Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 157

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          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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