, factors we may consider in deciding whether a transaction has economic substance include (1) the FMV of the property involved; (2) the presence or absence of arm's-length price negotiations; (3) the relationship between sale price and FMV; (4) the financing structure; (5) whether the burdens of ownership shifted; and (6) whether the parties adhered to the terms of their contract. See Rose, 88 T.C. at 410-11; Helba v. Commissioner, 87 T.C. 983, 1004 (1986), supplemented by T.C. Memo. 1987-529, aff'd, 860 F.2d 1075 (3d Cir. 1988) (unpublished table decision); Falsetti, 85 T.C. at 348-53; see also Sacks v. Commissioner, 69 F.3d 982, 988-92 (9th Cir. 1995), rev'g T.C. Memo. 1992-596.
Rice's Toyota World, Inc. v. Commissioner, 752 F.2d 89, 92 (4th Cir. 1985)), affg. in part and revg. in part 81 T.C. 184 (1983). Whether a transaction is conducted with a subjective business purpose depends on a number of subfactors, including whether: (1) The taxpayer had a valid nontax business purpose for entering into the transaction, seeCasebeer v. Commissioner, 909 F.2d at 1363-1364; (2) the transaction was negotiated and entered into at arm's length, seeHelba v. Commissioner, 87 T.C. 983, 1004-1007 (1986), affd. without published opinion 860 F.2d 1075 (3d Cir. 1988); (3) the taxpayer performed due diligence regarding the commercial viability and market risks of the transaction, see Rose v. Commissioner, 868 F.2d 851, 854 (6th Cir. 1989), affg. 88 T.C. 386 (1987); (4) in the case of a partnership, the partners intended to join together for the present conduct of an undertaking or enterprise, see Culbertson v. Commissioner, 337 U.S. at 742; and (5) the transaction was marketed as a tax shelter in which the purported tax benefit significantly exceeded the taxpayer's actual investment, see Booker v. Commissioner, T.C. Memo. 1996-261. These subfactors are not exclusive, and no one subfactor is dispositive.
Brown v. Commissioner, 85 T.C. 968 (1985); Bail Bonds by Marvin Nelson, Inc. v. Commissioner, 820 F.2d 1543, 1549 (9th Cir.1987), affg. T.C.Memo. 1986–23; Helba v. Commissioner, 87 T.C. 983, 1004 (1986), affd. without published opinion 860 F.2d 1075 (3d Cir.1988). We have defined a sham transaction as a transaction that is lacking in objective economic reality and that has no economic significance beyond expected tax benefits.
The addition to tax under section 6659 applies to underpayments by individual partners, even though the overvaluation is made at the partnership level on the partnership return. See Helba v. Commissioner, 87 T.C. 983, 1014 (1986), affd. without published opinion, 860 F.2d 1075 (3d Cir. 1988). In the cases at bar, Fabyan claimed the Improvements had a value of $227,000.
The addition to tax under section 6659 applies to underpayments by individual partners, even though the overvaluation is made at the partnership level on the partnership return. See Helba v. Commissioner, 87 T.C. 983, 1014 (1986), affd. without published opinion 860 F.2d 1075 (3d Cir. 1988). In the cases at bar, Fabyan claimed the improvements had a value of $227,000.
ECONOMIC SUBSTANCE In determining whether a transaction has economic substance apart from tax benefits, the following factors are particularly significant: The presence or absence of arm's-length price negotiations, Helba v. Commissioner, 87 T.C. 983, 1005-1007 (1986) affd 860 F.2d 1075 (3d Cir. 1988); see also Karme v. Commissioner, 73 T.C. 1163, 1186 (1980), affd. 673 F.2d 1062 (9th Cir. 1982); the relationship between the sales price and fair market value, Zirker v. Commissioner, 87 T.C. 970, 976 (1986); Helba v. Commissioner, supra at 1005-1007, 1009-1011; the structure of the financing, Helba v. Commissioner, supra at 1007-1011; the degree of adherence to contractual terms, Helba v. Commissioner, supra at 1011; and the reasonableness of the income and residual value projections, Rice's Toyota World, Inc. v. Commissioner, 81 T.C. at 204-207. In May of 1980, IBM's list price of the equipment at issue was $2,005,000.
Economic Substance In determining whether a transaction has economic substance apart from tax benefits, the following factors are particularly significant: The presence or absence of arm's-length price negotiations, Helba v. Commissioner, 87 T.C. 983, 1005-1007 (1986), affd. 860 F.2d 1075 (3d Cir. 1988); see also Karme v. Commissioner, 73 T.C. 1163, 1186 (1980), affd. 673 F.2d 1062 (9th Cir. 1982); the relationship between the sales price and fair market value, Zirker v. Commissioner, 87 T.C. 970, 976 (1986); Helba v. Commissioner, supra at 1005-1007, 1009-1011; the structure of the financing, Helba v. Commissioner, supra at 1007-1011; the degree of adherence to contractual terms, Helba v. Commissioner, supra at 1011; and the reasonableness of the income and residual value projections, Rice's Toyota World, Inc. v. Commissioner, 81 T.C. at 204-207. In May of 1980, IBM's list price of the equipment at issue was $2,005,000.
The absence of arm's-length negotiations is a key indicator that a transaction lacks economic substance. Rose v. Commissioner, supra at 416; Helba v. Commissioner, 87 T.C. 983, 1005-1007 (1986). No negotiations took place between petitioners and SSI concerning the cost of the leases, and each master was arbitrarily valued at $250,000.
The absence of arm's-length negotiations is a key indicator that a transaction lacks economic substance. Rose v. Commissioner, supra at 416; Helba v. Commissioner, 87 T.C. 983, 1005-1007 (1986). No negotiations took place between petitioners and SSI concerning the cost of the leases, and each master was arbitrarily valued at $250,000.
We have previously used this regulation as a guide in similar situations. See, e.g., Patin v. Commissioner, 88 T.C. 1086, 1129 (1987); Helba v. Commissioner, 87 T.C. 983, 1015 (1986); Stanley Works and Subsidiaries v. Commissioner, 87 T.C. 389, 420-421 (1986). We have found that petitioners' straddle transactions were not entered into for profit.