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business objectives, as well as the complexities of the
transaction itself.
B. General Legal Principles
It is well established that the “incidence of taxation
depends upon the substance of a transaction” rather than its mere
form. Commissioner v. Court Holding Co., 324 U.S. 331, 334
(1945). In determining the substance of a transaction for
Federal tax purposes, we are guided by the foundational
principles that the U.S. Supreme Court stated in Gregory v.
Helvering, 293 U.S. 465, 469 (1935): “The legal right of a
taxpayer to decrease the amount of what otherwise would be his
taxes, or altogether avoid them, by means which the law permits,
cannot be doubted. * * * But the question for determination is
whether what was done, apart from the tax motive, was the thing
which the statute intended.” See also Knetsch v. United States,
364 U.S. 361, 365 (1960); Commissioner v. Court Holding Co.,
supra at 334.
Under Gregory v. Helvering, supra, “it is immaterial whether
we are talking about ‘substantial economic reality,’ ‘substance
over form,’ ‘sham’ transactions, or the like; rather the question
is whether under the statute and regulations here involved the
transaction affects a beneficial interest other than the
reduction of taxes.” United States v. Ingredient Tech. Corp.,
698 F.2d 88, 94 (2d Cir. 1983).
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