-229-
In the Second Circuit, the prearranged plan need not be legally
binding but must at least constitute an informal agreement or
understanding between the parties. Greene v. United States,
supra at 583; Blake v. Commissioner, 697 F.2d 473, 478-479 (2d
Cir. 1982), affg. T.C. Memo. 1981-579.
Under the “interdependence” test, the step transaction
doctrine will be invoked where the steps in a series of
transactions are so interdependent that the legal relations
created by one transaction would have been fruitless without a
completion of the series. Am. Bantam Car Co. v. Commissioner, 11
T.C. 397, 405 (1948), affd. 177 F.2d 513 (3d Cir. 1949). We must
determine whether the individual steps had independent
significance or whether they had significance only as part of a
larger transaction. Greene v. United States, supra at 584;
Penrod v. Commissioner, supra at 1430. In making this
determination, we rely on a reasonable interpretation of
objective facts. King Enters., Inc. v. United States, 189 Ct.
Cl. 466, 418 F.2d 511, 516 (1969); Cal-Maine Foods, Inc. v.
Commissioner, 93 T.C. 181, 199 (1989).
B. Parties’ Arguments
Invoking the “end result” test, respondent argues that
Generale Bank’s and CLIS’s contributions of the high-basis, low-
value receivables and SMHC stock to SMP, and Somerville S Trust’s
purchase of Generale Bank’s and CLIS’s preferred interests were
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