-118-
The mere fact that the parties to the transaction might take
favorable tax consequences into account is not of itself fatal to
the transaction. Frank Lyon Co. v. United States, 435 U.S. 561,
580 (1978). As Judge Learned Hand observed in Chisholm v.
Commissioner, 79 F.2d 14, 15 (2d Cir. 1935), revg. 29 B.T.A. 1334
(1934):
a man’s motive to avoid taxation will not establish his
liability if the transaction does not do so without it.
It is true that * * * [the Supreme Court] has at times
shown itself indisposed to assist such efforts, and has
spoken of them disparagingly; but it has never, so far
as we can find, made that purpose the basis of
liability; and it has often said that it could not be
such. The question always is whether the transaction
under scrutiny is in fact what it appears to be in
form; a marriage may be a joke; a contract may be
intended only to deceive others; an agreement may have
a collateral defeasance. In such cases the transaction
as a whole is different from its appearance. True, it
is always the intent that controls; and we need not for
this occasion press the difference between intent and
purpose. We may assume that purpose may be the
touchstone, but the purpose which counts is one which
defeats or contradicts the apparent transaction, not
the purpose to escape taxation which the apparent, but
not the whole, transaction would realize. * * *
[Citations omitted; emphasis added.]
In applying these general legal principles, courts have
developed a number of more particularized judicial doctrines
including: The sham transaction doctrine, the substance over
form doctrine, the step transaction doctrine, and the economic
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