Opinion ID: 512048
Heading Depth: 3
Heading Rank: 2

Heading: The Tax Court's Standard

Text: 17 The Tax Court here applied its new generic tax shelter test. Under that test, the court determines whether the disputed scheme is a generic tax shelter and then determines whether the transaction has economic substance. Rose, 88 T.C. at 410-12. 18 After finding that the mining venture was a generic tax shelter, the court analyzed whether the dealings between the parties to the transaction tend to show a profit objective on the part of [taxpayers], the relationship between the amounts paid by [taxpayers] to the fair market value of their investments, and the structure of the financing used in the transactions. Dister v. Commissioner, 53 T.C.M. (CCH) 694, 698 (1987). Because the court examined taxpayers' profit motive and the venture's economic substance, its analysis is consistent with Sochin. The label it attaches to its analysis is irrelevant. In Sochin, this court stated: 19 [W]e did not intend our decision in [Bail Bonds by Marvin Nelson, Inc. v. Commissioner, 820 F.2d 1543, 1549 (9th Cir.1987) ] to outline a rigid two-step analysis. Instead, the consideration of business purpose and economic substance are simply more precise factors to consider in the application of this court's sham analysis; that is, whether the transaction had any practical economic effect other than the creation of income tax losses. Thus, the tax court's failure to specifically delineate a two-prong test and the factual findings that support each prong is not itself fatal. 20 843 F.2d at 354 (citations omitted). See also Zmuda v. Commissioner, 731 F.2d 1417, 1420 (9th Cir.1984) (no real difference between the business purpose and the economic substance tests; both allow the Commissioner to look past a transaction's form to its substance). 21 Because our analysis in Sochin applies here, we need not adopt the generic tax shelter test. The casebooks are already glutted with tests. Many such tests proliferate because they give the comforting illusion of consistency and precision. They often obscure rather than clarify. Cf. Nagel, The Formulaic Constitution, 84 Mich.L.Rev. 165 (1985) (constitutional opinions now emphasize elaborate tests at the expense of clarity and persuasiveness). Here, the court must look past the mining venture's form and uncover its substance. See Zmuda, 731 F.2d at 1421-22. Although the generic tax shelter test is not incorrect, it does not aid courts in that basic inquiry.