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Zenz, respondent argues that a partial redemption, which is one
of a series of transactions intended to terminate completely a
shareholder’s ownership interest in a corporation, must be
integrated with the related transactions for purposes of section
302(b)(3) and treated as a sale or exchange. Under respondent’s
articulation of the relevant legal standard:
As a result of the decision in Zenz, other
transactions must be taken into account in testing
whether a redemption is a distribution under � 301 or a
sale or exchange under � 302(a) where the redemption is
part of a firm and fixed plan to terminate a
shareholder’s interest in a corporation. Niedermeyer
v. Commissioner, 62 T.C. 280 (1974), aff’d 535 F.2d 500
(9th Cir. 1976) (articulating a Zenz-like standard).
As subsequent applications of the Zenz doctrine make
clear, the sequence of planned transactions is
irrelevant where the overall result is the complete
termination of a shareholder’s interest. United States
v. Carey, 289 F.2d 531 (8th Cir. 1961) (holding that
Zenz applies when the redemption precedes the stock
sale pursuant to a plan); see also B. Bittker and J.
Eustice, Federal Income Taxation of Corporations and
Shareholders, �9.06[3] at 9-42 (6th ed. 1994)(“[I]f the
form of the distribution is cast as a redemption, its
treatment as a sale under Zenz is highly likely unless
the preliminary redemption transaction can be separated
from the later sale.”) [Fn. ref. omitted.]
In its reply brief,33 petitioner dismisses respondent’s reliance
33In their reply briefs, both parties argue alternatively
that the applicable standard is derived from the step transaction
doctrine and that one of three tests for deciding whether the
step transaction doctrine should be applied, but not all three
tests, must be used in this case to analyze the sec. 304
redemptions and the later sales. Petitioner contends that only
the binding commitment test should be used, and respondent
contends that only the end result test should be used. For a
detailed description of the three tests, see Andantech L.L.C. v.
Commissioner, T.C. Memo. 2002-97. We decline to apply any of the
(continued...)
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