpose are to be evaluated in accordance with commercial practices in the relevant industry. Cherin v. Commissioner, 89 T.C. 986, 993-994 (1987). Consideration of the economic effect of the transaction(s) in question involves an objective inquiry concerning whether the transaction appreciably affected the taxpayer’s beneficial economic interest, absent tax benefits. Knetsch v. United States, 364 U.S. 361, 366 (1960); ACM Pship. v. Commissioner, 157 F.3d at 248. For example, where offsetting legal obligations or circular cashflows effectively eliminated any real economic profit from the transaction, the transaction was considered to be without economic effect. Knetsch v. United States, supra at 366;Page: Previous 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Next
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