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return amounts Butler received from Poor Richards for front-
loading subcontract services.
Metro’s 1990 tax returns reflect that Butler and McGraw
received compensation of $1,006,330 and $156,900, respectively.
Metro did not report the reclassified $400,873 on Butler’s Forms
1099 or W-2 or on Metro’s employment tax returns and did not pay
or withhold employment taxes on it. Butler did not report that
amount on his individual income tax returns.
In early 1990, Butler and McGraw began negotiations to sell
Metro to Browning Ferris Industries, Inc. (BFI). On August 31,
1990, Browning Ferris Industries of Minnesota, Inc. (BFIM),
agreed to purchase Metro. BFIM exchanged 212,233 common shares
of BFI, BFIM’s parent, for Metro’s assets in a transaction
intended to be a tax-free merger pursuant to section 368.
The merger agreement provided that Metro could not transfer
the BFI stock to Butler and McGraw until BFI issued financial
statements showing the combined operations of Metro and BFI. On
December 4, 1990, BFI transferred 141,489 shares of its stock to
Butler and 70,744 shares to McGraw, consistent with their
respective 67- and 33-percent interests in Metro. BFI stock was
traded publicly on the New York Stock Exchange, and on December
4, 1990, BFI stock’s mean sale price was $21.875.2
2 See Meyer v. Commissioner, 46 T.C. 65, 106 (1966)
(holding that “Where stock is listed * * * on a recognized
(continued...)
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