Ralph sells property to Sam who,by prearranged plan,resells to Heather.If the IRS contends that the sale to Sam is to be disregarded,this position is an application of the:
A)Substance over form concept.
B)Wherewithal to pay concept.
C)Tax benefit rule.
D)Arm's length concept.
E)None of the above.

Question

Quizplus · Accepted Answer

The IRS disregarding the sale from Ralph to Sam and treating the transaction as if Ralph sold directly to Heather is an application of the substance over form concept. This principle requires the IRS to look past the legal form of a transaction and instead focus on its economic substance to determine the appropriate tax treatment. In this case, the prearranged plan for Sam to immediately resell to Heather suggests that the sale to Sam was merely a formality and that the true transaction was between Ralph and Heather.

Ralph Sells Property to Sam Who,by Prearranged Plan,resells to Heather