Opinion ID: 902846
Heading Depth: 3
Heading Rank: 1

Heading: The Disallowance of the Claimed Loss

Text: “[W]hile we conduct plenary review of the Tax Court's legal conclusions, we review its factual findings, including its ultimate finding as to the economic substance of a transaction, for clear error.” ACM P’ship v. Comm’r, 157 F.3d 231, 245 (3d Cir. 1998). In this case, the Tax Court characterized the initial transaction in the series of transactions that culminated with Rovakat’s sale of Swiss francs, i.e., the redemption of Credicom Asia stock from CNV for Swiss francs and $303,375, to be a sale of common stock as opposed to a transfer of partnership interests as asserted by Rovakat. It is firmly established that the substance of a transaction, and not its form, governs its tax treatment. See Comm’r v. Court Holding Co., 324 U.S. 331, 334 (1945) (“The incidence of taxation depends upon the substance of a transaction.”). The Tax Court had ample justification for characterizing the redemption of Credicom Asia’s stock from its parent, CNV, as a 5 The Tax Court also sustained other adjustments made by the Commissioner in the FPAAs as well as the Commissioner’s 20% accuracy related penalty attributable to the underpayment of taxes resulting from the other adjustments to income and deductions made by the Commissioner in the FPAAs. Rovakat does not challenge on appeal these aspects of the Tax Court’s decision. 5 sale. In this regard, it is irrefutable that both CNV and Credicom Asia were corporations. Because CNV could not have transferred a partnership interest in exchange for dollars and Swiss francs, it could not carry over its basis in Credicom Asia class A stock to the Swiss francs that ultimately were transferred to Rovakat and sold for $35,468. For this and all the other reasons articulated by the Tax Court in its exceedingly thorough opinion, the Tax Court did not err in rejecting the more than $5 million loss claimed by Rovakat. 6