- 24 -
for the stock. Id. at 397-399. Those factors are not found on
the record in this case. Although the distribution of the
lawsuit and the stock sale were related, they were not
interdependent. The purpose of the distribution in this case was
perhaps to accommodate the sale of the stock to Norway; however,
the distribution was not a “financing tool” as discussed above.
Finally, the record does not show that the parties intended the
lawsuit to be received from Norway by petitioners as part of the
purchase price for the stock. Indeed, the various agreements
involving petitioners, Norway, and BFI suggest the exact
opposite.
To hold that petitioners received the settlement proceeds as
additional consideration for their BFI stock would require us to
engage in some fictional construct that defies the realities and
expectations of the parties to the stock sale transaction. We
shall not engage in such a construct, and we hold that
petitioners did not receive the settlement proceeds as additional
consideration for their stock, but rather as ordinary income.14
Decisions will be entered
for respondent.
14Because we decide that petitioners did not receive the
settlement proceeds as part of a sale or exchange, we shall not
discuss respondent’s alternative arguments that the lawsuit was
not a capital asset and that the settlement proceeds were
received as part of a dividend distribution from BFI.
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