Basic Inc. v. United States

9 Citing cases

  1. Coltec Industries, Inc. v. U.S.

    454 F.3d 1340 (Fed. Cir. 2006)   Cited 107 times   2 Legal Analyses
    Holding that "the transaction to be analyzed is the one that gave rise to alleged tax benefit" and rejecting taxpayer's argument that economic substance test requires consideration of broader set of transactions

    Id. at 877-79. Likewise, in Basic Inc. v. United States, 212 Ct.Cl. 399, 549 F.2d 740 (1977), the Court of Claims disregarded an inter-company transfer of stock because the transfer had no purpose other than to give the parent a transferred basis in the stock, so that the parent could report less taxable gain on its subsequent sale of that stock. Id. at 745-46.

  2. Baxter v. Comm'r

    910 F.3d 150 (4th Cir. 2018)   Cited 7 times
    Rejecting a similar novelty argument on the grounds that "it [is] well-established that transactions lacking economic substance must be disregarded for tax purposes"

    In Rose , the relevant transaction was the lease transfer, not the Quintron purchase and sale agreements, even though the Quintron transactions had some connection to the lease transfer. Other courts have likewise focused on the transaction giving rise to the claimed gain or loss, not collateral transactions connected to the transaction but not giving rise to the gain or loss. See, e.g. , Coltec Inds., Inc. v United States , 454 F.3d 1340, 1356 (Fed. Cir. 2006) (holding that "the transaction to be analyzed is the one that gave rise to alleged tax benefit" and rejecting taxpayer's argument that economic substance test requires consideration of broader set of transactions); Basic Inc. v. United States , 549 F.2d 740, 745 (Ct. Cl. 1977) (refusing to consider downstream transaction in economic substance inquiry because "if such an explanation were sufficient then all manner of intermediate transfers could lay claim to ‘business purpose’ simply by showing some factual connection, no matter how remote, to an otherwise legitimate transaction existing at the end of the line").Here, the particular transaction that gave rise to the loss is the assumption agreement pursuant to which Ms. Baxter agreed to be held liable for the eighty-five percent of Caledonian's loan from HVB secured by the time deposits, which liability she later claimed as a capital loss. That "specific" and "entire" transaction lacked economic substance because Caledonian's loan proceeds related to that liability remained in the time deposits with HVB, as Caledonian's agreement with HVB required, thereby rendering Ms. Baxter's assumption of the additional liability over-and-above the value of the promissory note she acquired a riskless and meaningless unde

  3. TSN Liquidating Corp. v. United States

    624 F.2d 1328 (5th Cir. 1980)   Cited 9 times

    Id. at 88,527. The district court relied for its holding primarily on the cases of Waterman Steamship Corp. v. Commissioner, 430 F.2d 1185 (5th Cir. 1970), cert. denied, 401 U.S. 939, 91 S.Ct. 936, 28 L.Ed.2d 219 (1971), and Basic, Inc. v. United States, 549 F.2d 740 (Ct.Cl. 1977), all discussed infra. On appeal, TSN argues that the cases relied upon by the district court are exceptions to what TSN characterizes as the established rule, namely, that assets removed from a corporation by a dividend made in contemplation of a sale of the stock of that corporation, when those assets are in good faith to be retained by the selling stockholders and not thereafter transferred to the buyer, are taxable as a dividend and not as a part of the price paid for the stock for the reason that, in economic reality and in substance, the selling stockholders did not sell and the buyer did not purchase or pay for the excluded assets.

  4. Stobie Creek Investments, LLC v. United States

    Nos. 05-748T, 07-520T (Fed. Cl. Jul. 31, 2008)   Cited 13 times
    Considering the reasonable cause defense at the partnership level

    In evaluating a transaction's economic reality, the Supreme Court and the Federal Circuit, along with other courts of appeals, look for a business purpose, beyond reducing taxes, to support a transaction; a transaction without a business purpose lacks economic reality and must be disregarded. See Coltec 454 F.3d at 1355 (citing Higgins v. Smith, 308 U.S. 473, 476 (1940);Gregory v. Helvering, 293 U.S. 465, 469 (1935); Dow Chem. Co. v.United States, 435 F.3d 594, 599 (6th Cir. 2006); Boca Investerings P'ship v. United States, 314 F.3d 625, 631 (D.C. Cir. 2003); In re CM Holdings, Inc., 301 F.3d 96, 102 (3d Cir. 2002); United Parcel Serv. of Am., Inc. v. Comm'r, 254 F.3d 1014, 1018 (11th Cir. 2001); Terry Haggerty Tire Co. v. United States, 899 F.2d 1199, 1201 n. 2 (Fed. Cir. 1990); Holiday Vill. Shopping Ctr. v. United States, 773 F.2d 276, 280 (Fed. Cir. 1985); Basic, Inc. v. United States, 549 F.2d 740, 745-46 (Ct.Cl. 1977);Rothschild v. United States, 407 F.2d 404, 417 (Ct.Cl. 1969);Ballagh v. United States, 331 F.2d 874, 875-76 (Ct.Cl. 1964)). Courts have found a legitimate business purpose beyond tax avoidance where the taxpayer demonstrates that a reasonable possibility of profit exists separate and apart from the tax benefits created by the transactions.

  5. Blake v. C.I.R

    697 F.2d 473 (2d Cir. 1982)   Cited 23 times
    Declining to rely on Rev. Rul. 78-197

    To the extent that DeWitt is inconsistent with what we have said above, we disagree. We note, however, that in a more recent decision, Basic Inc. v. United States, 549 F.2d 740 (Ct.Cl. 1977) (per curiam), the Court of Claims explained its holding in DeWitt as hinging on the fact that the "reacquisition of the property [by the taxpayer] was an expectation and not a certainty ... [and] the gift [therefore] stood the test of independent transaction." Id. at 748.

  6. Ruddick Corp. v. United States

    643 F.2d 747 (Fed. Cir. 1981)   Cited 11 times
    In Ruddick Corp. v. United States, 643 F.2d 747, 226 Ct.Cl. 426 (1981) (" Ruddick I"), for example, the Court of Claims held that section 482 could take precedence over nonrecognition treatment for the distribution of property from subsidiary to parent under section 311 of the Code only if "a significant element of tax avoidance or evasion" had tainted the distribution.

    An examination of the case law discloses that section 482 is a product of various themes: assignment of income principles, tax avoidance, general deduction theories, and clear reflection of income. While often these are applied in conjunction with one another, e. g., Basic Inc. v. United States, 212 Ct.Cl. 399, 549 F.2d 740 (1977), nowhere other than the majority's opinion is there any authority for their required conjunctive use. Section 482 is a major instrument of the Code and the Commissioner to ensure fairness in transactions occurring between controlled entities.

  7. GSS Holdings (Liberty) Inc. v. United States

    No. 19-728T (Fed. Cl. Jul. 26, 2021)

    As the Coltec court also elaborated, "our predecessor court in Basic Inc. disregarded an inter-company transfer of stock whereby a subsidiary, 'through its controlling parent, was caused to transfer the property whose sale the parent had decided upon for its own separate purposes.'" 454 F.3d at 1358 (quoting Basic Inc. v. United States, 549 F.2d 740, 746 (Ct. Cl. 1977). Although not between a parent and subsidiary, save for BNS's ownership of Scotiabank, we find the Coltec analysis particularly apposite here due to the tight web of contractual and legal relationships between the parties to the sale.

  8. H.J. Heinz Company Subsidiaries v. U.S.

    No. 03-2847T (Fed. Cl. May. 25, 2007)   Cited 2 times   2 Legal Analyses
    Discussing multiple formulations employed by courts to consider whether transaction has economic substance or whether it is a "sham"

    d for tax purposes, a loss must be suffered, actually and in fact, by the taxpayer").See Dietzsch, 498 F.2d at 1347-48 (applying step transaction doctrine in a case involving section 317(b)); King Enters., 418 F.2d at 516-17 (applying doctrine in treating stock acquisition followed by merger as a reorganization); see also Schroeder v. Comm'r of Internal Revenue, 831 F.2d 856, 858-89 (9th Cir. 1987) (applying doctrine in concluding that taxpayer's transfer of shares to a corporation and the corporation's assumption of a portion of a bank loan in exchange resulted in distribution substantially equivalent to a dividend under section 302(b)); Schneider v. Comm'r of Internal Revenue, 88 T.C. 906, 938-43 (1988), aff'd, 855 F.2d 435 (7th Cir. 1988) (applying doctrine in treating distribution of employee bonuses in the form of pre-endorsed checks, followed by purchase of stock, as stock redemption followed by distributions of the redeemed shareholders as employee compensation); see generally, Basic Inc. v. United States, 549 F.2d 740, 745-49 (Ct.Cl. 1977) (applying substance over form doctrine in recharacterizing distribution of stock from subsidiary to parent). In their post-trial briefs, plaintiffs vigorously assert that defendant did not raise the step transaction doctrine in its pre-trial memorandum.

  9. State Dept. of Revenue v. McLemore

    540 So. 2d 754 (Ala. Civ. App. 1989)   Cited 3 times

    The Revenue Department, however, submits that the substance of a transaction, and not its form, should govern where, as alleged here, the gift transfer between the taxpayers was solely for the purpose of avoiding taxes. C.I.R. v. Court Holding Co., 324 U.S. 331, 65 S.Ct. 707, 89 L.Ed. 981 (1945); Paccar, Inc. v. C.I.R., 849 F.2d 393 (9th Cir. 1988); Basic, Inc. v. United States, 549 F.2d 740, 212 Ct.Cl. 399 (1977); Centennial Savings Bank FSB v. United States, 682 F. Supp. 1389 (N.D.Tex. 1988). The Department of Revenue further submits that the "imputed income" rule is applicable to the present case.