holding that a transaction was a sham because it had no “practical effects other than the creation of income tax losses”
How later courts described this case
- holding that a transaction was a sham because it had no “practical effects other than the creation of income tax losses”
- clarifying that disjunctive test that considers both subjective and objective factors, rather than “rigid two-step analysis,” is correct standard for economic substance doctrine
- section 108 does not apply until the court determines that the transaction is not a sham
- holding a taxpayer’s minimal investment for ordinary losses and long- term gain was a sham
Written by the judges who cited it.
Later courts went against this
Abrogated on other grounds by Ivan K. Landreth Lucille Landreth v. Commissioner Internal Revenue Service, 859 F.2d 643 (1988)
843 F.2d 351, 355 n. 9 (9th Cir.1988), abrogated on other grounds by Landreth v. Comm’r, 859 F.2d 643, 648-49 (9th Cir.1988); see also
Abrogated on other grounds by John E. Keane, Dorothy M. Keane v. Commissioner of Internal Revenue, 865 F.2d 1088 (1989)
” Prati v. United States, 81 Fed.Cl. at 438-39 (citations omitted); see also Sacks v. Comm’r, 69 F.3d 982, 987 (9th Cir.1995) (transaction in Sochin v. Commissioner was a sham because it had no “ ‘practical economic effects other than the creation of income tax losses’ ” (quoting Sochin v. Comm’r, 843 F.2d 351, 354 (9th Cir.1988) abrogated on other grounds by Keane v. Comm’r, 865 F.2d 1088, 1092 n. 8 (9th Cir.1989),…
The opinion
BEEZER, Circuit Judge,
concurring:
I cannot reconcile Bail Bonds By Marvin Nelson, Inc. v. Commissioner, 820 F.2d 1543 (9th Cir.1987) with our prior precedent. There, we applied the two-prong disjunctive test adopted by the Fourth Circuit in Rice’s Toyota World, Inc. v. Commissioner, 752 F.2d 89 (4th Cir.1985). Unlike the genuine recourse indebtedness in Rice’s, however, the transaction in Bail Bonds existed only on paper.
I believe that a transaction which is in substance only “financial gymnastics,” purely artificial, or a “paper chase” does not require any inquiry into the profit motive. Enrici v. Commissioner, 813 F.2d 293 , 295 n. 1 (9th Cir.1987); Mahoney v. Commissioner, 808 F.2d 1219, 1220 (6th Cir.1987); see Goldberg v. United States, 789 F.2d 1341 (9th Cir.1986) (affirming sham determination focusing entirely on economic substance); Neely v. United States, 775 F.2d 1092 (9th Cir.1985) (invalidating putative tax consequences of sham trust on grounds that it had “no economic effect other than to create income tax losses”); Thompson v. Commissioner, 631 F.2d 642 (9th Cir.1980) (economic substance); Karme v. Commissioner, 673 F.2d 1062 (9th Cir.1982) (economic substance). 1
*357 I express no opinion whether the two prong disjunctive test adopted in Rice’s properly applies to genuine transactions; such is not the case here.
The Tax Court should be affirmed.
. I agree with the opinions's footnote 6 which states that section 108 of the Deficit Reduction Act of 1984 does not apply to transactions that are not bona fide. For that reason, this court’s opinion in Wehrly v. United States, 808 F.2d 1311 (9th Cir.1986), and the Tenth Circuit’s recent opinion in Miller v. Commissioner, 836 F.2d 1274 (10th Cir.1988), are inapposite.