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lawsuit to Norway, and then Norway transferred the lawsuit to
petitioners for their BFI stock. This might result in tax
consequences to both BFI, see sec. 311(b), and Norway either at
the time of the distribution or at the time of the settlement.
In Henry Schwartz Corp. v. Commissioner, 60 T.C. 728, 738-
739 (1973), we recognized the interplay of the tax effects of
particular transactions and their intended structure, stating:
In this regard it is important to note that the
parties to the agreement, Henry and Sydell and Suval,
were dealing at arm’s length and indeed had conflicting
interests with respect to the treatment of the policy.
Thus, if the distribution of the policy was considered
as part of the overall price for the stock, and the
distribution was from Plastic Calendering to Suval and
then to Henry, then Suval might be charged with a
dividend on the initial distribution of the policy to
it. See Frithiof T. Christensen, 33 T.C. 500, 504-505.
On the other hand, if the policy were distributed to
Henry by Plastic Calendering, not as part of the
purchase price for the stock but simply because the
purchaser did not want this asset and the sellers had
agreed that it would not be part of the sale, then
Henry might be charged with receipt of a dividend. See
John R. West, 37 T.C. 684, 687. Thus, the agreement
between the parties represents an accurate reflection
of an arm’s-length transaction, and this agreement
makes it clear that the policy was distributed from
Plastic Calendering to Suval and then to Henry.
Surely, if petitioners’ characterization of the transactions in
this case were correct, a reduced purchase price would have been
negotiated reflecting BFI’s or Norway’s tax liability for those
amounts. Instead, the purchase price continued to reflect the
book value of the assets and liabilities of BFI. It appears from
the record that the parties to the stock sale were relatively
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