-119-
substance doctrine. In the instant cases, we focus on the
economic substance doctrine.85
“An activity will not provide the basis for deductions if it
lacks economic substance.” Ferguson v. Commissioner, 29 F.3d 98,
101 (2d Cir. 1994), affg. Peat Oil & Gas Associates v.
Commissioner, 100 T.C. 271 (1993). In general, transactions lack
economic substance if they “‘can not with reason be said to have
purpose, substance, or utility apart from their anticipated tax
consequences.’” Lee v. Commissioner, 155 F.3d 584, 586 (2d Cir.
1998) (quoting Goldstein v. Commissioner, 364 F.2d 734, 740 (2d
Cir. 1966), affg. 44 T.C. 284 (1965)), affg. in part and
remanding in part on another ground T.C. Memo. 1997-172.86
In Frank Lyon Co. v. United States, supra at 583-584, the
U.S. Supreme Court held that a transaction has economic substance
if “there is a genuine multiple-party transaction with economic
substance which is compelled or encouraged by business or
regulatory realities, is imbued with tax-independent
85 In a separate section infra, we discuss the application
of the step transaction doctrine.
86 In Jacobson v. Commissioner, 915 F.2d 832, 837 (2d Cir.
1990), affg. in part, revg. in part, and remanding T.C. Memo.
1988-341, the Court of Appeals for the Second Circuit stated that
a transaction is devoid of economic substance “‘if it is
fictitious or if it has no business purpose or economic effect
other than the creation of tax deductions.’” (quoting DeMartino
v. Commissioner, 862 F.2d 400, 406 (2d Cir. 1988), affg. 88 T.C.
583 (1987)); see also Ferguson v. Commissioner, 29 F.3d 98, 101
(2d Cir. 1994), affg. 100 T.C. 271 (1993).
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