Business-Purpose Doctrine Law and Legal Definition
The business purpose doctrine is a tax related doctrine. This principle states that a transaction must serve a bona fide business purpose to qualify for beneficial tax treatment. If the transaction has no substantial business purpose other than the avoidance or reduction of tax, the tax law will not regard the transaction. The business purpose doctrine was established by Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 56 (1935) aff'g, 69 F.2d 809 (2d Cir. 1934).
The business purpose doctrine of Gregory applies to different situations which arise under the tax statutes. It plays the role of a constant reminder which states that business transactions must have some purpose other than the mere avoidance of taxes. [Mel Dar Corp. v. Commissioner, 309 F.2d 525 (9th Cir. 1962)].