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individual involving (1) the taxpayer’s purchase of property and
(2) the taxpayer’s sale of stock. The parties allocated the
consideration exchanged in the two transactions in a manner that
minimized tax liability. The allocations, however, did not
reflect economic reality. On audit, the Commissioner determined
that the taxpayer had purchased the property at a bargain price
and that the bargain element should be treated as a constructive
dividend. Implicitly acknowledging the validity of the
Commissioner’s position, the taxpayer sought to recharacterize
the purchase as a stock redemption, which would have had the
effect of converting ordinary income to capital gain.
The Court cited three reasons for rejecting the taxpayer’s
argument: (1) The taxpayer sought to disavow its own tax return
treatment of the transaction; (2) the taxpayer’s tax reporting
and actions did not show “an honest and consistent respect for
the substance of * * * [the] transaction”; and (3) the taxpayer
was unilaterally attempting to have the transaction treated
differently after it had been challenged by the Commissioner.
Id. at 574-575 (quoting Estate of Weinert v. Commissioner, 294
F.2d 750, 755 (5th Cir. 1961), revg. and remanding 31 T.C. 918
(1959)).
The circumstances in the present case are similar to those
in Estate of Durkin v. Commissioner, supra. First, petitioner
seeks to disavow its own tax return treatment of the transaction.
From 1986-90, James and Hilda deducted on their joint Federal
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