-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, effectivelyPage: Previous 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 Next
Last modified: May 25, 2011