-233-
prearranged understanding was not clearly erroneous, it upheld
the Commissioner’s proposed application of the step transaction
doctrine. The court distinguished Grove, in which the court
declined to apply the step transaction doctrine, as a case where
there was not even an informal agreement among the parties as to
future disposition of the contributed asset. Id. at 479. Like
the transaction in Blake, and unlike the transactions in Greene
and Grove, 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 in SMP, occurred as part of a prearranged
understanding between the Ackerman group, CDR, and the banks.
In Redding v. Commissioner, supra, the Court of Appeals for
the Seventh Circuit held that the step transaction doctrine did
not justify treating the distribution of stock warrants, and the
exercise of those warrants, as steps in a single transaction
involving the distribution solely of stock for purposes of
section 355(a)(1). In Redding, the corporation had no
prearranged understanding with its shareholders that they would
exercise the stock warrants; during the subscription period the
shareholders had the option of exercising the stock warrants or
not. Unlike the parties to the transaction in Redding, the
Ackerman group, CDR, and the banks had decided on a predestined
course--the banks would exercise their put rights, effectively
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