-74-
2d 1253, 67-1 USTC par. 9392 (M.D. Fla. 1967)). The Court of
Appeals further noted that, because the aggregate price that
G.M.C. paid for the used trucks was in excess of their aggregate
fair market value, G.M.C. could have yielded a profit from the
transactions in question only by viewing the alleged purchases of
used trucks and the alleged sales of new trucks as one
transaction. Id. According to the Court of Appeals, the
transactions in question were
sculptured * * * so as to achieve the best possible tax
results for Redwing. Instead of obtaining customary
discounts from the retail price of the new trucks,
Mendez would insist that the manufacturers add the
discount amount to the price of the used trucks being
repurchased. The gain of the trade-in price over the
depreciated basis of the used trucks would be
recognized at capital gains rates, and the basis of the
new trucks for depreciation purposes would be inflated.
As a result, Redwing's depreciation deductions from
ordinary income would also be inflated, resulting in
considerable tax savings. [Redwing Carriers, Inc. v.
Tomlinson, supra at 655-656.]
The Court of Appeals for the Fifth Circuit held in the
Redwing Carriers, Inc. case that the transfers of used trucks by
the taxpayer and the acquisitions of new trucks by its subsidiary
were, in substance, like-kind exchanges. In so holding, the
Court stated:
As is obvious from the above facts, these Mendez-
dominated transactions were severable in form only. On
substance, the sale was in bondage to the purchase and
the purchase indissolubly dependent upon the sale. If
Redwing had not carried out the agreement to buy the
new trucks, the auto makers would have had no juristic
obligation to purchase the used trucks. The buying and
selling were synchronous parts meshed into the same
transaction and not independent transactions.
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