- 40 -
the existence of a nontax business motive”), affg. T.C. Memo.
1998-305. But cf. ACM Pship. v. Commissioner, 157 F.3d 231, 248
n.31 (3d Cir. 1998) (“where a transaction objectively affects the
taxpayer’s net economic position * * * it will not be disregarded
merely because it was motivated by tax considerations”), affg. in
part and revg. in part T.C. Memo. 1997-115; N. Ind. Pub. Serv.
Co. v. Commissioner, 115 F.3d 506, 512 (7th Cir. 1997) (the cases
allowing “the Commissioner to disregard transactions which are
designed to manipulate the Tax Code so as to create artificial
tax deductions * * * do not allow the Commissioner to disregard
economic transactions * * * which result in actual, non-tax-
related changes in economic position”), affg. 105 T.C. 341
(1995).20
c. Analysis
In this case, the transactions that respondent seeks to
disregard, the CB&T loans and the deemed purchase of the AIG
notes by Countryside and their distribution to its majority-in-
interest partners, Mr. Winn and Mr. Curtis, were the means
20 The last four cited cases illustrate that the economic
substance doctrine has two prongs, an objective prong and a
subjective prong. The objective prong requires that the
transaction change the taxpayer’s economic position; the
subjective prong requires that the taxpayer have a nontax
business purpose for entering into the transaction. Although
there is apparently some dispute as to the manner in which the
various Courts of Appeals apply the two prongs, see, e.g.,
Stratton, “Government, Tax Bar Disagree Over Impact of Coltec”,
2006 TNT 212-1 (Nov. 2, 2006), it appears that the Court of
Appeals for the District of Columbia Circuit has applied them
disjunctively; i.e., a transaction will satisfy the economic
substance doctrine if it satisfies either the objective or
subjective prong of the test, see Horn v. Commissioner, 968 F.2d
1229, 1237-1238 (D.C. Cir. 1992), revg. T.C. Memo. 1988-570.
Page: Previous 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Next
Last modified: March 27, 2008