Merrill Lynch & Co., Inc. & Subsidiaries - Page 48




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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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