-297-
The memorandum also provides some discussion of the
transaction with CDR, describing it as follows:
The Rockport Members interest in * * * [SMHC] did not
originate with a desire to obtain a favorable tax
attribute that could be used as a tax shelter. Rather,
their interest originated in a desire to acquire all
the assets of MGM and, when it became clear that they
would not be able to acquire all such assets, to
acquire certain valuable assets that remained. * * *
The Rockport Members then decided to acquire an
interest in * * * [SMHC]. GB and CLIS wanted to retain
some interest in * * * [SMHC]. In this context, the
Rockport Members, GB and CLIS, each for their own valid
business reasons, became members of the Company in a
way that made it possible to preserve a favorable tax
attribute, namely the basis of the MGM Debt and the MGM
Stock.
On this basis, Shearman & Sterling concluded:
No transaction involving the Company should be
recharacterized under substance over form principles.
GB, CLIS and the Rockport Members became members by
contributing property to the Company. At the time GB
and CLIS transferred the MGM Debt and the MGM Stock to
the Company, they were under no obligation to transfer
any portion of their interest in the Company to any
person. Thereafter, the Somerville S Trust purchased
interests from GB and CLIS. GB and CLIS should not be
treated as selling the MGM Debt and the MGM Stock to
the Rockport Members who then contributed such property
to the Company. Although courts have been willing to
step transactions together, they have generally been
reluctant to reverse the order of steps. [Discussing
Esmark & Affiliated Cos. v. Commissioner, 90 T.C. 171
(1988).]
Shearman & Sterling’s description of the CDR transaction and
its conclusion are based on faulty factual assumptions regarding
the Ackerman group’s purposes for entering into the transaction
with CDR, Generale Bank, and CLIS. To wit, we have concluded
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