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comment of Judge Wisdom: “The taxpayer too has a right to assert
the priority of substance--at least in a case where his tax
reporting and actions show an honest and consistent respect for
the substance of a transaction.” Weinert v. Commissioner, 294
F.2d 750, 755 (5th Cir. 1961), affg. 31 T.C. 918 (1959).53
Our difficulty with respondent’s assertion of the “priority
of substance” arises from the failure of respondent’s actions to
show “an honest and consistent respect for the substance of [the]
transaction.” Here, respondent, through his former attorneys,
did not show respect for the substance of the transaction.
McWade and Sims tried to hide the settlement from their
supervisors, from the other parties, and from the Court. As we
have seen, and the Court of Appeals has noted, Dixon v.
Commissioner, 316 F.3d 1044 n.5, when Thompson was about to
reveal his settlement in open court, McWade immediately steered
him to another subject. Nor did respondent’s attorneys manifest
a consistent respect for the substance of the transaction. In
substance, the Thompsons’ settlement of their 1979-1981
deficiencies was a vehicle for payment of their attorney’s fees,
but respondent, again through his former attorneys who
perpetrated the fraud, characterized it as a refund of taxes to
the Thompsons that was solely attributable to Bauspar.
53 See Smith, “Substance over Form: A Taxpayer’s Right to
Assert the Priority of Substance”, 44 Tax Law. 137, 142 (1990).
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