## F I L E D United States Court of Appeals Tenth Circuit 

### SEP 9 1999 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

JEAN D. TRUE, individually and as personal representative of the estate of Henry A. True, Jr.; HENRY A. TRUE, III; KAREN S. TRUE, DIEMER D. TRUE; SUSAN L. TRUE; DAVID L. TRUE; MELANIE A. TRUE, Plaintiffs-Appellants,

v. UNITED STATES OF AMERICA, Defendant-Appellee. No. 98-8015

Appeal from the United States District Court

for the District of Wyoming (D.C. No. 96-CV-1050-J)
Richard E. Day (Mark L. Carman of Williams, Porter, Day and Neville, P.C.; and Ronald M. Morris with him on the briefs) of William s, Porter, Day and Neville, P.C., Casper, Wyoming, for Plaintiffs-Appellants. Jonathan S. Cohen (Loretta C. Argrett, Assistant Attorney General, and Teresa T. Milton, Department of Justice, Washington, D.C.; David D. Freudenthal, United States Attorney for the District of Wyoming, Cheyen ne, Wyoming, of counsel, with him on the briefs) of the Department of Justic e, Washington, D.C., for Defendant-Appellee.

Before TACHA, BARRETT and BRORBY , Circuit Judges.1 This case originally included a cross-appeal desi gnated No. 98-8018,

which involved a dispute over pipeline depreciation . We need not address this matter because the parties stipulated to dismissal and the appeal was dismissed by order dated June 29, 1999. They agree our decision inDuke Energy Natural Gas Corp. v. Commissioner , 172 F.3d 1255 (10th Cir. 1999), filed during the pendency of this appeal, effectively settled the pi peline dispute.

2We reviewed the government’s motion to dismiss th is appeal for lack of jurisdictionand its arguments in support thereof, and conclude the motion should be denied.

-2- BRORBY , Circuit Judge.

Appellants, Jean D. True (individually and personal representative of the estate of Henry A. True, Jr.), Henry A. True III, K aren S. True, Diemer D. True, Susan L. True, David L. True, and Melanie A. True ( hereinafter “taxpayers,” “Trues,” or “True family”), challenge the district court’s summary judgment order in favor of the government, claiming the court erro neously applied the step transaction doctrine to invalidate certain business transactions they executed. In addition, Appellants argue the district court erred when it refused to apply the collateral estoppel doctrine to bar relitigation of particular issues decided in an earlier tax case involving the same parties. 1 We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm in part, reverse in part, and remand for further proceedings. 23 Karen S. True, Susan L. True, and Melanie A. True are parties to this

lawsuit by virtue of having filed joint returns wit h their husbands, Henry, Diemer, and David, who are minority shareholders or partner s in the True family businesses.

-3- I. Background This tax refund suit arises from the Trues’ dispute with the Internal Revenue Service over the characterization of certai n transactions involving several True family businesses. The Trues engage i n a variety of business ventures including oil and gas production and explo ration, and ranching. They conduct their family businesses primarily as genera l partnerships or Subchapter S Corporations, with Henry True, Jr. (prior to his de ath) and his wife, Jean, owning equal controlling interests, and their three sons, Henry, Diemer, and David, sharing equal minority interests in the ownership and operation of the businesses. 3 The family businesses involved in this case are Tru e Ranches, a partnership engaged in ranching, farming, and feedlot operation s; Smokey Oil Company, a Wyoming corporation engaged in oil and gas producti on and exploration; True Oil Company, a general partnership engaged in oil and g as production and exploration; and Bear Lodge Mountain Corporation an d True Land and Royalty Company, two Subchapter S corporations the Trues or ganized to acquire and deal in oil and gas leases.4The Internal Revenue Service has issued a Revenue Ruling stating

improved ranchland and producing oil and gas leases are “like kind” properties for purposes of I.R.C. § 1031. Rev. Rul. 68-331, 1 968-1 C.B. 352. -4- Two separate series of transactions involving the T rues’ businesses are presently in dispute. The first involves a multi-s tage purchase, exchange, and transfer involving ranchland properties (hereinafte r “ranchland transactions”), and the second involves the acquisition and subsequent assignment of oil and gas leases in exchange for guaranteed minimum overridin g royalty payments (hereinafter “oil and gas lease transactions”). In order to explain clearly the events giving rise to this suit, we summarize the t ransactions separately.

A. Ranchland Transactions During the 1980s, the True family purchased five ne w ranch properties to add to their ranching operations. Each purchase to ok place through the same series of steps, described as follows. First, inst ead of True Ranches directly acquiring the ranchlands, the taxpayers arranged fo r Smokey Oil Company to purchase the parcels of real property, while True R anches acquired the operating assets of each ranch. Smokey Oil Company then tran sferred the ranchlands to True Oil Company in exchange for selected productiv e oil and gas leases. Internal Revenue Code § 1031 permitted the Trues to treat the exchange as a likekind, tax-free exchange. 4 After the transfer, True Oil Company immediately-5-

distributed the newly acquired ranchlands to the in dividual family-member partners of True Oil Company as tenants in common. The partners then contributed their undivided interests in the lands to True Ranches by general warranty deed. Internal Revenue Code §§ 721 and 73 1 allowed the Trues to treat these distributions as non-recognition transactions

.

This series of acquisitions, transfers and exchange s had positive tax implications for the Trues. Through the operation of I.R.C. § 1031(d), which essentially provides that the basis of property rec eived in a tax-free exchange is the same as the basis of the property transferred, Smokey Oil Company received depletable oil and gas leases with the same cost ba sis it had in the nondepreciable ranchland it transferred in the exchang e with True Oil Company. This allowed Smokey Oil Company to claim cost deple tion deductions for the leases on its tax returns for 1989 and 1990 under I .R.C. § 612, resulting in substantial tax savings for the True family. True Oil Company, on the other hand, received the non-depreciable ranchland with a zero basis because the oil and gas leases it exchanged pursuant to I.R.C. § 1031 were fully cost depleted. Through the subsequent transfers, True Ranches acquired the ranchland with the same zero basis as True Oil Company’s oil and gas leases. Ul timately, the Trues reaped the tax benefits of turning non-depreciable assets (ran chlands) into cost-depletable-6-

assets (oil and gas leases) in the hands of Smokey Oil Company, with the residual effect of ridding True Oil Company of fully cost-de pleted assets (oil and gas leases) and leaving True Ranches with a zero basis in otherwise non-depreciable assets (ranchlands).

B. Oil and Gas Lease Transactions Employing a similar strategy, the Trues utilized Be ar Lodge Mountain Corporation and True Land and Royalty Company to ac quire and then assign numerous oil and gas leases. Neither of these enti ties had any employees, and they relied primarily on the land department of Tru e Oil Company or independent landmen hired by True Oil Company to arrange the lease acquisitions. The Trues structured the transactions so that Bear Lodge Mountain Corporation and True Land and Royalty Company acquired the oil and gas l eases, and shortly thereafter, assigned a 100 percent interest in the leases to ei ther True Oil Company or Smokey Oil Company. In exchange, Bear Lodge Mounta in Corporation or True Land and Royalty Company retained an overriding roy alty of five percent, against which True Oil Company and Smokey Oil Company made annual advance royalty payments or “guaranteed minimum overriding royalty” payments over the life of the lease.-7-

As a result of these transactions, True Oil Companyand Smokey Oil Company deducted the guaranteed minimum overriding royalties paid to Bear Lodge Mountain Corporation and True Land and Royalty Company on their tax returns for 1989 and 1990 under Treas. Reg. § 1.612 -3(b)(3). This arrangement allowed True Oil Company and Smokey Oil Company to realize the tax benefits of immediately expensing the guaranteed minimum ove rriding royalty payments instead of capitalizing the purchase of the leases as the Internal Revenue Code ordinarily requires for direct purchases of those type assets. On the other side of the transaction, even though the Internal Revenue C ode required Bear Lodge Mountain Corporation and True Land and Royalty Comp any to report the guaranteed minimum overriding royalty payments as i ncome they received in exchange for the oil and gas lease assignments, the companies could claim an offsetting cost depletion deduction under Treas. Re g. § 1.612-3(b)(1). This maneuvering resulted in an overall tax advantage fo r the True family businesses that passed through to the individual taxpayers.

C. Internal Revenue Service Proceedings Suspicious of both the ranchland and oil and gas le ase transactions, the Internal Revenue Service audited the Trues’ tax ret urns for tax years 1989-1990. As a result of the audit, the Internal Revenue Serv ice recharacterized both the-8-

ranchland transactions and oil and gas lease transa ctions, denying the Trues the described tax benefits associated with them.

The Internal Revenue Service treated the ranchland transactions as if True Ranches had acquired the property in the first inst ance, and thus assigned True Ranches the same basis in the property as the amount Smokey Oil Company paid to acquire the land. The Internal Revenue Service also disallowed the cost depletion deductions Smokey Oil Company took for th e leases acquired from True Oil Company in the tax-free exchange. Instead, the Internal Revenue Service allocated the income from those leases to True Oil Company and allowed True Oil Company to take percentage depletion deductions, rather than the cost depletion Smokey Oil Company originally claimed.

As for the oil and gas lease transactions, the Inte rnal Revenue Service treated True Oil Company and Smokey Oil Company as having directly acquired the leases instead of Bear Lodge Mountain Corporati on and True Land and Royalty Company. Accordingly, the Internal Revenue Service (1) disallowed True Oil Company’s and Smokey Oil Company’s guarant eed minimum overriding royalty deductions, and (2) required the companies to treat the cost of acquiring the leases as capital expenditures. The Internal R evenue Service allowed Bear-9-

Lodge Mountain Corporation and True Land and Royalty Company to exclude the guaranteed minimum overriding royalty income, but d id not permit the companies to claim a deduction for cost depletion.

The Trues paid under protest the deficiency from th e 1989 and 1990 tax years as determined by the Internal Revenue Service audit, and then promptly filed an administrative claim for a refund. After the Internal Revenue Service disallowed the refund, the taxpayers filed the pres ent refund suit in district court.

D. District Court Proceedings In proceedings before the district court, the gover nment filed motions for partial summary judgment contending, under the step transaction doctrine, the court must: (1) treat the series of exchanges and transfers involved in the ranchland purchases as a single transaction whereinTrue Ranches alone acquired the property, and (2) construe the assignment of oi l and gas leases from Bear Lodge Mountain Corporation and True Land and Royalty Company to True Oil Company and Smokey Oil Company as a single transact ion wherein True Oil Company and Smokey Oil Company directly obtained th e leases. In opposition to these motions, the Trues argued that the business transactions had independent economic significance, bona fide business purposes, and, in any event, presented5 In the 1973-1975 tax case, True family members assigned oil and gas

leases to True Oil Company in exchange for guaranteed minimum overriding royalty payments. As in the present case, True Oil Company deducted the guaranteed minimum overriding royalties paid while the recipient recognized the amount as income and took a cost depletion deductio n against the income received. The government challenged this arrangement , but a jury decided the guaranteed minimum overriding royalty payments True Oil Company “made to [True] family members were entered into for valid and substantial business purposes having economic reality.” True v. United States , 629 F. Supp. 881, 885 (D. Wyo. 1986). Thus, the court ratified the Trues’ treatment of the advanced royalty payments. Id

.
-10- issues of fact inappropriate for summary judgment. In addition, the Trues filed their own motion for partial summary judgment argui ng on collateral estoppel grounds that earlier litigation and final judgment in a previous tax case (hereinafter “1973-1975 tax case”), involving the s ame parties and same issues as those involved in the present dispute over the oil and gas lease transactions, barred the government from relitigating those issue s. 5

The district court rejected the Trues’ collateral e stoppel argument, finding changes in controlling legal principles since the 1 973-1975 tax case precluded its application in this case. Then, the court granted the government’s motions for summary judgment, finding the step transaction doctrine required the recharacterization of both the ranchland transactio ns and the oil and gas lease transactions in the way the government requested.-11-

II. Discussion On appeal, the taxpayers argue the district court: (1) erred in ruling as a matter of law that the step transaction doctrine re quired True Ranches to be treated as the purchaser of the ranchland, thereby denying the economic benefits and advantageous tax treatment of the transactions; (2) erred in precluding the application of collateral estoppel to the dispute o ver the tax treatment of the oil and gas lease transactions; and (3) erred in decidi ng as a matter of law that, under the step transaction doctrine, the payment of guara nteed minimum overriding royalties should be collapsed into a single transac tion. We review de novo the district court’s order granting summary judgment, e mploying the same legal principles as the district court and construing the factual record and the reasonable inferences therefrom in the light most f avorable to the party opposing summary judgment. See Byers v. City of Albuquerque 150 F.3d 1271, 1274 (10th Cir. 1998). Summary judgment is appropriate if the record shows “that there is no genuine issue as to any material fact and that t he moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c ). An issue of material fact is genuine only if a party presents facts sufficient t o show that a reasonable jury could find in favor of the nonmovant. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986).-12-

A. Collateral Estoppel We first examine whether judgment in the 1973-1975 tax case precludes the government from relitigating the issue of the deduc tibility of the guaranteed minimum overriding royalty payments in the context of the oil and gas lease transactions. In opposition to the Trues’ collater al estoppel claim, the government initially argues the district court lack ed subject matter jurisdiction over the issue because the Trues failed to raise th is argument in their administrative refund filing. The district court d id not address this jurisdictional challenge, and instead found collateral estoppel in applicable on other grounds. We find it necessary to address the jurisdictional contention.

Internal Revenue Code § 7422(a) provides “[n]o suitor proceeding shall be maintained in any court for the recovery of any int ernal revenue tax alleged to have been erroneously or illegally assessed or coll ected ... until a claim for refund or credit has been duly filed with the Secretary.” The claim for refund “must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exactbasis thereof.” Treas. Reg. § 301.6402-2(b)(1); see also Herrington v. United States , 416 F.2d 1029, 1032 (10th Cir. 1969) (burden is on the claimant to brin g asserted grounds of recovery to the Internal Revenue Service; the Commissioner i s not required to “ferret out-13-

possible grounds for relief which a taxpayer might assert”). Under these rules, if the taxpayer does not adequately raise an issue at the administrative level, the courts have no jurisdiction to consider the issue i n a later suit for refund. In re Estate of Bird, 534 F.2d 1214, 1219 (6th Cir. 1976); see also Alabama By-Products Corp. v. Patterson , 258 F.2d 892, 900 (5th Cir. 1958), cert. denied, 358 U.S. 930 (1959). These requirements serve to apprise the Internal Revenue Service of the nature of the claim and its underlying fact s, so that it can make a thorough administrative investigation and determination, correct any errors, and “‘limit the scope of any ensuing litigation to thos e issues which have been examined and which [it] is willing to defend.’” Stelco Holding Co. v. United
States , 42 Fed. Cl. 101, 108 (1998) (quoting Union Pacific R.R. Co. v. United
States , 389 F.2d 437, 442 (Ct. Cl. 1968)); see also McKart v. United States , 395 U.S. 185, 194-95 (1969) (generally addressing admin istrative exhaustion requirements to promote the practical notions of ju dicial efficiency, administrative autonomy, and effective agency proce dures).

Neither the parties nor our own research reveals any controlling authority specifically addressing whether a taxpayer must raise a collateral estoppel claim in the course of filing an administrative tax refun d in order to preserve the issue for appeal. Thus, we treat this as an issue of fir st impression.-14-

In support of its position that the Trues must plead collateral estoppel in the administrative filing, the government relies so lely on the plain language of I.R.C. § 7422(a) and Treas. Reg. § 301.6402-2(b), and asserts the Trues did not “set forth in detail each ground upon which a credi t or refund is claimed.” The
Trues counter this argument, relying on Parke, Davis & Co. v. United States, 1975 WL 787, 76-1 USTC (CCH) ¶ 9280 (E.D. Mich. 197 5) (quoting National Forge & Ordnance Co. v. United States , 151 F. Supp. 937 (Ct. Cl. 1957)), for the proposition they are not required to state their cl aims for a refund with any degree of particularity, and their failure to specifically include collateral estoppel does not preclude them from raising the issue in this pr esent litigation. In addition, the
Trues argue that because the Internal Revenue Service kn ew or should have known about the earlier lawsuit from a review of it s own records and would suffer no prejudice from the application of collateral est oppel, it cannot now evade its application.

The Trues’ reliance on Parke, Davis & Co. is misplaced. Parke, Davis &
Co. and the cases cited therein merely stand for the proposition that an issue rais ed in litigation, but not specifically referred to in the refund claim, might be permitted, if the newly raised issue was subsidiary to, or an int egral part of, the grounds presented in the refund claim such that the omitted issue must have necessarily been considered by the [Internal Revenue Service] in its review of the refund claim.-15-

Lockheed Martin Corp. v. United States , 39 Fed. Cl. 197, 201 (1997) (emphasis added). The estoppel claim in Parke, Davis & Co. clearly was subsidiary to, or an integral part of, the refund claim wherein the taxp ayer alleged the Internal Revenue Service arbitrarily and capriciously change d its position as documented in a previous ruling letter that the taxpayer reque sted, and upon which the taxpayer relied. Such is not the case here.

The Trues do not attempt to estop the Internal Reve nue Service from changing its position on the tax treatment to be af forded the oil and gas lease transactions subject to the 1989-1990 audit. Indee d, the Internal Revenue Service never has adopted the Trues’ position on that issue . The Trues instead attempt to bind the Internal Revenue Service to the judicial d isposition of a percentage depletion issue involving guaranteed overriding roy alty payments in an independent case litigated some fifteen years earli er. We fail to see how the Internal Revenue Service would necessarily have con sidered the judicial disposition in the 1973-1975 tax case when reviewin g the refund claim presently at issue. Unlike the situation in Parke, Davis & Co. , we construe the Trues’ collateral estoppel claim to be an independent grou nd upon which to base their refund claim, not an “issue subsidiary to, or an in tegral part of,” other substantive claims they raised in the administrative proceeding . Accordingly, the Trues-16-

should have raised collateral estoppel as a distinc t ground for a refund in the course of filing their administrative refund claim.

As for the Trues’ argument that the Internal Revenue Service ’s knowledge of the prior lawsuit excuses their failure to raise the issue in their administrative refund claim, we conclude that in order to preserve the collateral estoppel issue for our review, “[i]t is not enough that in some ro undabout way the facts supporting the claim may have reached” the attentio n of the Internal Revenue Service

. Levitsky v. United States , 27 Fed. Cl. 235, 241 (1992). The Trues must demonstrate the Internal Revenue Service not only knew of the preclusive effect of the prior litigation, but also that the Service “understood that a claim was being made based upon ” those grounds. Id . (emphasis added). Thus, even if the Internal Revenue Service knew about the prior case, it was still incumbent on the Trues to make it plain they based their refund clai m in part upon the prior decision.

Having reviewed the parties’ arguments and the case s generally dealing with the requirements of an administrative tax appe al, we hold the Trues cannot assert collateral estoppel for the first time in fe deral court, because they failed to raise the issue in the course of their administrati ve refund filing. See James v.-17-

Chater , 96 F.3d 1341, 1343 (10th Cir. 1996) (issues omitt ed from an administrative appeal are deemed waived for purpose s of subsequent judicial review); Brown v. United States , 890 F.2d 1329, 1346 (5th Cir. 1989) (“[A] taxpayer is barred from raising in a refund suit gr ounds for recovery not clearly and specifically set forth in its claim for a refun d.”). Although we do not believe it was necessary for the Trues to expressly use the words “collateral estoppel” in their refund claim in order to preserve the issue, they should have presented enough information to give the Internal Revenue Service notice they intended to rely on the preclusive effect of the prior litigati on as a basis for their refund claim. See Charter Co. v. United States , 971 F.2d 1576, 1579-80 (11th Cir. 1992) (“[a]lthough crystal clarity and exact precision ar e not demanded,” the taxpayer must identify in its refund claim the "essential re quirements" of the refund demand). In other words, the Trues should have mad e at least some reference to the preclusive effect of the 1973-1975 tax case dur ing the course of their administrative claim. The Trues’ failure to specif ically invoke collateral estoppel or at least reference the prior judgment left the I nternal Revenue Service, as the reviewing agency, without sufficient notice of thei r intent to rely on the prior decision and its potential preclusive effect on iss ues in the present case. The Supreme Court has consistently and strictly held “[ a] reviewing court usurps the agency’s function when it sets aside the administrative determination upon a6We emphasize, as a prelude to our substance over form analysis, “[t]he

legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits.” Gregory v. Helvering , 293 U.S. 465, 469 (1935). A tax-avoidance motive for structuring a transaction in a particular way is not inherently f atal, and nothing in this opinion is intended to invalidate otherwise legitimate tax planning strategies. However, the structure of the Trues’ transactions, coupled w ith their familial relationships and common ownership of the businesses involved, co mpels us to exercise a heightened level of skepticism and scrutiny in this matter. See Kornfeld, 137 F.3d 1231, 1235 (10th Cir. 1998) (where the "parties to the transactions in question are related, the level of skepticism as to the form of the transaction is heightened, because of the greater potential for complicity between related parties in arranging their affairs in a manner devoid of legit imate motivations." (Quotation marks and citation omitted.)), cert. denied, 119 S. Ct. 171 (1998); Milbrew, Inc. v. Commissioner , 710 F.2d 1302, 1305 (7th Cir. 1983) (“When person s who are not -18- ground not theretofore presented and deprives [it] of an opportunity to consider the matter, make its ruling, and state the reasons for its action.” Unemployment Compensation Comm’n v. Aragan , 329 U.S. 143, 155 (1946); see also Wilson v. Hodel , 758 F.2d 1369, 1372-73 (10th Cir. 1985). We will not usurp the Internal Revenue Service’s function by resolving a collatera l estoppel claim not previously considered in the administrative proceeding. For t hese reasons, we decline to consider the Trues’ collateral estoppel claim on ap peal.

B. Substance Over Form Principle – Overview We must now determine whether the Trues’ business a ctivities pass for legitimate tax avoidance and sound financial planni ng, or whether they constitute manipulation of the intent and purpose of the tax c ode. 6 In order to ensure properdealing with each other at arm's length enter into a transaction that gives them

tremendous tax savings, the Internal Revenue Servic e is entitled to be suspicious of the genuineness of the transaction.”). “While i t is true that a taxpayer can structure a transaction to minimize tax liability u nder the Internal Revenue Code, that transaction must nevertheless have economic su bstance in order to be the thing which the statute intended.” Kirchman v. Commissioner , 862 F.2d 1486, 1491 (11th Cir. 1989) (quotation marks and citationomitted).

-19- tax treatment for the ranchland transactions and oi l and gas lease transactions, we apply the substance over form principle. See Commissioner v. Hansen , 360 U.S. 446, 461 (1959) (“the incidence of taxation depend s upon the substance, not the form, of the transaction”). This fundamental tax p rinciple operates to prevent “‘the true nature of a transaction [from being] dis guised by mere formalisms, which exist solely to alter tax liabilities,’” and promotes “‘the effective administration of the tax policies of Congress.’” Kornfeld, 137 F.3d at 1234 (quoting Commissioner v. Court Holding Co. , 324 U.S. 331, 334 (1945)). Thus, applying the substance over form principle to the c omplex series of ranchland and oil and gas lease transactions in dispute in this c ase, we must look beyond the taxpayers’ characterization of isolated, individual transactional steps, and also review the substance of each series of transactions in its entirety.

Deciding “whether to accord the separate steps of acomplex transaction independent significance, or to treat them as relat ed steps in a unified transaction,7While traditionally utilized in the context of co rporate liquidationreorganizations, courts also have applied the step transaction doctrine to various other kinds of taxpayer activities. Jacob Mertens, Jr., The Law of Federal Income Taxation § 43.253 (1997).

-20- is a recurring problem in the field of tax law.” King Enters., Inc. v. United
States , 418 F.2d 511, 516 (Ct. Cl. 1969). In search of a n answer to this problem, courts utilize a variety of approaches, including aparticular incarnation of the basic substance over form principle known as the st ep transaction doctrine. Simply stated, the step transaction doctrine provid es that “interrelated yet formally distinct steps in an integrated transactio n may not be considered independently of the overall transaction.” Commissioner v. Clark, 489 U.S. 726, 738 (1989) (quotation marks and citation omitted); see also Security Indus. Ins. Co. v. United States , 702 F.2d 1234, 1244 (5th Cir. 1983) (“The step tr ansaction doctrine is a corollary of the general tax principl e that ... taxation depends on the substance of a transaction rather than its form.”). The doctrine requires us to link together “all interdependent steps with legal or bu siness significance, rather than [take] them in isolation,” so that “federal tax lia bility may be based on a realistic view of the entire transaction." 7 Clark, 489 U.S. at 738 (quotation marks and citation omitted). We proceed, then, to examine the series of potentia lly interrelated steps involved in both the ranchland t ransactions and oil and gas lease transactions, utilizing this approach.8The binding commitment test is seldom utilized, a nd only applies to

situations “where the taxpayer is subject to an obl igation or binding commitment, at the time the first step is entered into, to purs ue the successive steps in a series of transactions,” usually spanning several years. See Jacob Mertens, Jr., supra n.7, § 43.256 (1997). As a general rule, “the bind ing-commitment test is only applicable where a substantial period of time has p assed between the steps that are subject to scrutiny.” Id . Because the transactions in the present case do not span a long period of time or involve a binding com mitment to pursue successive steps, we do not analyze them under this test. See Associated Wholesale Grocers , 927 F.2d at 1522 n.6 (rejecting use of binding comm itment test because the case did not involve a series of transactions spanning s everal years). -21- C. Step Transaction Doctrine Courts have developed three tests for determining w hen the step transaction doctrine should operate to collapse the individual steps of a complex transaction into a single integrated transaction for tax purpos es: (1) end result, (2) interdependence, and (3) binding commitment. See Associated Wholesale Grocers, Inc. v. United States , 927 F.2d 1517, 1522 (10th Cir.1991). More than one test might be appropriate under any given set o f circumstances; however, the circumstances need only satisfy one of the tests inorder for the step transaction doctrine to operate. See id. at 1527-28 (finding end result test inappropriate, but applying the step transaction doctrine using the interdependence test). Given the type of transactions involved in this case, only th e end result and interdependence tests are relevant to our analysis. 8

The end result test combines “into a single transac tion separate events9We emphasize that under the end result test, our focus is not on the

legitimacy of the intended result, but instead on w hether the taxpayer undertook multiple steps to achieve a particular result. Thu s, if a taxpayer engages in a series of steps that achieve a particular result, h e cannot request independent tax recognition of the individual steps unless he shows that at the time he engaged in the individual step, its result was the intended en d result in and of itself. If this is not what the taxpayer intended, then we collapse the series of s teps and only give -22- which appear to be component parts of something und ertaken to reach a particular result.” Kornfeld, 137 F.3d at 1235; Associated Wholesale Grocers, 927 F.2d at 1523. Under this test, if we find the series of cl osely related steps in a transaction are merely the means to reach a particular result, we will not separate those steps, but instead treat them as a single transaction. Kanawha Gas & Utils. Co. v.
Commissioner , 214 F.2d 685, 691 (5th Cir.1954). The taxpayer’s subjective intent is especially relevant under this test becau se it allows us to determine whether the taxpayer directed a series of transacti ons to an intended purpose. See Brown v. United States , 782 F.2d 559, 563 (6th Cir. 1986) ("[e]nd result test" for determining when to apply "step transaction doctrin e" makes intent a necessary element for application of doctrine). The intent w e focus on under the end result test is not whether the taxpayer intended to avoid taxes. Prior case law clearly instructs that tax reduction and avoidance motives are permissible and do not alone invalidate a transaction. Gregory , 293 U.S. at 469. Instead, the end result test focuses on whether the taxpayer intended to reach a particular result by structuring a series of transactions in a certain w ay. 9 See King Enters ., 418 F.2dtax consideration to the intended end result. See Crenshaw v. United States , 450

F.2d 472, 475 (5th Cir. 1971), cert. denied, 408 U.S. 923 (1972).

-23- at 516.

The interdependence test takes a slightly differentapproach. Under this test, we disregard the tax effects of individual tr ansactional steps if "it is unlikely that any one step would have been undertaken exceptin contemplation of the other integrating acts." Kuper v. Commissioner , 533 F.2d 152, 156 (5th Cir. 1976). The interdependence test relies to a lesserdegree on the taxpayer’s subjective intent than the end result test. It foc uses not on a particular result, but on the relationship between the individual steps an d “whether under a reasonably objective view the steps were so interdependent that the legal relations created by one of the transactions seem fruitless without comp letion of the series.” Kornfeld, 137 F.3d at 1235. In order to maintain this objec tivity and ensure the steps have independent significance, we find it use ful to compare the transactions in question with those we might usually expect to o ccur in otherwise bona fide business settings. See Merryman v. Commissioner , 873 F.2d 879, 881 (5th Cir. 1989).

Prior to our application of the end result and inte rdependence tests, we note10Like the overall question of substance over form embodied by the step

transaction doctrine, the issues involved in our ap plication of the end result and interdependence tests, especially with regard to th e taxpayer’s intent, are undeniably questions of fact. Kornfeld, 137 F.3d at 1234 (substance of transaction treated as question of fact); Weisbart v. Commissioner , 564 F.2d 34, 37 (10th Cir. 1977) (same); Brown , 782 F.2d at 564 (taxpayer’s intent is a question of fact).

-24- the Trues initially challenge the district court’s summary judgment rulings for reasons collateral to that court’s step transactionanalysis. First, the Trues argue the evidence they produced in response to the government’s motion for summary judgment created issues of fact pertaining to theirintentions underlying the ranchland transactions and oil and gas lease transa ctions sufficient to preclude summary judgment. The Trues contend the district c ourt inappropriately granted summary judgment by casting their uncontroverted te stimonial evidence as mere argument, drawing inferences in favor of the moving party, and generally treating the case as if it was ruling on the issues followin g a bench trial instead of a motion for summary judgment.

Cases involving the issue of substance over form re quire resolution of significant questions of fact. 10 Nevertheless, the mere presence of a factual question does not automatically preclude summary ju dgment. Even in cases where some issues of fact remain, if no reasonable fact-finder could find in favor-25-

of the non-moving party, then summary judgment is s till appropriate. See Anderson , 477 U.S. at 247-248. As we have often iterated, the issue must be “a genuine dispute over a material fact.” Bingaman v. Kansas City Power & Light
Co. , 1 F.3d 976, 980 (10th Cir. 1993) (quotation marks and citation omitted). In some cases there is no dispute of fact, because “[t he evidence] is so one-sided that one party must prevail as a matter of law.” Id . As explained more fully below, this is precisely what occurred in this case . The district court did not reduce the Trues’ evidence to mere argument, improp erly weigh evidence, or otherwise ignore fundamental principles of summary judgment. Instead, the court acknowledged all the evidence and arguments from bo th parties and then, in accord with summary judgment standards, simply dete rmined the evidence was so one-sided that no genuine issue of material fact re mained in dispute. For this reason, we reject the Trues’ threshold argument that the district court ignoredfundamental summary judgment principles.

In a second threshold argument, the Trues contend their evidence of legitimate business purposes and corresponding econ omic effects pertaining to the ranchland transactions and oil and gas lease transa ctions renders the step transaction doctrine inapplicable altogether. The Trues assert economic realities11 The Trues’ evidence and arguments regarding business purpose and

economic effects raise issues more relevant to a sh am transaction doctrine analysis than a step transaction doctrine analysis . Although both the step transaction and sham transaction doctrines are corollaries of the basic substance over form principle, see Kirchman , 862 F.2d at 1491; Security Indus. , 702 F.2d at 1244, the sham transaction doctrine focuses on whether a questionable transaction has a business purpose and economic effects other than the creation of tax benefits, Kirchman , 862 F.2d at 1492. See also Frank Lyon Co. v. United States , 435 U.S. 561, 583-84 (1978); James v. Commissioner , 899 F.2d 905, 908 (10th Cir. 1990). As described above, the step transaction doctrine is particularly tailored to the examination of transactions involvi ng a series of potentially interrelated steps for which the taxpayer seeks ind ependent tax treatment. Consequently, the step transaction doctrine provide s the pertinent analytical framework in this case.

-26- must govern, and if a legitimate non-tax business p urpose motivates a transaction or actually causes some economic effects, then the transaction is endued with substance that resolves the substance over form inq uiry without the need to engage the step transaction analysis.

We acknowledge the Trues’ evidence of business purp ose and economic effects. However, we do not agree with their concl usion that business purposes and economic effects relating to the individual ste ps in each complex series of transactions preclude application of the step trans action doctrine in this instance. 11 The substance over form inquiry is not nearly as narrow as the Trues suggest. To ratify a step transaction that exalts form over substance merely because the taxpayer can either (1) articulate some business purpose allegedly12Just as we reject the Trues’ argument that the effect on their companies’

books automatically gives the transaction economic substance, so too do we reject the government’s notion that a transaction has no econo mic substance if it is possible for the taxpayer to merely adjust his books to reflect the Internal Revenue Service ’s recharacterization of the disputed transaction.

-27- motivating the indirect nature of the transaction o r (2) point to an economic effect resulting from the series of steps, would frequentl y defeat the purpose of the substance over form principle. Events such as the actual payment of money, legal transfer of property, adjustment of company books, 12 and execution of a contract all produce economic effects and accompany almost a ny business dealing. Thus, we do not rely on the occurrence of these events al one to determine whether the step transaction doctrine applies. Likewise, a taxpayer may proffer some no n-tax business purpose for engaging in a series of transa ctional steps to accomplish a result he could have achieved by more direct means, but that business purpose by itself does not preclude application of the step tr ansaction doctrine. Associated Wholesale Grocers, 927 F.2d at 1527. Although the absence of economic effects or business purposes may be fatal to a taxpayer’s s tep transaction refund suit, the presence of those factors is not dispositive. See id. at 1526-27. We must still examine the objective realities of the multi-step t ransactions to determine their tax status, and proceed to do so under the end resu lt and interdependence tests.-28-

D. The “End Result” and “Interdependence” Tests 1. Ranchland Transactions Applying the end result test to the ranchland trans actions, we examine whether the Trues intended from the outset to place the ranchlands in the hands of True Ranches. Recall that the individual tax signi ficance of each step of a multistep transaction is irrelevant when, considered as a whole, the steps accomplish but a single intended result, which in actual purpo se and effect is subject to the given tax consequence. See Crenshaw , 450 F.2d at 476. Thus, if the intended end result was for True Ranches to own the ranchlan d, then the Trues cannot claim a right to favorable tax treatment for the va rious intermediate transactions leading up to that intended result. If, on the oth er hand, the Trues present evidence showing they initiated the ranchland acqui sition with another objective in mind ( i.e. , the intended end result was actually one of the i ntermediate transactional steps), then they have created a genu ine issue of whether that intermediate step should be afforded favorable tax treatment.

This analysis is inherently factual; however, as we emphasized above, the mere existence of a fact question does not render s ummary judgment inappropriate. If the proffered evidence is so one -sided that no reasonable fact finder could conclude anything other than that the Trues intended from the outset13 Because Henry and Jean True (elder Trues) owned asubstantially larger

percentage interest in Smokey Oil Company (96.5%) than in True Ranches (73.9%), purchasing the ranchlands through Smokey O il Company allowed the elder Trues to contribute a correspondingly greatershare of the purchase price than the minority shareholders/partners.

-29- for the True Ranches to acquire additional ranchlan ds through a series of separate, otherwise unnecessary conveyances, then s ummary judgment applying the step transaction doctrine to collapse that mult i-step transaction for tax purposes is appropriate.

The Trues present evidence showing they intended to expand the land holdings of True Ranches through a series of transa ctions so that the elder Trues (Henry A. True, Jr. and Jean D. True), who had more liquid assets readily available to finance the acquisition, would contrib ute a greater share of the purchase price. 13 The Trues emphasize that if the court applies the step transaction doctrine to collapse the ranchland tran sactions, then the value equivalent to the purchase price of the properties will vanish from Smokey Oil Company’s books. This in turn will deprive Henry and Jean True (elder Trues) of any compensation for the additional amount they con tributed to the purchase of the ranch properties, as well as the correspondingl y greater share in profits they stood to realize from Smokey Oil Company’s ownershi p of the oil and gas leases-30-

acquired in the exchange with True Oil Company.

As mentioned above, we do not dispute the business purposes and economic effects the Trues cite; nevertheless we conclude th ose factors do not preclude summary judgment based on the overwhelming evidence of the Trues’ intent to achieve a particular end result. The Trues admit t hey intended from the beginning to ultimately place the ranch properties in the han ds of True Ranches. This intent is further evidenced by the fact the ranchland was conveyed to Smokey Oil Company separate from the ranch operating assets, w hich True Ranches acquired directly. The fact the Trues arranged the steps so the elder Trues would bear a greater percentage of the acquisition cost does notestablish an alternative intended end result, but merely demonstrates a fina ncing consideration for structuring the transaction in a particular way. I f the intended end result was in question, then the business purposes and economic e ffects the Trues demonstrate might be probative, but in this case there is no do ubt the Trues designed and executed a series of steps to increase the land hol dings of True Ranches. Thus, applying the end result test, the Internal Revenue Service must give tax consideration only to that intended result. Cf. Security Indus. , 702 F.2d at 1245-
46.-31-

We reach the same conclusion reviewing the ranchlan d transactions under the interdependence test. Under this test, we obje ctively examine each step of the ranchland transactions to see whether the legal rel ations created by one of the steps seem fruitless without completion of the over all transaction. See Kornfeld, 137 F.3d at 1235. If the steps have “reasoned econ omic justification standing alone,” then summary judgment under the interdepend ence test is inappropriate. Security Industrial , 702 F.2d at 1247. However, if the only reasonabl e conclusion from the evidence is that the steps have “meaning o nly as part of the larger transaction,” then the step transaction doctrine ap plies as a matter of law. Id . at 1246.

We conclude the steps involved in the ranchland tra nsactions lack any reasoned economic justification standing alone. Th e record indicates Smokey Oil Company is involved only in oil and gas explorationand production. Thus, in the absence of evidence that Smokey Oil Company acquire d the mineral rights beneath the ranchlands and believed oil or gas to b e beneath those lands, its purchase of ranchland properties makes no objective business sense. In other words, there was no apparent purpose for Smokey Oil Company to purchase the ranchlands other than to facilitate the eventual pl acement of the property into the hands of True Ranches.14We emphasize in response to the cases the Trues cite highlighting the

validity of various I.R.C. § 1031 exchanges, that our opinion has no impact on the legality of individual like-kind exchanges. A like -kind exchange, standing alone, -32- The exchange of producing oil and gas leases for th e ranchlands between Smokey Oil Company and True Oil Company is similarl y suspect. Like Smokey Oil Company, True Oil Company was not involved in r anching, and it had no apparent reason to exchange its oil and gas leases for ranch property other than to facilitate the transfer of the ranch property to Tr ue Ranches. The Trues argue the purpose of moving the oil and gas leases from one o f their oil companies (True Oil Company) to another oil company (Smokey Oil Company) in exchange for ranchland was to allow Smokey Oil Company to grow a s an operating entity; but that does not explain why True Oil Company, pu rporting to operate as a separate entity with its own interests to promote, would accept ranch properties in exchange for productive oil and gas leases. From t he perspective of True Oil Company, an entity without any interest in ranch pr operty, this step appears pointless without contemplation of the overall tran saction.

None of the individual steps in the ranchland trans actions is the type of business activity we would expect to see in a bona fide, arm’s length business deal between unrelated parties, and none of them ma kes any objective sense standing alone without contemplation of the subsequ ent steps in the transaction. 14is unproblematic. However, if a taxpayer engages in an I.R.C. § 1031 exchange

as part of an overall plan involving a series of tr ansactional steps designed and executed to accomplish an end result beyond the exc hange, and which otherwise exalts form over substance and defeats the clear in tent of the Internal Revenue Code, then the Internal Revenue Service is entitledto challenge the transaction. In the present case, the problem is not with the oi l and gas lease/ranchland exchanges, but with the Trues’ use of those exchanges along with the other transactional steps to turn an expenditure for non-depreciable land int o a depletable, stepped-up basis in oil and gas leases. End result and interdependence analysis does not invalidate comple x or multiple-party § 1031 exchanges standing alone, only those forming part o f an otherwise invalid step transaction.

-33- Each step in the ranchland transactions “led inexorably to the next,” and thus “clearly satisf[ied] the ‘interdependence’ test forapplication of the step transaction doctrine .” Security Indus. , 702 F.2d at 1247.

Having reviewed the objective realities of the ranchland transactions, we conclude under either the end result or interdepend ence test, the step transaction doctrine applies. The Trues recognized that a larg e cash outlay for the direct purchase of the ranchlands through True Ranches wou ld not result in any depreciation deductions. Consequently, they juggle d the ownership of the ranchlands between their various business entities in order to produce a more favorable tax result, while still placing the ranch lands in the hands of True Ranches. By channeling the acquisition and exchang e of the ranchlands through Smokey Oil Company and True Oil Company using a ser ies of unnecessary-34-

exchanges and transfers, the Trues ended up with True Ranches holding a zero basis in the newly-purchased ranchlands and Smokey Oil Company holding a substituted, stepped-up basis in depletable oil andgas leases. We believe no reasonable juror could find these steps were anythi ng but the Trues’ prearranged, integrated plan to accomplish indirectly tax advant ages they could not accomplish directly. See Crenshaw , 450 F.2d at 475 (a taxpayer may not secure, by a series of contrived steps, different tax treatment than if he had carried out the transaction directly). The Trues changed what would have been the natural result of a direct purchase of the ranchland by engaging in a series of steps d esigned from the outset to circumvent the intent of the tax code . Fundamental principles of taxation dictate that “[a] given result at the e nd of a straight path is not made a different result because reached by following a dev ious path.” Minnesota Tea Co. v. Helvering , 302 U.S. 609, 613 (1938). Consequently, we affirm the district
court ’s decision to ignore the indirect route of the ind ividual steps, view the ranchland transactions in their entireties, and treat them as direct purc hases by True Ranches.

2. Oil and Gas Lease Transactions The applicability of the step transaction doctrine to the oil and gas lease transactions under the end result test also turns o n the fact question of the-35-

taxpayers’ intent – specifically, whether the Trues intended to acquire leases in the ordinary course of their lease brokering busine ss or to accomplish the end result of placing the oil and gas leases in the han ds of True Oil Company or Smokey Oil Company. See, e.g., Brown , 782 F.2d at 564 (making application of step transaction doctrine under the end result testturn on the intent of the taxpayer from the outset of the transaction in ques tion). Again, we acknowledge this inquiry involves significant questions of fact . Nevertheless, summary judgment is appropriate if the evidence is so one-s ided that no reasonable finder of fact could find in favor of the non-moving party

. See Anderson , 477 U.S. at
247-248

.

The evidence of the Trues’ intended end result with regard to the oil and gas lease transactions is not nearly as one-sided a s it was in the case of the ranchland transactions. The record shows that at the time Bear Lodge Mountain Corporation or True Land and Royalty Company acquir ed an oil and gas lease, the Trues did not know to which exploration and product ion entity they would ultimately assign the lease. In fact, Henry True t estified Bear Lodge Mountain Corporation and True Land and Royalty Company operated just like any other lease broker. The companies acquired leases and th en in turn assigned them to some other entity interested in exploration and pro duction. He also testified the-36-

oil and gas leases could have been transferred to any one of the True s’ exploration and production companies or to a third party . We believe this evidence is sufficient to create a genuine issue as to whether the Trues purchased the leases intending from the outset to ultimately transfer them to True Oil Company or Smokey Oil Company. Therefore, to the e xtent the district court rested its decision on an end result analysis, we f ind summary judgment inappropriate.

Examination of the oil and gas lease transactions u nder the interdependence test also undermines the district court ’s ruling. The record indicates the steps of the oil and gas lease transactions bear some indici a of independent economic significance. For example, it was entirely normal for Bear Lodge Mountain Corporation and True Land and Royalty Company to ac quire the oil and gas leases. The Trues organized both entities for thatpurpose. The assignment of the leases from the brokerage entities to True Oil Comp any and Smokey Oil Company also falls within the realm of objective business a ctivity we would expect to see between the parties. Neither Bear Lodge Mountain C orporation nor True Land and Royalty Company engaged in the production of oi l and gas, but instead planned from the beginning of every lease acquisiti on to assign their interest in oil and gas leases to other oil and gas production companies. True Oil Company15 The district courtpoints out a variety of facts that cast suspicion on the

substance of the oil and gas lease transactions . For example, Bear Lodge Mountain Corporation and True Land and Royalty Comp any had no employees of their own. Employees of True Oil Company or indepe ndent landmen paid by True Oil Company actually performed all of the prelimina ry work in identifying attractive leases and negotiating their acquisition . However, the record further indicates Bear Lodge Mountain Corporation and True Land and Royalty Company each paid a $250 monthly fee to True Oil Company fo r its services. The district court notes that if True Oil Company performed or paid for all the work associated with acquiring the leases, then “no econ omic rationale would justify [its] expenditure of amounts greater than the actua l lease costs in order to obtain the leases” through Bear Lodge Mountain Corporation and True Land and Royalty Company . We agree. Nevertheless, the evidence before the court is not so one-sided as to apply the step transaction doctrine as a matter of law. -37- and Smokey Oil Company, on the other hand, were in the business of oil and gas production and exploration, so it was natural for them to acquire interests in oil and gas leases from Bear Lodge Mountain Corporationand True Land and Royalty Company just as they would from another lea se broker.

Viewing the evidence in the light most favorable to the Trues as the nonmoving party, as we must, we conclude the question of whether the Trues intended from the outset to use Bear Lodge Mountain Corporation and True Land and Royalty Company solely as conduits to facilitate the transfer of t he oil and gas leases to True Oil Company and Smokey Oil Company remains a disputed issue of material fact. Such questions are inappropriate for resolution thr ough summary judgment. 15 See Anderson , 477 U.S. at 249 (“at the summary judgment-38-

stage the judge’s function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial”). Consequently, we reverse the district court’s awardof summary judgment on this issue and remand for further proceedings consistentwith this opinion.

III. Conclusion We affirm the district court’s award of summary jud gment on the question of the ranchland transactions. The ranchland trans actions fail both the end result and interdependence tests. Although the Trues intr oduced some evidence of business purposes and economic effects pertaining t o those transactions, the facts plainly demonstrate they intended to accomplish thr ough the series of steps the particular end result of placing the ranchlands in the hands of True Ranches . In addition, the clear interdependence and lack of ind ependent justification for the individual steps of the ranchland transactions warr ants application of the step transaction doctrine. However, with regard to the oil and gas lease transactions, we find the district court improvidently granted su mmary judgment. We believe the question of whether the Trues intended from the outset to accomplish the end result of transferring the oil and gas leases to Tr ue Oil Company or Smokey Oil Company remains a disputed issue of material fact. Moreover, the individual steps involved in the oil and gas lease transaction s do not reflect the degree of-39-

interdependence necessary to apply the step transac tion doctrine as a matter of law. Finally, we decline to consider whether the c ollateral estoppel doctrine applies to the oil and gas lease transactions invol ved in this case because the Trues failed to raise the issue in their administrative claim for refund.

Accordingly, we AFFIRM in part, REVERSE in part, and REMAND for further proceedings consistent with this opinion.