- 16 -
proceeds rather than an interest in a viable corporation.” Id.
at 346; see also Greene v. United States, 13 F.3d 577, 581 (2d
Cir. 1994); Jones v. United States, supra at 1346; S.C. Johnson &
Son, Inc. v. Commissioner, supra at 786.
2. Arguments of the Parties
Petitioners filed a motion for partial summary judgment and
argue that they are entitled to judgment as a matter of law on
the issue of whether they must account for the gains realized on
the sales of the assigned warrants. Petitioners rely on
Carrington v. Commissioner, 476 F.2d 704 (5th Cir. 1973),6 and
Rev. Rul. 78-197, supra, and they argue that where the donees are
6In Carrington v. Commissioner, 476 F.2d 704 (5th Cir.
1973), affg. T.C. Memo. 1971-222, the taxpayer was the sole
shareholder in a corporation that was, in turn, a partner in a
partnership. The taxpayer also belonged to a church that was
interested in acquiring a rectory. The partnership owned a
residence which was suitable for a rectory, and, accordingly, the
taxpayer initiated a series of transactions for the purpose of
placing that residence into the hands of the church “at the
maximum tax benefit” to the taxpayer: (1) The taxpayer
transferred 51 of the 100 outstanding shares in the corporation’s
stock to the church; (2) the partnership then conveyed the
residence to the corporation; and (3) the corporation conveyed
the residence to the church in redemption of the church’s 51
shares. The Commissioner applied the step transaction doctrine,
treated the taxpayer as receiving the residence in redemption of
his stock and then transferring the residence to the church, and
determined that the taxpayer realized dividend income. Both this
Court and the Court of Appeals for the Fifth Circuit refused to
ignore the “gift step” and held that the taxpayer did not realize
an actual or constructive dividend on the redemption of the 51
shares. The Court of Appeals stressed that the church had full
title and full dominion and control over the contributed stock,
and it was under no prior obligation to redeem its shares. Id.
at 709.
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