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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;
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