M. Bennett Marcus and Maria F. Marcus - Page 13

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          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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