Teong-Chan Gaw v. Commissioner

• Decision Date: 09 November 1995
• Docket Number: Docket No. 18268-92.,Docket No. 17906-92.
• Citation: 70 T.C.M. 1196
• Parties: Anthony Teong-Chan Gaw as Transferee of Radcliffe Investment Ltd. v. Commissioner. Anthony Teong-Chan Gaw as Transferee of Bot Building Corporation v. Commissioner.
• Court: U.S. Tax Court

70 T.C.M. 1196

T.C. Memo. 1995-531

Anthony Teong-Chan Gaw as Transferee of Radcliffe Investment Ltd. v. Commissioner.

Anthony Teong-Chan Gaw as Transferee of Bot Building Corporation v. Commissioner.

Docket No. 17906-92.

Docket No. 18268-92.

United States Tax Court.

Filed November 9, 1995.

John M. Younqquist, Lemoine Skinner III, and Donald L. Feurzeig, San Francisco, Calif., for the petitioner. Mary E. Wynne and Thomas G. Schleier, for the respondent.

                                                            Table of Contents
                                                                                                                    CCH
                                                                                                                    Page
                FINDINGS OF FACT ...............................................................................   [1199]
                  I. General and Background ....................................................................   [1199]
                     A.   Radcliffe ............................................................................   [1199]
                     B.   BOT ..................................................................................   [1199]
                          Certain Foreign Corporations That Pledged Cash Collateral in the Transactions at
                     C.      Issue .............................................................................   [1200]
                          1. Pioneer Industries (Holdings) Ltd. and Its subsidiaries Multi-Credit Finance Co
                             Ltd. and Mandalay Investments Ltd. ................................................   [1200]
                          2. Traveluck Investments, Inc. .......................................................   [1200]
                          3. Double Wealth Co., Inc. ...........................................................   [1200]
                          4. Forward Investments, Ltd. .........................................................   [1200]
                     D.   Bangkok Bank Ltd. ....................................................................   [1200]
                     E.   Union Bank and Certain of Its Affiliates .............................................   [1201]
                     F.   Petitioner ...........................................................................   [1201]
                 II. Transactions Involving Bangkok Bank Ltd. ..................................................   [1201]
                     A.   BB Loan No. 1 ........................................................................   [1201]
                     B.   BB Loan No. 2 ........................................................................   [1204]
                     C.   BB Loan No. 3 ........................................................................   [1206]
                III. Transactions Involving Union Bank .........................................................   [1207]
                     A.   UB $570,000 Pre-March 1984 Loan and UB $570,000 Renewed Loan .........................   [1207]
                     B.   UB $325,000 Loan .....................................................................   [1208]
                     C.   UB $800,000 Radcliffe Loan ...........................................................   [1210]
                     D.   UB $1,300,000 Loan ...................................................................   [1211]
                     E.   UB $1,830,000 Loan ...................................................................   [1212]
                     F.   Facts Pertaining to All the Transactions at Issue Involving Union Bank ...............   [1213]
                 IV. Transaction Involving Horbury .............................................................   [1214]
                  V. Income or Loss Reported by Radcliffe and by BOT for the Years at Issue ....................   [1214]
                

                OPINION ........................................................................................   [1214]
                  I. Evidentiary Matters .......................................................................   [1214]
                     A.   The Adverse Inference Rule—Mme. Koo's Failure To Testify ............................   [1215]
                     B.   Evidentiary Objections ...............................................................   [1218]
                          1. Petitioner's Income Tax Returns ...................................................   [1218]
                          2. Certain Instruments of Transfer and Stock Certificates ............................   [1218]
                          3. Horbury Financial Statement .......................................................   [1219]
                          4. Annual Reports of Pioneer and Financial Statements of Multi-Credit ................   [1220]
                          5. June 12, 1987 Newspaper Article ...................................................   [1220]
                          6. August 28, 1987 Memorandum ........................................................   [1221]
                          7. Paragraph 152 of the Stipulation of Facts .........................................   [1223]
                     C.   Respondent's Motion To Compel Production of Documents ................................   [1223]
                 II. General Principles Applicable to These Cases ..............................................   [1224]
                     A.   Taxation of Interest Received by Foreign Corporation—In General .....................   [1225]
                     B.   Substance Over Form and Related Doctrines ............................................   [1226]
                III. Positions of the Parties With Respect To the Transactions at Issue ........................   [1228]
                     A.   Bank Transactions ....................................................................   [1228]
                          1. Respondent's Position .............................................................   [1228]
                          2. Petitioner's Position .............................................................   [1229]
                             a. Petitioner's Principal Arguments ...............................................   [1229]
                             b. Petitioner's Alternative Arguments .............................................   [1230]
                     B.   Horbury Transaction ..................................................................   [1230]
                          1. Respondent's Position .............................................................   [1230]
                          2. Petitioner's Position .............................................................   [1230]
                 IV. Resolution of Certain Questions That Relate to All or Some of the Transactions at Issue ...   [1230]
                     A.   Resolution of Certain Questions That Relate to All the Transactions at Issue .........   [1230]
                          1. Relationships Among the PERSONS Involved in the Transactions at Issue .............   [1230]
                             a. Bank Transactions ..............................................................   [1230]
                             b. Horbury Transaction ............................................................   [1232]
                          2. Purpose for the Form of Each of the Transactions at Issue .........................   [1232]
                             a. Whether the Form of Each of the Transactions at Issue Had a Nontax, Business
                             Purpose ...........................................................................   [1232]
                              (1) Bank Transactions ............................................................   [1232]
                                 (a) Bangkok Bank LA Branch and Union Bank .....................................   [1232]
                                 (b) Radcliffe and BOT .........................................................   [1234]
                                 (c) Foreign Corporations Pledging Collateral ..................................   [1235]
                                 (d) Summary ...................................................................   [1236]
                              (2) Horbury Transaction ..........................................................   [1236]
                             b. Whether the Interest Deductions Claimed by Radcliffe and by BOT Indicate a
                             Tax Avoidance Purpose for Any of the Transactions at Issue ........................   [1237]
                              (1) Bank Transactions ............................................................   [1237]
                              (2) Horbury Transaction ..........................................................   [1237]
                     B.   Resolution of Certain Questions That Relate Only to the Bank Transaction .............   [1237]
                          1. Whether the Binding Commitment Test of the Step Transaction Doctrine Applies to
                             Any of the Bank Transactions ......................................................   [1238]
                          2. Whether the Role of the Banks in Question in the Bank Transactions May Be
                             Ignored or Recharacterized Even Though the Parties Agree on Brief That Those
                             Banks Were Engaged in Commercial Banking and That They Were Not Controlled
                             By Radcliffe, BOT, or the Foreign Corporations Pledging Collateral ................   [1238]
                  V. Analysis of the Transactions at Issue .....................................................   [1238]
                     A.    Bank Transactions ...................................................................   [1239]
                           1. BB Loan No. 1 Transaction ........................................................   [1239]
                           2. BB Loan No. 2 Transaction ........................................................   [1241]
                           3. BB Loan No. 3 Transaction ........................................................   [1242]
                           4. UB $570,000 Per-March 1984 Loan and UB $570,000 Renewed Loan Transactions            [1243]
                           5. UB $325,000 Loan Transaction .....................................................   [1244]
                           6. UB $800,000 Radcliffe Loan Transaction ...........................................   [1245]
                           7. UB $1,300,000 Loan Transaction ...................................................   [1247]
                           8. UB $1,830,000 Loan Transaction ...................................................   [1247]
                     B.    Horbury Transaction .................................................................   [1247]
                 VI. Petitioner's Constitutional and Abuse of Discretion Clams .................................   [1250]
                     A.    Petitioner's Constitutional Claim

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