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The parties seek to determine, as a matter of law,
whether the relation-back doctrine, established in
Arrowsmith v. Commissioner, 344 U.S. 6 (1952), applies
for purposes of sec. 954, I.R.C., in characterizing S’
portion of the gain relating to the increase in the
value of the C stock during the period in which S was
prohibited from selling the stock. P contends that,
under the relation-back doctrine, the sale of the C
stock was integrally related to the sale of the
operating assets due to the lockup agreement and the
restrictions on re-sale of the C stock, and that the
gain on the sale of the stock must take its character
from the sale of the assets and does not constitute
FPHCI. R contends that the relation-back doctrine does
not apply and S’ gain on the sale of C stock
constitutes gain from a separate investment in stock
giving rise to FPHCI taxable to P.
Held: The relation-back doctrine established in
Arrowsmith does not apply based on the facts of this
case to characterize S’ gain on the sale of C stock for
purposes of sec. 954, I.R.C., and accordingly the gain
on the sale of the C stock constitutes FPHCI.
Mark A. Oates, Thomas V.M. Linguanti, John M. Peterson, Jr.,
Mary E. Wynne, and Andrew P. Crousore, for petitioner.
Debra K. Estrem, Michael J. Cooper, Bryce A. Kranzthor,
Jeffrey L. Heinkel, Lavonne D. Lawson, Ewan D. Purkiss, and Mark
S. Heroux, for respondent.
MEMORANDUM OPINION
GERBER, Judge: Pursuant to Rule 121,1 this matter is before
the Court on the parties’ cross-motions for partial summary
1 Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
taxable years at issue.
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Last modified: May 25, 2011