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received the lawsuit in exchange for their BFI stock.
Petitioners contend that the open transaction doctrine applies,
and under that doctrine the sale or exchange requirement was
satisfied when they received the lawsuit for their stock. They
emphasize that the receipt of proceeds in an open transaction is
relevant only in establishing the amount realized.
We shall first deal with petitioners’ contention that they
received the lawsuit in exchange for their stock. As a general
rule, a taxpayer is bound by the form of the transaction that he
has chosen. Framatome Connectors USA, Inc. v. Commissioner, 118
T.C. 32, 47 (2002); Estate of Durkin v. Commissioner, 99 T.C.
561, 571-572 (1992).9 A taxpayer is ordinarily free to organize
his affairs as he sees fit; however, once having done so, he must
accept the tax consequences of his choice, whether contemplated
or not, and may not enjoy the benefit of some other route he
might have chosen but did not. Commissioner v. Natl. Alfalfa
Dehydrating & Milling Co., 417 U.S. 134, 149 (1974). In this
9See also In re Steen, 509 F.2d 1398, 1402 n.4 (9th Cir.
1975):
As a general rule, the government may indeed bind a
taxpayer to the form in which he has factually cast a
transaction. The rule exists because to permit a
taxpayer at will to challenge his own forms in favor of
what he subsequently asserts to be true “substance”
would encourage post-transactional tax-planning and
unwarranted litigation on the part of many taxpayers
and raise a monumental administrative burden and
substantial problems of proof on the part of the
government. * * * [Citations omitted.]
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