- 39 -
subverting the legislative purpose of the tax code by
engaging in transactions that are fictitious or lack
economic reality simply to reap a tax benefit. In this
regard, the economic substance doctrine is not unlike
other canons of construction that are employed in
circumstances where the literal terms of a statute can
undermine the ultimate purpose of the statute. * * *
The Court also observed that cases applying the economic
substance doctrine “recognize that there is a material difference
between structuring a real transaction in a particular way to
provide a tax benefit (which is legitimate), and creating a
transaction, without a business purpose, in order to create a tax
benefit (which is illegitimate).” Id. at 1357.
The Court of Appeals for the District of Columbia Circuit,
the court to which an appeal of this case most likely would
lie,19 also recognized the foregoing distinction in Boca
Investerings Pship. v. United States, 314 F.3d 625, 631 (D.C.
Cir. 2003), phrasing it in terms of the need for a legitimate
business purpose:
The business purpose doctrine * * * establishes
that while taxpayers are allowed to structure their
business transactions in such a way as to minimize
their tax, these transactions must have a legitimate
non-tax avoidance business purpose to be recognized as
legitimate for tax purposes. * * *
See also ASA Investerings Pship. v. Commissioner, 201 F.3d 505,
512 (D.C. Cir. 2000) (in “sham transaction” cases, “the existence
of formal business activity is a given but the inquiry turns on
19 Because petitioner states in its petition that
Countryside had no principal place of business when the petition
was filed, barring stipulation to the contrary, the venue for
appeal would appear to be the Court of Appeals for the District
of Columbia Circuit. See sec. 7482(b)(1) (flush language) and
(2).
Page: Previous 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Next
Last modified: March 27, 2008