Extract to table

Critically, § 7701(o) imposes a conjunctive test: both prongs must be satisfied

The Gregory decision established the foundational principle that the tax treatment of a transaction must reflect its economic substance and not merely its legal form

• Business Purpose Doctrine: A transaction must be motivated by a genuine business purpose beyond the generation of tax benefits

This regulation states that the arm's-length result of a controlled transaction must be determined by reference to the functions actually performed, the risks actually borne, and the assets actually employed by the controlled taxpayers

If a controlled entity is contractually assigned functions, risks, and assets that it does not in fact perform, bear, or employ, then the arm's-length analysis must be adjusted to reflect the actual functional profile

The decision reinforces the principle that a CSA participant must be a genuine entity that can and does participate in the cost-sharing arrangement in a meaningful way, rather than serving as a mere nominal co-funder