The follow are excerpts from various tax cases discussing a taxpayer’s attempts to “clothe” a transaction to disguise its true form.
Lynch v. Commr, 31 T.C. 990 (1959):
A commonly encountered problem, however, is that a taxpayer, seeking to avoid taxation, will clothe a transaction and make it appear to be something which in reality it is not.
Federal Oil Company v. Commr, 25 TCM 996 (1966):
It is true that the Court is not bound by the form in which parties to an agreement clothe their transaction but is charged with the duty of determining the realities of the transaction after having considered all the pertinent facts.
Copperhead Coal Company, Inc. v. Commr, 17 TCM 30 (1958):
It is well established that the form in which a taxpayer chooses to clothe its transactions does not bind the Government for tax purposes.
Skinner v. Commr, 27 TCM 680 (1968):
[T]he form chosen by the parties to clothe that slice of reality cannot dictate the application of the statute.
Commr v. Kohn, 158 F.2d 32 (4th Cir. 1946):
The circumstances are merely external garments that clothe the transactions, outward trappings at best. In no way do they condition the essential verities.
Cairo Developers, Inc. v. U.S., 381 F.Supp. 431 (1974):
[T]he taxpayers attached the “sale” label to the transfers of land and tried to clothe the transactions with appropriate documents and other indicia of a bona fide sale and debtor-creditor relationship.
Glazer v. Commr, 44 T.C. 541 (1965):
We think that on the facts before us there was in substance no real sale of partnership interests in this case, notwithstanding the efforts of petitioners and their attorney to clothe the transaction in that form.
Anagnoston v. Commr, 68 TCM 146 (1994):
[P]etitioners have gone to great lengths to clothe in “sales” garb transactions that are not sales . . . .
Earp v. Commr, 131 F.2d 292 (10th Cir. 1942):
All he did was to clothe himself in the cloak of a partnership, but when the cloak was removed, there stood the same individual, doing business in substantially the same way . . . .
Blair v. Commr, 300 U. S. 5 (1937):
. . . attempting to clothe the transaction in the guise of a transfer of trust property rather than the transfer of income where that is its obvious purpose and effect.
Collins v. Commr, 54 T.C. 1656 (1970):
[S]uch reporting . . . was to be part of the transparent pretension that was designed to clothe the payment with the garb of interest.
American Realty Trust v. U.S., 498 F.2d 1194 (1974):
[C]lothe a loan in the superficial garb of a sale-and-lease-back.
Culligan Water Conditioning v. U.S., 567 F.2d 867 (9th Cir. 1975):
[W]e should remain free to examine all the facts in order to determine whether there exists a plan or agreement to dispose of control regardless of the formalities with which the parties may choose to clothe their intentions.
First National Corporation of Portland v. Commr, 2 T.C. 549 (1943):
The form in which [the parties] chose to clothe the transaction invites this argument. Nevertheless we think the contention is unsound.