Winn-Dixie Stores, Inc. v. Commissioner

Winn-Dixie Stores, Inc. (plaintiff) set up a company-owned life insurance (COLI) program as a tax shelter, buying whole-life policies on nearly all its thousands of employees and naming itself sole beneficiary. It borrowed heavily against the policies and deducted the interest, projecting interest deductions in the billions over 60 years. The tax commissioner (defendant) disallowed the deductions. Winn-Dixie petitioned the Tax Court, which held the COLI program was a sham because it could not produce a pre-tax profit. Winn-Dixie appealed to the Eleventh Circuit.

Whether, for federal tax purposes, a transaction is a sham if it lacks economic substance beyond the mere generation of tax benefits.