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no formal or informal agreement or understanding to carry out a
prearranged sale transaction via SMP.
C. Court’s Analysis
Whether we apply the “end result” test or the
“interdependence” test, we conclude that the step transaction
doctrine applies to Generale Bank’s and CLIS’s contributions of
the SMHC receivables and stock and Somerville S Trust’s purchase
of Generale Bank’s and CLIS’s preferred interests in SMP. For
the reasons discussed in more detail above, we find that Generale
Bank’s and CLIS’s contributions were made solely for the purpose
of transferring built-in tax losses to the Ackerman group. The
Ackerman group could not obtain the built-in tax losses through a
direct purchase of the SMHC receivables and stock, but could only
obtain those losses by interposing a partnership and manipulating
the partnership basis rules. From the beginning, both parties
planned and understood that CLIS would receive a $5 million
advisory fee and that the banks would exercise their put rights
at the earliest possible point (December 31, 1996), exiting the
partnership. The contributions, the payment of the advisory fee,
and the exercise of the put rights were mutually interdependent
steps taken to dispose of Generale Bank’s and CLIS’s “bad”
investments in the SMHC receivables and stock and to transfer the
built-in tax losses to the Ackerman group.
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