Liquid Air Corporation and Subsidiaries - Page 11

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               Respondent argues that because the Contract states that the            
          purchase price is $60,030,000 to be satisfied by the delivery of            
          3,335,000 shares of petitioner's stock, petitioner is bound by              
          such stated price.  We have consistently held that where                    
          taxpayers have executed a written agreement that provides for               
          specific terms of a transaction in which the tax consequences are           
          at issue, they must adduce "strong proof" to establish a position           
          at variance with the clear language of their written agreement.             
          Peterson Mach. Tool, Inc. v. Commissioner, 79 T.C. 72, 81 (1982),           
          affd. per curiam by order (10th Cir., Apr. 2, 1984); Lucas v.               
          Commissioner, 58 T.C. 1022, 1032 (1972).  However, petitioner is            
          not seeking to vary the terms of its agreement.  The Contract               
          clearly provides for an adjustment in the value of the assets to            
          be received from Chemetron.  Rather, petitioner is attempting to            
          show that the post-closing adjustment reflects the parties'                 
          estimation of the anticipated increase in the purchase price.               
          Because petitioner is merely attempting to construe an ambiguous            
          term of the agreement, the "strong proof" rule does not apply.              
          Peterson Mach. Tool, Inc. v. Commissioner, supra at 82.7  Thus,             

          7Respondent urges us to apply the standard of proof adopted by the Court    
          of Appeals for the Third Circuit in Commissioner v. Danielson, 378 F.2d 771 
          (3d Cir. 1967), vacating and remanding 44 T.C. 549 (1965).  Under the       
          Danielson rule, "a party can challenge the tax consequences of his agreement
          as construed by the Commissioner only by adducing proof which in an action  
          between the parties to the agreement would be admissible to alter that      
          construction or to show its unenforceability because of mistake, undue      
          influence, fraud, duress, etc."  Id. at 775.  We note that the stricter     
          Danielson rule is also inapplicable when the agreement is ambiguous.  Smith v.
          Commissioner, 82 T.C. 705, 713-714 (1984).                                  

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