Estate of Robert G. Kluener, Deceased, Donald E. Hathaway, Co-executor and Charlotte J. Kluener - Page 18

            is shown.  Smalley v. Commissioner, T.C. Memo. 1973-85; Caruth v.                             
            United States, 688 F. Supp. 1129, 1138-1142 (N.D. Tex. 1987),                                 
            affd. on another issue 865 F.2d 644 (5th Cir. 1989).4                                         
                  As we have noted, "The distinction between the two lines of                             
            cases is often shadowy, particularly in the context of a                                      
            purported transfer between a closely held corporation and one or                              
            more of its shareholders."  Hallowell v. Commissioner, supra at                               
            607.  However, it is for us to decide, upon consideration of all                              
            the circumstances, the factual category in which a particular                                 
            transaction belongs.  Id.  We must resolve the question of who in                             
            substance, and not simply in form, made the sale.  Id.                                        
                  For convenience, we recapitulate the facts, which are                                   
            straightforward.  Mr. Kluener was the sole shareholder of APECO,                              
            its chief executive officer, and a director.  Having decided to                               
            sell his horses, on or about August 1, 1989, Mr. Kluener                                      
            transferred title to the horses to APECO, and a separate division                             
            of APECO called APECO Equine was created to handle the horse-                                 
            related activities.  Most of the horses were sold at auction                                  
            between August and December 1989.5  The net proceeds derived from                             
            the sales during 1989 were $2,177,685, and the amount of gain                                 

            4     Although petitioners do not rely on United States v.                                    
            Cumberland Public Service Co., 338 U.S. 451 (1950), we note that,                             
            in that case, the Supreme Court gave effect to the form of a                                  
            transaction involving a transfer and sale of property where the                               
            substance of the transaction accorded with that form.                                         
            5     The 41 horses transferred were disposed of as follows:                                  
            Thirty-seven were sold at auction during 1989; two were sold for                              
            nominal amounts during 1990; one died; and one was given away                                 
            because it was infertile.                                                                     

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