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of US$1,955,000 minus the debt interest's basis of US$1,125,000)
relating to the transaction.
OPINION
The tax consequences of the transaction depend on its proper
characterization. Generally, taxpayers are bound to the form of
their transaction. See, e.g., Estate of Durkin v. Commissioner,
99 T.C. 561, 571-572 (1992). In North Am. Rayon Corp. v.
Commissioner, 12 F.3d 583, 587 (6th Cir. 1993), affg. T.C. Memo.
1992-610, the U.S. Court of Appeals for the Sixth Circuit, to
which this case is appealable, adopted a rule set forth in
Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967), revg. 44
T.C. 549 (1965). Where the terms of a transaction are set forth
in a written contract, the Danielson rule provides that a party
to the contract may disavow the form of such transaction only
with evidence that would allow reformation of the contract (e.g.,
to prove fraud or duress). See id. at 775. If the contract is
ambiguous, however, the Danielson rule does not apply. See North
Am. Rayon Corp. v. Commissioner, supra at 589.
Respondent contends that, pursuant to the Agreement, CMI-
Texas acquired a debt interest, which it transferred to
Industrias in exchange for stock. Respondent further contends
that the Danielson rule prevents petitioner from challenging the
terms, and petitioner is bound by the form, of the transaction.
Petitioner contends that, based on the substance of the
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