- 41 -
employed by Mr. Winn and Mr. Curtis, and agreed to by
Countryside, to allow Mr. Winn and Mr. Curtis to withdraw from
the partnership before the anticipated sale of the Manchester
property to Stone Ends. While the employed means were designed
to avoid recognition of gain to Mr. Winn and Mr. Curtis, those
means served a genuine, nontax, business purpose; viz, to convert
Mr. Winn’s and Mr. Curtis’s investments in Countryside into 10-
year promissory notes, two economically distinct forms of
investment.21
The Court of Appeals for the Second Circuit considered an
analogous set of facts in Chisholm v. Commissioner, 79 F.2d 14
(2d Cir. 1935), revg. 29 B.T.A. 1334 (1934). In Chisholm, the
taxpayer and the four other shareholders of a corporation granted
a 30-day option to buy their shares in the corporation to a
third-party corporation that, during the option period, gave the
optionors its nonbinding commitment to exercise the option before
it expired. The optionors were advised that, by forming a
partnership to sell the shares, they might postpone and,
possibly, escape the taxes that would otherwise become due on the
exercise of the option and their sale of the shares. For that
reason, they transferred the shares to a newly formed
21 While CLP Holdings, Inc., and Mr. Wollinger,
Countryside’s remaining partners, enjoyed 100 percent of the
benefits associated with Countryside’s ownership of the
Manchester property following Mr. Winn’s and Mr. Curtis’s
withdrawals as partners, they also bore 100 percent of the
burdens associated with that ownership. In other words, their
economic positions also changed as a result of the liquidating
distribution.
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