- 13 -13
Respondent simply ignores the admission rather than seeking to be
relieved of it.
The Court of Appeals for the Fifth Circuit has also dealt
with this issue; it acknowledges that a compromise of an heir's
claim against an estate can resemble an exchange. However, that
Court of Appeals concludes that a dual purpose does not
disqualify a compromise from the application of Lyeth v. Hoey,
305 U.S. 188 (1938):
But all compromises, and therefore all
transactions within the potential ambit of Lyeth v.
Hoey, are in some measure exchanges. * * * we have
concluded that so long as the settlement is in
substantial measure to resolve an underlying and
disputed claim based upon a purported gift, bequest,
inheritance or the like, what is received in settlement
must be characterized, for tax purposes, by the nature
of the underlying and disputed claim resolved. Thus,
in circumstances such as those presented by this
record, where the rationale of Lyeth is implicated but
where, in addition, the transaction resembles a sale or
exchange of property, we think that Lyeth governs
unless it may be said that the circumstances
surrounding the transaction fairly exclude the
possibility that the exchange is in reality a
compromise of an underlying and controverted claim such
as one of gift, bequest or inheritance. [Early v.
Commissioner, 445 F.2d 166, 169-170 (5th Cir. 1971),
revg. 52 T.C. 560 (1969); fn. ref. omitted; emphasis
added.]
As stated above, there is evidence to support the existence of a
"controverted claim". Consequently, we cannot "exclude the
possibility that the exchange is in reality a compromise of an
underlying and controverted claim". Respondent has admitted in
the answer that the arrangement was entered into as a substitute
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