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transfers were accomplished using the partnership basis rules, it
seems evident that Congress did not envision these rules’ being
used merely as a vehicle to transfer built-in losses from a tax-
indifferent party to an interested purchaser pursuant to a
prearranged plan. As relevant to these circumstances, the
authorities are clear and firmly established: a transaction that
lacks economic substance is not recognized for Federal tax
purposes. See, e.g., Ferguson v. Commissioner, 29 F.3d at 101.
Special rules apply in the case of a “tax shelter”, which
means a partnership or other entity, any investment plan or
arrangement, or any other plan or arrangement, if a significant
purpose of such partnership, entity, plan, or arrangement is the
avoidance or evasion of Federal income tax. Sec.
6662(d)(2)(C)(iii). In the case of any item of a taxpayer (other
than a corporation) which is attributable to a tax shelter, an
understatement shall not be reduced on the basis of substantial
authority unless the taxpayer reasonably believed that his tax
treatment of the item was more likely than not proper. Sec.
6662(d)(2)(C)(i)(I) and (II).
We have concluded that the transaction between the Ackerman
group and the Credit Lyonnais group had no economic substance,
its only purpose being to transfer built-in tax losses in
exchange for a $10 million cash payment. Consequently, this
arrangement is considered a “tax shelter” for purposes of section
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