# UNITED STATES TAX COURT > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Af93dc556357860db ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text 120 T.C. No. 3 - UNITED STATES TAX COURT MERRILL LYNCH & CO., INC. & SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket. No . 18170 -98 . , Filed January . 15, 2 0 03 . . MP is the parent of an affiliated groi2p, (P) thát filed consolidated income tax returns for the taxable ' years, at issue.. . 1986 Transactions : 2 In 1986, P decided ,to sell the principal investments business of MLL, a second tier subsidiary. Because P wanted to retain certain assets of MLL, consisting of its lease advisory bus'iness and certain other assets (the 1986 retained ås'sets) within the consolidated group while minim1z1ng .or eliminating gain on the sale of MLL outside the consolidated group, P adopted and implemented a plan consisting of the. following, steps: (1). MLL distributed the 1986 retained assets to its subsidiary, Merlease; (2) MLL then sold Merlease cross-chain to a sister corporation (MLAM) in~ a transaction that qûalif ied as a, sec . 304, I . R . C. , deemed redemption; (3) MLL then distributed a' dividend of the gross sale proceeds to its parent, MLCR, a wholly owned subsidiary of MP; .(4) .P then~ completed the sale of MLL to a third party. Under the consolidated SERVED JAN 1 5 2001 - 2 return regulations then in effect, the cross-chain sale aÊd the related dividend generated an increase in MLCR's basis in MLL's stock, enabling P to sell MLL outside the consolidated group at a loss. On the date of the 1986 cross-chain sale, P had identified the prospective purchaser of MLL, had negotiated a tentative purchase price for MLL, and clearly intended to sell MLL outside the consolidated group, thereby terminating MLL's constructive ownership under sec. 318, I.R.C., of Merlease, the issuing corporation. On its consolidated tax return for TYE Dec. 26, 1986, P claimed a loss from the sale of MLL after treating the gross sale proceeds as a dividend and increasing its basis in MLL's stock by that amount. 1987 Transactions: P decided to sell the leased properties business of MLCR, its wholly owned subsidiary. Because P wanted to retain MLCR's nonleasing assets (the 1987 retained assets) while minimizing or eliminating gain on the sale of MLCR outside the consolidated group, P adopted and implemented a plan consisting of the following steps: (1) MLCR identified the subsidiaries holding the 1987 retained assets (MLBFS, MLPC, MLVC, MLEI, MLRDM, MLI, MLLE); (2) MLCR then sold the seven subsidiaries to three sister corporations (MLRI, MLPFS, MLAM) within the consolidated group in transactions that qualified as sec. 304, I.R.C., deemed redemptions; (3) MLCR then distributed dividends of the gross sales proceeds to its parent, MLCMH, a wholly owned subsidiary of MP; (4) P then completed the sale of MLCR to a third party. Under the consolidated return regulations then in effect, the cross-chain sales and related dividends generated increases in MLCMH's basis in MLCR's stock, enabling P to sell MLCR outside the consolidated group at a loss. On the dates of the first seven of the 1987 crosschain sales, P had identified the purchaser of MLCR, had prepared a draft acquisition agreement, and clearly intended to sell MLCR outside the consolidated group, thereby terminating MLCR's constructive ownership under sec. 318, I.R.C., of the subsidiaries sold cross-chain (the issuing corporations). - 3 After the.first seven of the 198,7-cross-chain sales had closed and shortly before the sale of MLCR was scheduled to close, _the. purchaser of MLCR notified P that it could not own VL, one of MLCR's .subsidiaries because of Federal law restrictions. Approximately 2 weeks before the sale of MLCR closed, MLCR sold the stock of VL to MLAM, a sister corporation, in a transaction that qualifiëd as a deëmed sec. 304, I.R.C., redemption. . On its consolidated income tax return for TYE Dec. 26, 1987, P claimed-a loss of $466'!9853176 from , the sale of MLCR after treating the gross sales proceeds from thet 1987 cross-chain sales as a dividend and increasing its basis in MLCR's stock by that amouilt . Respondent determined that the nine cross-chain sales of Merlease, MLBFS, MLPC, MLVC, MLEI, MLRDM, MLI, MLLE, and VL (the subsidiaries)- and the sales of MLL and MLCR outside the consolidated group were parts of a firm, fixed, and clearly integrated plan ,to completely terminate MLL's and MLCR's actual and constructive ownership of the subsidiaries . Petitioner contends that each cross-chain sale resulted in the receipt of a dividend by the selling corporation under.secs.·302(d) and 301, I.R.C., equal to the gross sale proceeds and that it was entitled, under the consolidated -return regulations, to increase its basis in MLL's and MLCR's stock as a~ result of the cross-chain sales.: Held: The cross-chain"·sales qualifi.ed as redemptions in complete termination of MLL's and MLCR's interest in the subsidiaries sold cross-chain· under sec. 302(b) (3), I.R.C., and must be taxed as distributions in-exchange for st-ock under sec. 302.(a), I.R.C., rather than as dividends under sec. 301, I.R.C. - 4 - David J. Curtin, Sheri Dillon, Peter J. Genz, William F. Nelson, Kimberly S. Piar and Cornelia J. Schnyder, for petitioner. Carmen M. Baerga, Jill A. Frisch, Lyle B. Press, and Jody S. Rubinstein, for respondent. MARVEL, Judge: Respondent determined the following deficiencies in the Federal income tax of Merrill Lynch & Co., Inc. (Merrill Parent) and subsidiaries (collectively, the consolidated group or petitioner): TYE Deficiency Dec. 26, 1986 Dec. 25, 1987 Dec. 30, 1988 $7,704,908 12,141,242 12,928,981 The ultimate issue in this case involves the proper computation of petitioner's basis in.the stock of two consolidated group members (the target corporations) that it sold in 1986 and 1987. In order to resolve that.issue, we must decide the tax effect of nine cross-chain sales1 of stock of certain subsidiaries (the issuing corporations) owned by the target corporations. These sales were structured by petitioner to transfer certain assets from the target corporations to other members of the consolidated group (the acquiring corporations) 1For purposes of this opinion, a cross-chain sale means a sale by one brother-sister corporation to another brother-sister corporation in the same ownership chain. before the target corporations were i sold'outside the consolidated group. The parties agree that1the .cross-chain sales qualified as section 3042 redemptions that must be tested for dividend equivalency under åectiòñ 302 (b) > ' The*parties .disagree; however, regarding the result of that' testirig. RespondeÑt contends that 'eåch croès-chain sale by as target corporation and the later sale of that target corporation outside the consolidated group were parts of .a firm, fixed, and clearly integrated plan to c mpletely terminate Áhe target corporation's ' actual and constructive ownership of .the issuing. corporations. Respondent argues, therefore, that the cross-chain sales qualified as redemptions in complete terminatiön of the target corporations' ^interest ,in the issuing corporations under section 302 (b) (3) , and must be taxed as a distribution in. exchanÛe for stock under section 302 (a) . Petitioner coritends that each cross- chain ,sale resulted. in the receipt of a dividend by the . selling corporation under sections 302;(d) and 301 equal tò the gross sale proceeds and that it ewas entitled, under the . consolidated return - regulations, to increase its basis in the target corporations' stock by the amount of the dividend.3 Petitiorier's claim to 2All section references^aré to'the Iriternal Revenue Code in effect for the years in issue, and·all Rule references are to the Tax Court Rules of Practice and Procedure. 'Monetary'amounts arei rounded to the nearest dollar. 3Under" the consolidated return investment adjustment (cont inued . . . ) increased bases in the stock of the target corporations when the target corporations are sold to unrelated third-party purchasers in 1986 and 1987 depends for its success upon dividend treatment for the gross proceeds of the nine cross-chain sales. See secs. 1.1502-32(a) and 1.1502-33, Income Tax Regs. Following concessions,' therefore, we must decide: 3(...continued) regulations, see secs. 1.1502-32(a) and 1.1502-33, Income Tax Regs. as in effect for the years at issue, a consolidated group member's basis in a subsidiary was increased or decreased, dollar for dollar, by changes in the earnings and profits of the subsidiary. The Commissioner subsequently amended the consolidated return investment adjustment regulations generally for determinations and tax years beginning on or after Jan. 1, 1995. T.D. 8560, 1994-2 C.B. 200. 4In its petition, petitioner asserted (1) that respondent failed to use the Becker "separate return limitation year" net operating loss of $85,164,319 in computing petitioner's group taxable income for the 1987 taxable year; (2) respondent failed to take into account the recalculated amount of environmental tax deductions for the 1987 and 1988 taxable years; (3) respondent failed to allow a separate fuel tax credit and instead included such credit in petitioner's general business credits for the 1986 taxable year; (4) respondent failed to include petitioner's available general business tax credits in determining petitioner's alternative minimum tax for the 1988 taxable year; and (5) respondent failed to take into account $98,505 of Federal income tax withheld by Newmont Mining on dividends paid to a consolidated Canadian subsidiary of petitioner during the 1987 taxable year. In its petition, petitioner also stated that respondent agreed with petitioner's position regarding adjustments (1)-(4). In the answer to the petition, respondent conceded adjustments (1), (2), and (4). Respondent also conceded that the disagreements regarding adjustments (1)-(4) would be resolved in computing any final deficiencies in this case. With respect to adjustment (5), respondent denied the adjustment in the answer but did not raise the issue on brief or at trial. Adjustment (5) is, therefore, deemed conceded. See Rule 151(e) (4) and (5); Petzoldt v. Commissioner, 92 T.C. 661, 683 (continued...) . ... 7 (1) - Whether a deemed,section 304 redemption in:the form of a 1986 cross-chain stock sale ibetween brother-sister corporations in a consolidated: gröup must- be integrated with the .later, sale of the cross-chain seller outside the consolidated groupqand treated as a'redemption in complete termination funders.section 302 (a) and (b) (3) as' respondent contends /L ·or whether thet deemed section 304. redemption qualified as a distribution óf property ,taxable as a dividend -under section 301' asopetitioner contendst -and . (2) whether' deemed sect·ion 304 redemptions , in .the .·f orm of eight 1987 cross-chain stock.sales between-brother-sister corporations in a consol·idated group must be, integrated with the later salë of thè cross-chain. sellér outside the.consolidated group and treated as a5redemption in complete ,termination under section 302 (a) and - (b) (3) as respondent contends,: .or . whether the deemed section 304 redernptions; were distributions of rproperty- . taxable as dividends under section 301 as petit.ioner contends. FINDINGSi OF. FACT ·. Some of the facts have been estipulated.: We incorporate the stipulhted Pfacts into oür findings by th:is reference. Merrill Parent is a corporation organized runder. Delaware law and'is- the parent-corporation of an affiliated group, of corporations that filed consolidated Federal income tax returns . 4 ( . . . continued) (1989); Money v. Commissioner, 89 T.C. 46, 48 (1987). - 8 during the years at issue. Merrill Parent, through its subsidiaries and affiliates, provides investment, financing, insurance, leasing, and related services to clients. I. 1986 Sale of ML Leasing Before it was sold outside the consolidated group, Merrill Lynch Leasing, Inc. (ML Leasing or MLL), was a wholly owned subsidiary of Merrill Lynch Capital Resources, Inc. (ML Capital Resources or MLCR), which in turn was wholly owned by Merrill Parent. ML Leasing was engaged in the business of arranging leasing transactions between third parties (lease advisory business). ML Leasing also was engaged in the business of leasing its own real and tangible personal property to third parties in the capacity of lessor (principal investments business). Immediately before the years at issue, the principal investments business leases were generating substantial positive cashflow but had "turned around" for income tax purposes, meaning that if ML Leasing continued to hold the leases the principal investments business would generate taxable income in excess of pretax cashflow. ML Leasing also owned, directly or through single-purpose subsidiary corporations, general and limited partnership interests in limited partnerships that held property subject to operating and leveraged leases. A. Preliminary Discussions As early as August 22, 1985, Douglas E. Kroeger, a member of thes corporate tax. department. at Merrill*Parent, sent an interoffice 'memorandum to ·David K. - Downes,c corporate · controller at Merrill Parent , . recommending thè sale of _ ML Leasing' s st ock, after "stripping out" certain assets Merrill Parent .did not wish to sell, 'as part of a tax strategy; that cou-ld result in an- . increase in after-tax earnings of more than $60 million.5 reciation when calculating earnings and profits. See Woods"Inv. Co'. v. Commissioner, 85 T,. C. 2'74 (1985.) .. This tax strategy is not at issue in this case. Although it is unclear 'from the Yecordl it uppears that Merrill Parent. rptained Merrill Lynch Capital Markets (ML Capital Markets) to sell the stock of ML Leasing in 1986 arid ML Capital Resources in 1987. - 10 - At some point thereafter, Merrill Parent decided it wanted to sell only the principal investments business of ML Leasing as part of its tax strategy. Merrill Parent did not want ML Leasing's lease advisory business and certain other assets that were not part of the principal investments business (collectively referred to as the 1986 retained assets) to leave the consolidated group. Merrill Parent decided to transfer the 1986 retained assets to other corporations within the consolidated group in preparation for the sale of ML Leasing, leaving only the principal investments business remaining in ML Leasing, including the operating and leveraged lease assets. On March 26, 1986, participants at an internal meeting of petitioner discussed the possible sale of ML Leasing's stock. At the meeting, the participants discussed the estimated tax basis of ML Leasing as of the end of 1985, the approximate value of ML Leasing, whether the sale would be prohibited because= of various restrictions in the lease documents, the intangible effects of the sale of ML Leasing, the possibility of tax reform being passed prior to late August 1986, the estimated after-tax economic benefit of the sale of ML Leasing, and the estimated after-tax book gain that would result from the sale of ML Leasing. At the meeting, Jeffrey Martin, a member of petitioner's Mergers & Acquisitions Group, was asked "to feel out the market on a no-name basis inquiring if there are any - 11T- interested^parties for such attransaction."- 'Upon conclusion o.f the meetihg, it was decided that petitioner "would.await Mr. Martin's findings before any ádditional workttakes.place" regarding1the sale of ML Leasing.. , In approximately April 1986, petitioner decided to pursue a sale of ML Leasing and appointed Theodóre D Sands; managing.director of the Investment Banking Division'at Merrill Parent,2to serve.as,the chief negotiator with re-spect to thë~ sále.7 Mr. Sands suggested that petitioner "clean up"' ML Leasing: by removingí any.assets the mcompany did not want to sell (i.e., the 1986 retåinéd assets).' Mr.~Sands, however, did not suggest the manner ini:whichsthe 1986 retained assetss should be transferred"from Mu-Leasing, and he did not suggest implementing the 1986 bross chain·sale at 1ssue an this case. B. Pe't"ition~er Seeks a Purchaser . Mr. Sarids was 'asked to dévelopr a profile of -a likely pros ective *purchaser for ML.Leasing and a list of prospectives purchasers. Mr. Sands establ'ished three criteria for,a-potential purchaser of ML'Leasing: (1) A purchaser should .be ~financiallyc 70n July .28, 1986, petitioner officially appointed a fiveperson project team to conduct the divéstiture of ML Leasing, which i'ncluded Mr. Sands as chief negotiator. 8The.1986 retained assets consisted of assets leased under operating, finance, and leveraged leases, 'subject to thé' liabilities associated with such.assets, and 'the shares of 34 corporate subsidiaries that owned leased equipment and leased real property. .The·decision as do which assets would be sold and which would be retained was Made by the head of'investment banking at Merrill Parent. - 12 - sophisticated to handle the lease portfolio; (2) a purchaser should be able to finance the transaction; and (3) a purchaser should have a net operating loss (NOL) carryforward and, therefore, should be indifferent to the fact that the lease portfolio was about to turn for tax purposes. In or around April 1986, Mr. Sands contacted Inspiration Resources Corp. (Inspiration). Inspiration was a diversified natural resources company whose stock was publicly traded on the New York and Toronto stock exchanges. by Minerals & Resources Corp., Ltd. Inspiration was controlled (MINORCO), a Bermuda corporation headquartered in London, England. Mr. Sands had worked with Inspiration on other matters before 1986 and was aware that Inspiration had a' significant NOL. Petitioner provided to Inspiration a document entitled "MERRILL LYNCH LEASING INC. Proposed Sale of Equity Investment Assets" dated April 1986 (ML Leasing offering memorandum). The ML Leasing offering memorandum described the assets that would be owned by ML Leasing at the time of the sale and the pretax cashflows expected to be derived from the portfolio of leases. The ML Leasing offering memorandum described the proposed transaction as follows: Prior to the sale of Leasing's stock, any of Leasing's assets which are not to be sold will be dividended to MLCR. Assets rema1n1ng ln Leasing will be the equity investments in real estate and equipment net leased to major corporations, tax benefits purchased under the 1981 Tax Act, unused ITC carryover, and any state net --13 operatins losses '("NOL's") not. used inuthè:various ML&Co. 1986 unitary returns. The remaining liabilities in Leasing would consist solely of deferred- taxes. -MLCR ki·ll then sell the stock of Leasing. .* * * The 1986 retained assets er~e ñot included in-the description of ML Leasing's portfolio. On Juáe 19, 1986, Mr. Sands prepared a memorandum entitled "Status of ML Leasing Sales'Effort"'. The memorandum -reported on a telephone call Mr. Sanda receited from Mr. Smith, the Vice President-Finance for Inspiration. As summarized in..the memorandum, Mi . Smith~ "expressed strong interest". in. purchasing ML Leasing and repo'rted that he hadtprepèred a detailed.analysis for consideration by In'spiration's ~execut^ive.committee.: Although Mr. Smith had expressed reservations ábout the status of Inspiràtion's NOLs'ând ábout>the lack^ of certainty regarding the lease résidual value's, Mr. 540anås reportèd that Mr. Smith's dohbérn regardiný Inspiratioù's NOLs was not a serious problem and that Mr: Smith's concern regarding'the residual values would be addressed in a meeting on Junè 23 ùhen"Mr., Smith and- his staff would meet with a representative of ML Leasing to review the residuals on a lease-by-lease basis. Mr. Sands reported.that, if Mr. Smith were satisfied after the June 23 meeting, Inspiration "will make a go , no go decision on. buying Leasing. at the $80 million asking price based on.the assumption. that the residual values can,be.confirmed.by an oµtside appraiser." - 14 - On July 3, 1986, a written "Presentation to Inspiration Resources Corporation" prepared by ML Capital Markets was submitted to Inspiration. The presentation again described the assets proposed to be owned by ML Leasing at the time of sale of the ML Leasing stock to Inspiration and the pretax net cashflows expected to be derived from the portfolio of leases. retained assets were not included in those assets. The 1986 The presentation proposed a purchase price of $98 million and a closing date at the end of 1986. C. The Tax Plan and the Section 304 Cross-Chain Sale Sometime between 1985 when the possible sale of ML Leasing was first discussed and July 21, 1986, when ML Leasing contributed the 1986 retained assets to Merlease Leasing Corp. (Merlease), petitioner finalized a plan' to strip ML Leasing of the 1986 retained assets and to sell ML Leasing outside the consolidated group using planning techniques designed to increase petitioner's tax basis in ML Leasing and thereby eliminate gain on the sale of ML Leasing. The plan consisted of the following steps: 9It appears from the ML Leasing offering memorandum that petitioner originally intended to have MLL distribute the 1986 retained assets to MLCR as a dividend. We infer from this fact that petitioner finalized its plan to engage in sec. 304 crosschain sales after the ML Leasing offering memorandum had been prepared. - 15 1.' ML Leasing.-would contribute the 1986 retained asset.s to Merlease, a direct wholly owned ·subsidi'ary of ML Leasing, in anticipation of ML Leasing's sale'outside the consolidated group. 2. ML Leasing would -then sell Merlease cross,chain to a sister corpóration within the consolidated group. -3. ML:Leasing would declare a dividend to ML Capital Resources öf designated:assets and the gross.sales proceeds from the cross-chain sale of Merlease to the acquiring corporation. 4. After each of the steps outlined above had occurred, petitioner wóuld then sell MLiLeasing to a third-party purchaser. In acóórdance with the plan,and -pursuant·to a resolution dated July 21, 1986,- ML Leasiñg contributed the 1986- retained assets'to the capital of'Merlease. In·accordance with the plan and pursuant to resolutions adopted on July 22, *1986, the respective boards of directors of ML Leasing and Merrill Lynch Asset Management, Inc. (ML Asset Management.ör MLAM), ardirect wholly owned subsidiary of Merrill Parent, approved the sale of -the stock of^Merlease to ML Asset Management for a purchase price equal to the .fair 'market.value of such.stóck as of July 22, 19861. Two days later,. ML Leasing and ML Asset Management entered into a stock purchase agreement dated "Some of the same assets identified in the July 21, 1986, consent to corporate action as having been contributed to Merlease's capital~were included.as part of a.dividend declared and paid to ML Cåpital Resources, ML Leasing's sole shareholder as of July 18, 1986. - 16 - . July 24, 1986, pursuant to which ML Asset Management agreed to purchase all of ML Leasing's Merlease stock for a purchase price of $73,320,471. The sale closed on July 24, 1986. Immediately before ML Asset Management purchased the stock of Merlease, ML Asset Management's accumulated earnings and profits exceeded the price it paid for the Merlease stock. The parties agree that the sale of Merlease to ML Asset Management was a section 304 transaction. D. Presentation to Merrill Parent's Board of Directors On July 28, 1986, only 4 days after the cross-chain sale of Merlease, a formal presentation was made to Merrill Parent's board of directors regarding the sale of ML Leasing." The presentation included the distribution of a written summary and slides illustrating the details of the plan.for the sale of ML Leasing, including key calculations. The written summary began as follows: We have identified a significant economic benefit, based on an opportunity in the tax law, in selling Merrill Lynch's proprietary lease business. This economic benefit can be achieved by structuring a transaction to sell the stock of our primary leasing subsidiary, Merrill Lynch Leasing. We believe that such a sale could realistically result in an after-tax financial statement gain of approximately $104 million. The presentation laid out the various steps of the plan to "Petitioner was unable to locate the minutes of the meeting of the board of directors on July 28, 1986, the date the presentation was made. - 17. dispose of -Me'rri'll Lynch's propriet'ary lease business, culminating. in the 541ale of ML Leasing's stock.: . The stated purpose of the presentation was 'to ,secure 3the board's 'approval "to enter into a letter of intent with the purcha 541er*'and to secure the board's authorization for:. the Executive Committee to approve the final details sof the proposed transaction in accordance with the letter of intent, subject to closing adjustments and unforseen contingencies arising from negotiating a final agreement in early October, up to a máximum reduction of $20 million. The written summary informed the board of directors that "due to the exhaustion of tax benefits, many of * * * [ML Leasing's] leases begin to produce taxable income in 1987, with the remainder 'turning around in 1988. Accordingly, it is an opportune time to sell our Principal Investments line of business to an appropriate purchaser." The summary also informed the board of directors that because it was not Merrill Parent's intent to withdrew from all aspects of the leasing business, Merrill Parent was removing the 1986 retained assets from ML Leasing before ML Leasing's stock was sold in two-steps: -(1) The 1986 retained assets had been. sold to ML Asset Mánagement for approximat ly $57 million.; and (2) ML Lea ing w 11 decläre' a $115 The presentation represented to the board of directors that "Once both partie's have signed the letter of intent, the sales price will be firmly established subject -only. to changes in the residual value by~ the appraisers . Moreover, even the impact òf residual value appraisals will be limited to $14 million." - 18 million dividend to ML Capital Resources consisting of cash received from ML Asset Management, plus other cash, receivables, and certain liabilities. After removal of the 1986 retained assets, the summary represented that Merrill Parent would then be in a position to sell the principal investments business portion of ML Leasing. The summary unequivocally identified Inspiration as the purchaser of ML Leasing's stock, described Inspiration, and stated that "In return for the stock of ML Leasing, we will receive $126 million in cash (subject to adjustments for residual value appraisals) from the purchaser, Inspiration Resources Corporation." The summary also explained how the sale price was determined," quantified the after-tax income and the tax benefit that would result from the sale, explained the tax risks of the transaction, and recommended the creation of a $37 million tax "The sale price was determined by calculating the present value of the cashflow stream generated by ML Leasing's assets ($42 million), discounting the pretax cashflow to reflect the value of the cashflow to Inspiration ($143 million), calculating the value of Inspiration's NOLs ($101 million), and adding to the present value of the cashflow stream a premium of $53 million (representing a split of the benefits arising from Inspiration's. NOLs). The resulting base sale price ($95 million) was then increased by the amount of cash to be left in ML Leasing (estimated to be $31 million) to arrive at a total sale price of $126 million (subject to adjustment for residual value appraisals). - 19 reserve for the transaction." In calculating the recommended reserve, the summary stated the following: The first item of tax reserve concerns the sale to Merrill Lynch Asset Management of the leasing subsidiaries we wish to retain. The IRS could maintain that the form of this transaction should be disregarded and in substance, a distribution with a reduction in tax basis should be deemed to have occurred. The $16 million reserve amount is the $57 million I noted previously multiplied by the 28% capital gains tax rate. Following the presentation, Merrill Parent's board of directors approved the plan, including the sale of Merrill Leasing to Inspiration. E. Nonbinding Letter of Intent On July 29, 1986, 1 day after the presentation to its board of directors, Merrill Parent entered into a nonbinding letter of intent with Inspiration for the sale of the stock of ML Leasing to Inspiration. The letter of interit provided a "period of exclusivity" during which Merr'iZ1 ParerÀt would negotiate exclusively with Inspiration to reach an agreement for the sale of ML Leasing. Upon executinò the letter of intent, the parties agreed that "if' subh sale a'greement is not executed on or prior to August 31, 1986, neither of us intends to proceed with the transactions-contemplated herein." The letter of·intent provided "The $37 million tax 'reserve consisted of a $16 million reserve for the possible disallowance of the deemed dividend resulting from the cross-chain sale and a $21 niillion reserve for lost tax benefits if certain income projections were not realized. - 20 that "If the conditions to reaching an agreement are satisfied, the aggregate purchase price will be $95,000,000", subject to adjustment for cash left in ML Leasing, for the value of residuals as determined by independent appraisers, and for other specified adjustments. The letter of intent also stated: It is understood that this letter of intent merely constitutes a statement of our mutual intentions with respect to the proposed acquisition and does not contain all matters upon which agreement must be reached in order for the proposed acquisition to be consummated. A binding commitment with respect to the proposed acquisition will result only from execution of definitive agreements, subject to the conditions expressed therein. Following execution of the nonbinding letter of intent, both Inspiration and Merrill Parent hired outside appraisers to value the lease portfolio." On July 29, 1986, Merrill Parent issued a news release to its employees announcing that it had entered into a letter of intent for the sale of a portion of its leasing operations to Inspiration. Merrill Parent announced that the sale, if consummated, would result in a realization of after-tax gain of at least $70 million and was scheduled to close at the end of During July and Aug. 1986, petitioner also executed various transfers within the consolidated group to remove assets from ML Leasing before its sale to Inspiration. By resolutions dated July 31 and Aug. 1, 1986, ML Leasing's board of directors authorized payment of a dividend to ML Capital Resources consisting of all the capital stock of five subsidiaries of ML Leasing, intercompany receivables, cash, and other assets. These distributions are not at issue in this case. , - 21 1986,, "subject to negotiation of definitive documentation and normal' conditions to closing." . . On August 5', 1986,."Inspiration''s boardrof directors ratified and retroactively approved the nonbinding letter of, intent between Insþiration- and Merri-ll Parent'. 'I'he board of directors authorized the executive committee'of the board of directors to "take any'and all necessary or:desirable actions in connection with the proposed·acquisition of" ML Leasing. F. . .. FurtherJNégotiations Between. Petitioner and- Inspiration . On August· 19, t 1986, (Inspirations wrote a letter to .Mr. Sands explaininéf that "Several problems'have arisen over:the- past few weeks" regarding tlíe. purchase' of ML Leasing. In the letter, Inspiration, advised that it »was: unable. "to. f inance this transacti-on on a secured basisj within the timeframe and terms of our agreement: " Inspiration stated. that it had started to review alternative means of financing, including. both unsecured financing and the sale of specific leases from the ML Leasing portfolio as .a means of financing the transaction and suggested that the increased cost oft the .unsecured financing "may justify a downward adjustment'-in the purchase: price." In -the= letter, - Inspiration requested that the terms ofi.the draft stock purchase agreement be altered to accommodate alternative-means-of financíng; i.e. by eliminati g a provision in the dra'ft stock agreement that prohibited Inspiration from sellirig signifiàant - 22 - assets from ML Leasing for a period of 5 years. In addition, Inspiration suggested that "Merrill Lynch may have to arrange with the lessee and the secured noteholders to waive certain restrictions on transfer of ownership" in order to accommodate its request. Inspiration also pointed out that the existing draft purchase agreement did not contain a representation from petitioner that the cashflows as presented to Inspiration were correct. Inspiration advised that in order for a lender or a purchaser to make financing decisions based on "these cash flows, a legal due diligence review will be insufficient and it will be essential for Merrill Lynch to represent that the cash flows [of the leases] are accurate." Inspiration concluded its letter by expressing its continued interest in completing the transaction. In order to give the parties to the letter of intent additional time to finalize their deal, the parties on August 29, 1986, agreed to extend the term of the nonbinding letter of intent to September 19, 1986, and negotiations and discussions continued with Inspiration after August 29, 1986." Shortly after August 29, 1986, petitioner's appraiser and Inspiration's appraiser completed their analysis of residual values. Both appraisers valued the residual values of the leases "A Sept. 8, 1986, interoffice memorandum from Mr. Sands stated that although Inspiration still had not secured financing to purchase ML Leasing, Inspiration was optimistic that it would do so. Mr. Sands also indicated that Inspiration's financing efforts were going very well. - 23 - in ML Leasing's portfolio higÑer th'an petitioner and Inspiration had expected. As a rÁsult , the chie f f inanc ial of f icer f oh Merrill'Parent i'nstructed Mr. Sands tÒ'negotiaÊe an lncrease in the purchase price from $126.6 million tò Ô131.4 million. In accordance with thbse instructions, Mr. Sands attempted^to negotiate an adjustment to the purchase þrice. Älûhou'gh his efforts appaèently were not* init-ially sell réceived," thè^ partie^s ultimately agréed tò increase the purchase-pricè by $3 million. In approximately Áugust or Àarly Sèptethber 1986 petitioner proviÈled Inspiration wiÊh"a draft stock purchase agreemént dated September 11, 1986." On SeÙt mber 1 254Ï, 1986, t!he executivë committee of Inspiration's.board·of directors met to--discuss the acquisition òf MÈ Leasing4 AfteÈ discus ion, Ehe- eNecutïve committee approved the Septembër 11~, 1986, stock"purchase agreement 'substanti'ally in the form presented. The executive commithee also authorized Ins ïration's management td 'finalizé the necessary bank financing. Mr. Sands was asked by Inspiration's representatives to leave the meeting, and, for at least -at day. after the meeting Inspiration refused to return phone calls from either Mr. Sands or petitioner's attorneys. "The Aug. 19, 1986, létter from Inspiration t$o Mr. Sands indicaties there was .a. previous version of the Sept . 11, 1986, draft stock purchase agreement. , The record is unclear, however, as to when the .first 'stock purchase agreement was^ drafted and circulated. - 24 G. ML Leasing Stock Purchase Agreement Effective September 19, 1986, Merrill Parent, ML Capital Resources, ML Leasing, and Inspiration executed an agreement for the purchase and sale of the stock of ML Leasing (ML Leasing stock purchase agreement). The ML Leasing stock purchase agreement was amended as of October 31, 1986, to reflect further negotiations on certain matters. The purchase price was $129,445,843, payable in cash at closing, subject to certain postclosing adjustments. Pursuant to the ML Leasing stock purchase agreement, the purchase price subsequently was adjusted based on residual value appraisals for certain leases. The sale of ML Leasing closed on October 31, 1986. II. 1987 Sale of ML Capital Resources At the beginning of petitioner's TYE 1987, ML Capital Resources was a wholly owned subsidiary of Merrill Parent.19 ML Capital Resources was engaged in the business of arranging I equipment leasing transactions between third parties and also owned various types of equipment and other tangible personal property, which it leased to third parties. ML Capital Resources' business focused on small business leases. It was also a partner in certain limited partnerships that held "By resolution dated Apr. 8, 1987, _the board of directors of Merrill Parent approved the formation of a newly organized corporation, Merrill Lynch Consumer Markets Holdings, Inc. (Consumer Markets or MLCMH), and the contribution of all the capital stock of ML Capital Resources to Consumer Markets. - 25 - computers leased to IBM . and had -been- active .in other types of financing for medium; 541ized businesses. · ML Capital ·Resources also owned the stock of . a number of esubsidiary corporations that ,were engaged in the business of· arranging .equity and debt financing, for middle- and small-sized companies. ., Merrill - Parent decided to sell .that portion of ML Capital Resources' búsiness consisting of t the-ownershipt of, leased property . . In the aggregate, the . leases , were generat- ing . substantial positive cashflow but had "turned,around" for income tax purÓosestso that if MLiCapital Resources continued to hold .. them, the' leases would~generate taxable income .in excess of pretax cashflow. Because Merrill Parent did not .want ML; Capital Resources' nonleasing'Êssetis:to leave the; consolidated: grqup, it decided tihat ML Cap'ilal Resources would'sell to other affi-liated , corf>orations the stock of T certain subsidiary corporations that were ehgagéd in lending and financing activities>or that owned other as'áets'fand büsinesses that were not related to its.·core . consumer leasing operations (collectively referred to as- the 1987 retained assets) .20 A. * Petitioner Seeks a Purchasert e 'r Mèi-rill Parent decided to conduct the sale of ML Capital Resources' utiilizing a bidding: process . By February 17, 1987, a 20Senior .management decided which assets to' sell and which assets to retain within the consolidated group. - 26 - draft preliminary offering memorandum regarding the sale of the stock of ML Capital Resources (preliminary offering memorandum) had been prepared, as well as a list of prospective buyers and a projection of an estimated sale price for ML Capital Resources of between $70 and $80 million, on which was calculated a potential after-tax gain of between $43.5 and $88 million. At some point between February 17, 1987, and March 1987, the preliminary offering memorandum was finalized. If a potential purchaser was interested after reviewing the preliminary offering memorandum, Merrill Parent required that the potential purchaser sign a confidentiality letter, at which point the potential purchaser could request a confidential 3-volume detailed offering memorandum dated March 1987 regarding the specific leases in ML Capital Resources' portfolio (3-volume offering memorandum). Under the bidding procedure established by Merrill Parent and set forth in the 3-volume offering memorandum, interested purchasers were required to submit "preliminary indications of interest", including a proposed cash purchase price, by March 27, 1987. Immediately thereafter, ML Capital Markets and ML Capital Resources would select a limited number of potential purchasers that would be given the opportunity to perform detailed due diligence. At that.time, prospective purchasers would be given proposed forms for a stock purchase agreement. Prospective purchasers were required to submit bids 4 - 27 - as to price·and terms by April 10f 1987.5 The..3fvolume'offering memorandum -indicated that ML Capital Resources -"does not intend to engage .in substantial negotiations with: respect to. the terms of the Stock Purchase Agreement". and proposed an April 30, :198.7, 042 closing date. 042 On March 13, 1987, :the· chairman of the board of ML Capital Resources authobized a five-person team to pursue the divestiture of ML Capital Resources, .'four of whoin had been .involved in the sale of ML Leasing. ne^gotiator. Mr. Sands again was appointed as; chief . . In and around March 1987, Merrill Parent contacted various potential' purchasers regarding the sale of. ML Capital Resources. The ultimate purchaser, GATX Leasing_ Corp. itself" and ·BCE 'Development,, .Inc. (GATX) , -on behalf of. (BCE) , a majority-owned subsidiary of Bel.1 Canada'Ente prises (collectivelý referred. to e as GATX'/BCE unl'ess otherwise indicated) , :apparently.rreceived the preliminary offering memorandum sometime during March 1987 · e because ML Capital Markets sent GATX/BCE a confidentiality agreement dated March 23, 1987. B. Section 304 Cross-Chain Sales 1. Five Subsidiaries Effective March 28 and March 30, 1987, respectively, the boards of directors of ML Capital Resoûrces and Merrill Lynch Realty, Inc. '(ML Realty o MLRl), a wholly owned subsidiary of - 28 Merrill Parent, approved the sale of all the stock of five subsidiaries wholly owned by ML Capital Resources to ML Realty: Merrill Lynch Business Financial Services, Inc. (Financial Services or MLBFS);" Merrill Lynch Private Capital, Inc. (Private Capital or MLPC);" Merrill Lynch Venture Capital, Inc. (Venture Capital or MLVC); Merrill Lynch Energy Investments, Inc. (Energy Investments or MLEI); and Merrill Lynch R&D Management, Inc. (MLRDM) (collectively referred to as the five subsidiaries). ML Capital Resources and ML Realty entered into a stock purchase agreement dated March 30, 1987, for the sale of stock of the five subsidiaries to ML Realty. The purchase price of the stock of the five subsidiaries was $53,972,607 (which was allocated to each subsidiary based on their respective book values). The sale closed on March 30, 1987. Immediately before its purchase of the five subsidiaries, ML Realty had accumulated earnings and profits that exceeded the purchase price. The sales of the five subsidiaries were five of the eight cross-chain sales Before the sale of Financial Services, effective Mar. 30, 1987, ML Capital Resources contributed certain loan receivables and other assets and liabilities with a net book value of $10 million to Financial Services. These assets and liabilities were part of the 1987 retained assets and thus were not intended to be included in the assets of ML Capital Resources at the time of the sale of its stock. "Private Capital had a substantial negative book net worth as of Mar. 29, 1987. Before the sale of Private Capital, effective Mar. 30, 1987, ML Capital Resources contributed $32 million in cash to the capital of Private Capital and thereby created a positive book net worth in Private Capital. - 29 - at issue for the taxable year ended December«25,- .1987: t The parties agree that these sales were section 304- transactions. 2. ML Interfunding Merrill Lynch r Iríterfunding,' Inc . . (ML Interfunding or. MLI) -, was a wholly owned subsidiary of ML Capital Resources . i By . resolutions dated March 27, 28, and 30, .1987., the boards of directors of- ML Capital. Resources and ML ' Asset Management approved the' sale4 of all the stock. of ML Interfunding to ML Asset Management ." ML, Capital Resources and ML Asset .Management entered into a· stiock purchase agreément dated March 30, 1987, which profided for an initial purchase price of-. $160 million to - be paid at closing with the purchase price to bei adjusted as soon as practicable. by subsequent âgreement of ML Asset Management and ML Capitali Resources'so as to equal the fair market value of the shares as of March 30, 1987. 1987.M The ÷sale closed on March 30, Immediately >before its!*purchase of. ML Interfunding, ML By resolution dated Mar. 27, 1987, the board of directors of ML Interfunding declared and paid a dividend having a total value of $100 million to 'ML Capital Resources of certain · preferred stock that it owned in .Gelco Corporation (Gelco) plus the shares of certainrunaffiliated corporations (portfolio stock) , which it had acquired as a dividend from - its wholly owned subsidiary, ML Portfolio Management, by resolution dated Mar. 26, 1987. By fesolution dated Mar. 28,' 1987, ML·Capital Resources contributed the portfolio stock and the Gelco .shares to Merrill Lynch Property Holdings, Inc., a direct wholly owned subsidiary . of ML Capital Resources. In a valuation report dated Apr.. 18, 1988,. Deloitte Haskins-Sells determined that the fair-market value of the stock (continued. . . ) - 30 - Asset Management had accumulated earnings and profits that exceeded the purchase price. This is the sixth cross-chain sale at issue for the taxable year ended December 25, 1987. The parties agree that this cross-chain sale was a section 304 transaction. 3. Leasing Equipment By resolutions dated April 3, 1987, the respective boards of ML Capital Resources and Merrill Lynch, Pierce, Fenner & Smith, Inc. (MLPFS), a first-tier wholly owned subsidiary of Merrill Parent, approved the sale of all the stock of ML Leasing Equipment Corp. (Leasing Equipment or MLLE), a wholly owned subsidiary of ML Capital Resources, to MLPFS." ML Capital Resources and MLPFS entered into a stock purchase agreement dated April 3, 1987. The purchase price for Leasing Equipment's stock was $119,819,690. The sale closed on April 3, 1987. Immediately before its purchase of Leasing Equipment, MLPFS had accumulated "(...continued) of ML Interfunding as of Mar. 30, 1987, was $181,080,000. Based on such appraisal, ML Asset Management and Consumer Markets, as assignee of ML Capital Resources' rights under the ML Interfunding stock purchase agreement, agreed that ML Asset Management would pay Consumer Markets $26,413,365 as the final payment of the purchase price for the ML Interfunding stock, which was the difference between $181,080,000 and the net consideration paid at closing of $154,666,635. "On Apr. 2, 1987, ML Capital Resources contributed the stock of MLL Corporate Partners, Inc., a subsidiary of ML Capital Resources engaged in nonleasing activities, to Leasing Equipment. 31s - earnings and pròf itis that exceeded . the purchase price . This is the seventh cross-chain sale at issue for the taxable year ended Deöember 25, 1987. The parties agree that this cross'chain sale was a se'ction 304 transaction-. C. The a Sale' óf ML- Capital Resources . Pursuant to the bidding p ocedure govern1ng the- sale of ML Capital Resources; petitioner received five or six bids, includ'ing one from GATX/BCE. The bid from GATX/BCE, dated April 21, 1987, contained the principal terms upon iwhich GATX/BCE was prepared to Òurchase all the òütstanding shares of ML Capital Resources (Apri'l 21, 1987, bid proposal) . GATX/BCE proposed a base purchase price of $63 million, .plus 70 percent of certain residual payments in excess ofn$27 million. GATX/BCE's April 21, 1987, bid proposal specifically provided, among .other _things, the following coñditions precedent: (1) GATX/BCE would enter into a purchase agreement ohly upon the×receipt of all requisite corporate approvals, including approvals .by the -boards of GATX and BCE, and (2) satisfactory completion of further: due diligence . The further 'due diligence included, but -.was not limited t'à*, review of the. basid and related documentation, review of audited firiancials of -the IBM partnerships,and iML .Capital Although 042the bidding proced re required each pròspective purchaser to submit by Mar. .27, 1987, preliminary indications of interest outlining a proposed purchase price, the record contains no information regarding what, if anything, GATX/BCE submitted. . - 32 - Resources, and review of a report prepared by IBM Credit Corporation for the partners of the IBM partnerships. On April 23, 1987, a formal presentation regarding the sale of ML Capital Resources was made to Merrill Parent's board of directors at its regular meeting. Courtney F. Jones. The presentation was made by The substance of the presentation was summarized in a written summary and slides illustrating the details of the plan for the sale of ML Capital Resources. The written summary began as follows: We have identified a significant economic benefit, based on an opportunity in the tax law, in selling Merrill Lynch's proprietary middle market lease business. This economic benefit can be achieved by structuring a transaction to sell the stock of one of our leasing subsidiaries, Merrill Lynch Capital Resources. We believe that such a sale could realistically result in an after-tax financial statement gain of approximately $73 million. In conjunction with Merrill Lynch Capital Markets we have identified a purchaser. The purpose of this presentation is to secure your approval for the Executive Committee to approve the final details of the transaction and sign the definitive agreement. The written summary laid out the various steps of the plan to dispose of Merrill Lynch's proprietary middle-market lease business culminating in the sale of ML Capital Resources' stock. The written summary informed the board of.directors that-due to the exhaustion of tax benefits, many of * * * [ML Capital Resources'] leases have begun to produce taxable income in 1987. The projected cash flow from the leases will in most years not be sufficient to service the debt and the tax liability generated by the - 33 - .leases., Accordingly,÷ it is an opportune time to sell this business to an appropriate purchaser. The written summary also informed the board of directors that because Merrill Parent did not intend to withdraw from the "Lending Activities" aspect of the business, Merrill Parent "will first remove the assets and operations related to the businesses we wish to retain" and will "transfer all of the subsidiaries of ML Capital Resources elsewhere within our Corporate structure" in three steps before ML Capital Resources' stock was sold: (1) ML Capital Resources had already sold ML Interfunding's stock to ML Asset Management7for its net bòok value of approximately $160 million; (2) ML Capital Resources had already. sold, the stock of certain of its subsidiaries to ML Realty Inc. for approximately $50 million; and (3) ML Capital Resources will declare a $459 million* dividend to its parent company,. Merrill -Lynch Consumer Markets Holdings, Inc. (Consumer Markets), consist ing of cash received from ML Asset Management and ML Realty, -existing cash balances, the stock of the remaining .subsidiaries, receivables, and liabilities. . The board was informed that after these transfers we~re completed, ML Capital Resources "will have equity of approximately· $40 million" and "we will be in a position to sell" ML Capital Resources' stock. The presentation identified "a joint venture between BCE Development, Inc., a wholly owned U.S. subsidiary of Bell- Canada and GATX I)easing Corporation," a wholly owned subsidiarý of GATX -·34 - Corporation" as the likely purchaser and estimated a sales price of $70 million, consisting of $62 million in cash plus the assumption of $8 million in liabilities. The presentation also explained how the sale price was determined, quantified the after-tax income and the tax benefit that would result from.the sale, explained the tax risks of the transaction, and recommended the creation of a $35 million tax reserve for the transaction." In calculating the recommended reserve, the presentation stated the following: As you can imagine, it is the tax aspects that make this sale especially attractive. The Tax Department, in conceiving this transaction, has creatively applied two different tax concepts to maximize the calculation of Merrill Lynch's tax basis in ML Capital Resources. * * * * * The second tax concept deals with the creation of approximately $210 million in tax basis. This basis is created by selling the stock of certain ML Capital Resources subsidiaries to MLAM and ML Realty Inc. for $210 million, rather than distributing this value to ML Consumer Markets Holdings Inc. Under the tax rules the sale is recharacterized as two separate transactions; a dividend by MLAM and MLRI to MLCR of $210 million and a contribution to the capital of MLAM and MLRI by MLCR of approximately the same amount. The dividend received by MLCR increases Merrill Lynch's tax basis in MLCR by $210 million. MLCR's contribution to the capital of MLAM and MLRI has no effect on tax basis. "The $35 million tax reserve consisted of a $14 million reserve for the possible disallowance of the deemed dividend resulting from the cross-chain sale and a $21 million reserve for lost tax benefits if certain income projections were not realized. - 35 The final step is for MLCR to declare a dividend of cash, certain subsidiaries, and receivables to ML Consumer Markéts Holdings Inc. This _intercompany dividend triggers a taxable gain that also increases our tax basis in MLCR -What remains is our.. tax basis at the time of sale, $340 million. .- As our basis in the stock is greater than the sales price', the sale results in..a $278 million long term capital loss. This capital loss will offset other long term capital gains, resulting· in a.-tax benefit of $94 million. The intercompany dividend to ML Consunier Markets Holdings"-triggers a_ tax liability of $8 million, which reduces the maximum potential tax benefit to .$86 million 2 -a. The 'summary represented .that Merrill Parent's .corporate law department and outside counsel had already prepared a proposed definitive sales agreement and that the purchaser.had submitted its desired contract changes, which were being negotiated. Although the summary requested the ·board of, directors to authórize the executive committee to .approve the final details of the transaction and to sign the definitive.agreement for a :;. minimum sales price of $70 million, the board authorized the proper officers to finalize .the -sale of all the capital stock of ML Capital Resources for not less than $60 million,. subject to adjustments based on the valuation.of. certain assets. - D. GATX/BCE Modifies Its Initial Bid In a letter addressed to Mr. Sands dated April 27, 1987, GATX modified its April 21, 1987, bid proposal (April 2'7, ..1987, - 36 - bid proposal)." GATX reconfigured its April 21, 1987, bid proposal from $63 million, plus 70 percent of the discounted value of the residual.payments in excess of $27 million, to $66 million, plus 40 percent of the discounted value of residual payments in excess of $29.5 million. The April 27, 1987, bid proposal stated that, except for the replacement of the original paragraphs in the April 21, 1987, bid proposal concerning the purchase price, "all other terms and conditions remain unchanged." As of April 27, 1987, GATX/BCE had not evaluated the lease portfolio of ML Capital Resources, and the proposed purchase price was based on the representations made in the offering memorandum. E. Nonbinding Letter of Intent On May 22, 1987, Merrill Parent entered into a nonbinding letter of intent with GATX/BCE for the sale of the stock of ML Capital Resources (nonbinding letter of intent). The nonbinding letter of intent confirmed that Merrill Parent had provided GATX/BCE with a draft sale agreement containing a description of the assets in which ML Capital Resources had an equity interest as of the proposed closing date. The nonbinding letter of intent set forth pricing terms identical to those set forth in GATX's April 27, 1987, bid proposal; i.e, $66 million'plus 40 percent of "The record is unclear as to whether a second round of bids was conducted or whether petitioner merely asked GATX/BCE to modify its original bid. 4 - 37 - th'e -discountied value of . residual payments i in :excess : of $29, 500 , 000 . , . The- nonbinding letter of intent specif ica'lly stated that the parties were bound by the; terms of their March 23, 1987, confidentiality agreement... The nonbinding letter of intent also stated: The consummation of the- acquisition contemplated herein is subject to·(i) negotiation and execution of definkitive agreements acceptable in form and. substance to * * * [GATX/BCE] and * * * [petitioner] , (ii) no change having occurred in the federal income tax laws or the regulations of the U. S. Treasury promulgated thereunder that would materially adversely alter the economic effect of the transactions contemplated herein,. (i'ii) approval of the·transactions contemplated herein by'* * * [petitioner's] Executive Committee and by the. appropriate corporate· authorities for- * * -* [GATX/BCE] , (iv) consummation of satisfactory secured financing by * * * -[GATX/BCE] and (v) other customary and appropriate closing conditions. F. GATX Finance Committee Approval On or about May 29, 1987, the GATX Finance Committee met to consider thé proposed acquisition of ML Capital Resources. A written proposal presented at that meeting stated that GATX was "awarded the transaction" based on its initial and modified bid proposals and was "invited to perform a due diligence investigation." The written proposal also stated that, upon completion of the due diligence process, GATX/B.CE reserved the right to adjust the purchase price based on its due diligence findings in the event that any information in the 3-volume offering memorandum was incorrect. The written proposal also recommended that the base purchase price be reduced to $63.3. - 38 - million as a result of an increase in the reserve for losses and a net reduction in expected future residual values. On June 1, 1987, the GATX Finance Committee approved the proposal to acquire the capital stock of ML Capital Resources for a purchase price of $63.3 million, subject to certain specified conditions. The GATX Finance Committee recommended that the proposed transaction be forwarded to the GATX board of directors. G. Continued Negotiations After executing the nonbinding letter of intent, petitioner and GATX/BCE continued their negotiations. In conjunction with GATX/BCE's due diligence review of the lease portfolio, petitioner and GATX/BCE agreed that it was impractical to examine each lease separately because the lease portfolio consisted of such a large number of relatively small leases. Therefore, they agreed to use a "statistical sampling technique", whereby the parties would jointly pick a certain number of leases at random to examine in significant detail and compare them to the representations made by Merrill Parent in the 3-volume offering memorandum. The results of the "statistical sample" were not satisfactory to GATX/BCE; i.e., a larger than expected portion of the leases did not coincide with Merrill Parent's representations in the 3-volume offering memorandum. From May 22 through June 25, 1987, negotiations continued in order to accommodate the adjustments revealed by the due - 39 - diligence review. Among other concessions; petitioner represented to GATX that to the best of petitioner's knowledge, as of the date of the closing, the schedules'in . the contract were the actual status of the individual leases and) to the extent they were not, there would be a postclosing adjustment to accurately reflect the discrepancies. . ' . During the negotiations, GATX requested £hat ML Vessel 042 Leasing Corporation (Vessel Leasing), a wholly owned subsidiary of ML Capital Resources, not be included in the ML Capital Resources portfol'ió because GATX/BCE could not own the Petitioner asserts that the deemed seátion' 304 redemptions, standing alone, did not . completely terminate thé÷target corporations'z actual and construòtive ownership interes!t ·in the > issuing corporations s . because, under i the i attribution rules of. section 18; the target . corporatiòns continued tö hold an ownership. interest in. those . corporations following the redemptions. Respondent: contends, however, thät the' section 304 redemptions a at issue in this case i.e., the-nibe cross-chain salesymust be integrated with the lateri sales of the target. corþorations in 'order. to decide under section-302 (b) (3) whether the target corporations' constructive ownership of the transfer'red stock under section 318 ,was completely terminated. The parties rely onudifferent legal standar'ds .in support -of the^ir respéctive positions. - 46 - Petitioner relies on a test articulated by this Court in Niedermeyer v. Commissioner, supra at 291. Petitioner claims that this Court has consistently used the Niedermeyer test to decide whether a redemption should be integrated with other allegedly related transactions in order to ascertain the tax consequences of the redemption. In Niedermeyer, we held that, if a redemption, standing alone, fails to qualify under section 302 (b) (3), the redemption will nevertheless be subject to sale or exchange treatment "Where there is a plan which is comprised of several steps, one involving the redemption of stock that results in a complete termination of the taxpayer's interest in a corporation". Id. at 291. However, we required that "the redemption must occur as part of a plan which is firm and fixed and in which the steps are clearly integrated." Id. Petitioner describes the Niedermeyer.test as a "variation of the step transaction doctrine" and asserts that "While the test permits amalgamation of steps that are not subject to an 'absolutely' binding contract, it leaves little room for contingency". Petitioner relies on this Court's opinions in Monson v. Commissioner, 79 T.C. 827, 837 (1982), Roebling v. Commissioner, 77 T.C. 30 (1981), and Bleily & Collishaw, Inc. v. Commissioner, supra at 756, to support his position. According to petitioner, each of the three above-cited cases had the following facts in common: (1) Each case involved a partial redemption that was a - 47 held tó be part oft a firm and 3fixed plan; (2) in-each case, the complete termination of the shareholder's interest vrequired .a party not controlled by the taxpayer to acquire :thetremaining shares*; and (3) at 3the~time of the redemptión, the third-party purchaser had-already negotiated-for'and made a firm commitment to acquire the remaining xshares . Petitioner :extracts from the cases the conclusions that, where an alleged plan to_completely terminate a shareholder's ownership requires tthe participation of a third party, the third party must häve committed to the plan at least in súbstance on ör before the redemption date in order for Niedermeyer's "firm and fixed plan" requirement to be satisfied and that a taxpayer's unilateral plan can never be a firm and fixed .plan. 'Petitioner s analysis and arguments, therefore, focus primarily on whether the!re was an agreement in substance with the third-party·purchasers of the target«corporations' stock on the dates of the deemed section 304:redemptions; i.e-., the nine cross-chain sãles. Respondent rejects petitioner's attempt:to focus the Court's eye primarily on the third-party purcha.sers who acquired. the. targeh cÄrpofatioås . stock and ärgue[Â fÒr the applicatiòn of an intent-based test drawn from the decision of the U.S. Court'of Appeals for the Sixth Circùit in Zenz v. .Quinlivan, 213 F.2d 914 (6th Cir.. 1954) and pertinent opinions of thi's Court, including but n t limit!ed to, Niedermeyer v. Commissioner, supra. Citing - 48 Zenz, respondent argues that a partial redemption, which is one of a series of transactions intended to terminate completely a shareholder's ownership interest in a corporation, must be integrated with the related transactions for purposes of section 302(b) (3) and treated as a sale or exchange. Under respondent's articulation of the relevant legal standard: As a result of the decision in Zenz, other transactions must be taken into account in testing whether a redemption is a distribution under § 301 or a sale or exchange under § 302(a) where the redemption is part of a firm and fixed plan to terminate a shareholder's interest in a corporation. Niedermeyer v. Commissioner, 62 T.C. 280 (1974), aff'd 535 F.2d 500 (9th Cir. 1976) (articulating a Zenz-like standard). As subsequent applications of the Zenz doctrine make clear, the sequence of planned transactions is irrelevant where the overall result is the complete termination of a shareholder's interest. United States v. Carey, 289 F.2d 531 (8th Cir. 1961) (holding that Zenz applies when the redemption precedes the stock sale pursuant to a plan); see also B. Bittker and J. Eustice, Federal Income Taxation of Corporations and Shareholders, 19.06[3] at 9-42 (6th ed. 1994) ("[I]f the form of the distribution is cast as a redemption, its treatment as a sale under Zenz is highly likely unless the preliminary redemption transaction can be separated from the later sale.") [Fn. ref. omitted.] In its reply brief," petitioner dismisses respondent's reliance "In their reply briefs, both parties argue alternatively that the applicable standard is derived from the step transaction doctrine and that one of three tests for deciding whether the step transaction doctrine should be applied, but not all three tests, must be used in this case to analyze the sec. 304 redemptions and the later sales. Petitïoner contends that only the binding commitment test should be used, and respondent contends that only the end result test should be used. For a detailed description of the three tests, see Andantech L.L.C. v. Commissioner, T.C. Memo. 2002-97. We decline to apply any of the (continued...) on Zenz, claiming that "its relevance to -this case is at best tangential." . Petitioner notes that Zenz involved both a tax year prior to the enactment of section 302 and .a different factual situation. In Zenz, -the -sole shareholder of .a corporation sold some of .her stock first, and a short time, later, 3the. issuing , , . , corporation redeemed the remainder of her- stock. Petitioner distinguishes 2ènz from the instant case because n"The order- of , sale and subsequent redemption was chosen to -reduce taxes--that is, to avoid dividend treatment from the;redemption leg", the redemption completely terminated the _taxpayer's interest in the 042 corporatión, and the Commissioner was attempting to,reorder the transactions in order to obtain dividend, treatment for the redemption proceeds. . Petitioner urges .this Cou'rt _to.limit the application of the Zenz intent-based test to cases where the form of the transactions and the intent of the taxpayer coincide as it did' in Zenz and tc7 decline to äpply the test in· cases such as this where the issue to be decided is "whether a r'edemption that does not. terminate the shareholder's 'ìnterest and a later- sale that does terminate that interest are sufficiently related to justif y trea.ting a non-terminatinc redempt^ion as part of the later sale transactioh. ( c. : continued) . three tests because the applicable legal standard is that identified elsewhere in this opinion. - - 50 III. Analysis of the Nine Cross-Chain Sales A. In General Each party claims that the applicable legal standard is clear and that the legal standard, when applied to the facts, supports a decision in that party's favor. The parties rely on many of the same cases to support their respective positions. The parties' arguments, however, are so diametrically opposite regarding their interpretation of the cases that we must turn to an examination of the principal-cases on which both parties rely." A careful examination of the pertinent facts and holdings of these cases is necessary to respond adequately to the parties' detailed and often tortured parsing of these cases in support of their respective arguments. "Petitioner also relies on several anticipatory dividend cases to bolster its arguments regarding the cross-chain sales. See TSN Liquidating Corp., Inc. v. United States, 624 F.2d 1328 (5th Cir. 1980); Litton Indus., Inc. v. Commissioner, 89 T.C. 1086 (1987); Gilmore v. Commissioner, 25 T.C. 1321 (1956); CoffeV v. Commissioner, 14 T.C. 1410 (1950); Rosenbloom Fin. Corp. v. Commissioner, 24 B.T.A. 763 (1931). In each of the anticipatory dividend cases decided by this Court, we held that a corporation's distribution of a dividend to a shareholder before the shareholder sold his stock was taxable as a dividend and not as part of the later stock sale. The dividend transactions did not involve the exchange of stock for consideration. We agree with respondent that the anticipatory dividend cases are distinguishable from this case, and we do not consider them further. See Bittker & Eustice, Federal Income Taxation of Corporations and Shareholders, par. 8.07[2][a], at 8-66 (7th ed. 2002) ("In order to obtain the hoped-for dividend result, it is important that the selling shareholder not surrender any of its target stock to the corporation because use of the redemption format will likely trigger sale treatment.") 51 - 1. 'Zenz v. Quinlivan .» . . . In Zenz v. Quinlivan,'.213 F.=2d 9143.(6th Cir. -1954), the sole shareholder of a corporation decided tos sell the corporation to a compet:itor. =Because the. competitor did not want to assume.the tax liabilities associated with the corporation's accumulated earnings fandLprofits, the»competitor purchased only part of_ the shareholder's stock. Three weeks later, after a corporate reorganization and corporate'action, the corporation.redeemed -the balance of the shareholder's stock. On her tax.return, the redeemed shareholder reported the transaction as,a..rèdemption of all of her stock under section,115(c1) of theaInternal Revenue Code of 1939 and claimed.that thè transaction must..be treated as a sále or exchange of :stock.' The Commissioner determined.that the redemptïon was essentially= equivalent to.the distribution of a taxable dividend and recharacterized the redemption'proceeds as diví dend incbme . - The CoÙrt·of Appeals for the Sixth Circuit reversed the decisión of the lower 'court, which had upheld.the Commissioner's determinatïon.' The Court of* Appeals acknowledged the "general. princißle" that "a t'axpáyer hast the legal right -to decrease the amount of what otherwise^would be his -taxes or'altogether.avoid them by mean.s which the law permits." at 916. Zenz v. Quinlivan,»supra The dourt of Appeals refused to decide -the issue presented based on'the taxpayer's motivation to.avoid taxes. - 52 - Instead, it examined the nature of the transaction in order to decide if it was, in substance, a dividend distribution or a sale. The Court of Appeals held that the redemption was not essentially equivalent to the distribution of a dividend because the taxpayer intended "to bring about a complete liquidation of her holdings and to become separated from all interest in the corporation", and the redemption completely terminated her interest in the corporation. 2. Id. at 917. Niedermeyer v. Commissioner Twenty years after Zenz v. Quinlivan, supra, was decided, this Court decided the tax effect of a sale in ·the context of section 304. In Niedermeyer v. Commissioner, 62 T.C. 280 (1974), the relevant issues were whether the taxpayers' sale of all of their common stock in American Timber & Trading Co., Inc. to Lents Industries, Inc. (AT&T) (Lents) was a redemption involving a related corporation under section 304 (a) (1) of the Internal Revenue Code of 1954 and, if so, whether the redemption should be treated as a distribution in exchange for the redeemed stock under section 302(a) or as a distribution to which section 301 applies. The taxpayers in Niedermeyer sold all of their common stock but not their preferred stock in AT&T to Lents on September 8, 1966. On the date of the sale, the majority of Lents' stock was owned by the taxpayers' sons. On December 28, 1966, the taxpayers contributed their AT&T preferred stock to the - 53 Niedermeyer Foundatioh, a tax-.exempt organization. The« taxpayers alleged that the distribution- by Lents toe them was in exchange for their AT&T stock. The Commissioner alleged that the sal-e was a section 304 transaction between related corporations and that the distribution was a taxable dividend under sections 301 and 302. This Court.first considered whether the sale was a deemed redemption.uhder section 304'(a) (1). .After applying. the constructive ownership, rules of section 318(a) as required-by section 304 (c), this Court concluded that'the taxpayers were in control of both AT&T and Lents immediately prior to the sale and that the transaction in which Lents- acquired,.the·taxpayers' AT&T dommon stóck must be- treated as airedemption under section 304 (a) (1). - This Cóurt then addressed the taxpayers:' contention that, even if the sale were.treated; as a.deemed redemption under section 304 (a) (-1), the taxpayers nevertheless were entitled to treat the distribution'from Lents as full:payment in exchange for their AT&T stock under section 302(a) by meeting one of the conditions of section 302 (b).. .After rejectingsthe >taxpayers' argument under sectioh 302(b) (1), the Courtrturned to their. argusents under. section 302 (b)..(3). Among other things, the taxpayers argued that:the~distributionewas in complete terminatioh of their ownership interest .in AT&T, contending that - 54 the distribution and their subsequent gift of their AT&T preferred stock were parts of a single plan to completely terminate their actual and constructive ownership of AT&T before the end of 1966. In Niedermeyer, this Court acknowledged that, where there is a plan consisting of a redemption and one or more other steps that results in a complete termination of the taxpayer's interest in a corporation, section 302(b) (3) may apply. Niedermeyer v. Commissioner, supra at 291 (citing in support Leleux v. Commissioner, 54 T.C. 408 (1970), Estate of Mathis v. Commissioner, 47 T.C. 248 (1966)). The Court emphasized, however, that the redemption "must occur as part of a plan which is firm and fixed and in which the steps are clearly integrated." Id. After searching the record for evidence in support of the taxpayers' alleged plan, the Court concluded that the evidence presented was "too insubstantial to prove the existence of such a plan." Id. Among the facts on which the Court relied were the following: (1) The alleged plan was not in writing, and there was no indication that the taxpayers communicated their donative intention to the charity or to anyone. (2) The taxpayers' son who testified at trial about the Lents stock acquisition did not mention any desire on the - 55 - taxpayers' part to completely terminate their ownership interest in ·AT&T . - (3)-The taxpayers could easily haveichanged their minds regärding their áVowed intention to donate their preferred stock. (4) The3taxpayers failed to show that their alleged ,decision to donäte the preferred stock was in any way fixed or binding. This Court'·emphasized that a plan·sufficient to.pass muster.under section 302 (b) (3)'did'not need to be "in writing, absolutely bindiNg, br 'communicated to" others"·but; that "the above-mentioned factors, 'all of which are lacking here, .tend to show a plan.which is fixed and firm." Id. at 291-292. 042 Although the^ Court in Niedermeyer- did not expressly state that the plan td which it was.referring was a plan of.the-. - , taxpayers, suöh a conclusion is wärranted.· The Court rejected the taxpayers' self-serving testimony regarding their intention to donate and searched instead for.objective.evidence that the deemed:section 304 rëdemption and the later gift were.integrated parts of a firm and fixed .plan on, the part of the, taxpayers to completëly"terminate their ownership interest; i.e. , a plan consisting of clearly integrated steps to which the taxpayers. were firmly committed. 3. . Beniamin v. Commissioner . e S . . In Beniamin v. Commissioner; 66 T.C. 1084 (1976), affd. 592F.2d 1259 (5th Cif. 1979),'the'issue presented was.whether the · 8 - 56 redemption of the taxpayer's class A preferred voting stock by a family-held corporation was essentially equivalent to a dividend under section 302 (b) (1) of the Internal Revenue Code of 1954. In deciding the tax effect of the redemption, this Court addressed the taxpayer's argument that the redemption was pursuant to a plan of redemption that, when fully implemented, would completely terminate the taxpayer's ownership interest. The evidence at trial failed to disclose any common understanding among the shareholders or the redeeming corporation as to the timing of, or procedure for, the alleged redemption plan, nor was there any evidence of a concrete plan involving the shareholders or the corporation. After examining the record, this Court concluded there was no credible evidence of any firm plan to redeem, noting that "vague anticipation" was not enough to constitute a plan. Id. at 1114. 4. Paparo v. Commissioner In Paparo v. Commissioner, 71 T.C. 692 (1979), the taxpayers were shareholders of Nashville Textile Corp. Jasper Textile Corp. (Nashville) and (Jasper), two women's apparel manufacturers, and House of Ronnie, Inc. (Ronnie), the corporation that designed and marketed the clothing made by Nashville and Jasper. In order to improve their sales development effort, the taxpayers approached I. Amsterdam, a succe sful sales organization. shareholders of I. Amsterdam als The owned Denise Lingerie Co., a women'è apparel manufacturer. 'The taxpayers concluded that -if Ronnie could acquire Denise in exchange for Ronnie's stock, Ronnie would?acquire notionly Denise's'manufacturing.facilities but aläò theráales relationship with*I.-Amsterdam. -In the early part :of 1969, negotiations began., Denise's shareholders were interested in the taxpayer.'s ÷acquisition proposal,but·would not coñsider accepting-stock in a privately 'held corporation., . In conjunction with the proposed-acquisition of Deni.se,.the taxpayers began to explore' taking Ronnie.public.. The underwriter they had selected recommended ithat paahville andt Jaspersbe combined with Ronnie before the public offering. In, January 1970; the 'taxpayers' and another shareholder-of Nashville ·and Jasper agreed to sell all of their.stock to :Ronnie for $800,000.. The taxpayers contèmplated that the purchase price would be;paid from the proceeds of one or more public.offerings of Ronnie's stock. ,. . On March 30, 1970, the first public offering of Ronnie's stock was made. A portion of the sales proceeds was used to make the downpayment to·the Nashville and Jasper shareholders. On October 30, ~1970, sRonnie'entered into-an. agreement with Deniså's shareholders to acquire all of Denise's outstanding.. stock in exchange for.Ronnie's stock. . On April 20, 1972, a second public offering of Ronnie's stock was ,made. A portion. of the proceeds were used to pay the - 58 - balance of the purchase price owed to the Nashville and Jasper shareholders. The sole issue for decision was whether the amounts received. by the taxpayers in 1970 and 1971 from Ronnie in exchange for their stock in Nashville and Jasper were taxable as capital gains under section 302", or as dividends under section 301. The parties agreed that section 304 applied to the stock acquisitions in question and that, therefore, the transfer of Nashville and Jasper stock to Ronnie must be characterized as a redemption through the use of related corporations. The parties disagreed only with respect to the application of section 302. The taxpayers contended that the redemptions qualified as sales under section 302(a) because they met the requirements of either section 302 (b) (1) or (2). The taxpayers argued that the 1970 redemption was but one step in an overall plan to redeem their interest in Nashville and Jasper that ended in 1972 with the second public offering, and it was not the essential equivalent of a dividend. This Court rejected the taxpayers' argument, concluding that the record did not contain any compelling evidence of an overall financial plan covering both the first and the second public offerings. No formal written plan for the funding of the Relevant code provisions were from the Internal Revenue Code of 1954. - 59 - redemption through*subsequent public offerings: of Ronnie's =stock existed, and no corporate minutes were of fered into evidence to substantiate5such a plan. In"àdditioh, funding the redemption through·subsequent publiä offerings of Ronnie's stock wa 541 beyond the control öf the- taxpayers .· Although this Court acknowledged the taxpayers' apparent intent that. subsequent public offerings be made, the taxpayers had inade no promise to the underwriter, nor was theke any evidence of an agreement*to make another public offering. ST Bleily & Collishaw In'Bleily & Collishaw Inc. v.. Commissioner . Inc. v. Commissioner, 72 T.C. 751 (1979); the taxpayer owned 30 peröent of a corporation. The majority shärehòlder wanted sole control over the corporation, and the taxpayer' was'willing to sell. all of its shares to the majority shareholder. However, because 'the majority shareholder did not have sùfficient- funds to-purchase all of the taxpayer's shares at' that: t'ime, the majority shareholder .purchased only a portion of^ the taxpayer's 'stocki i Thereafter, over a period of~ appr'öximatèly 23' weeks, the corporation redeemed the balance· of the taxpayek' s stock in increments tied to the availability of money to fund the redemptions. Although the ·taxpayer was under no contractùal or other legal obligation to' sell the rest of. its shares or have them redeemed if and when money became available - to fund additional acquisitions, this Court found that the . - 60 - taxpayer intended to sell its shares whenever the money needed to fund the acquisitions became available. In Bleily & Collishaw, Inc., the issue before the Court was whether the redemptions met the requirements of section 302(b) (3) of the Internal Revenue Code of 1954.. We described the applicable legal standard as follows: Where several redemptions have been executed pursuant to a plan to terminate a shareholder's interest, the .individual redemptions constitute, in substance, the component parts of a single sale or exchange of the entire stock interest. We have refused, however, to treat a series of redemptions as a single plan unless the redemptions are pursuant to a firm and fixed plan to eliminate the stockholder from the corporation. Generally, a gentleman's agreement lacking written embodiment, communication, and contractual obligations will not suffice to show a fixed and firm plan. On the other hand, a plan need not be in writing, absolutely binding, or communicated to others to be fixed and firm although these factors all tend to indicate that such is the case. [Id. at 756; citations omitted.] Noting that whether a firm and fixed plan existed in a given case is necessarily a fact issue, we held that the requirements of section 302(b) (3) were met because the redemptions were part of a firm and fixed plan to eliminate the stockholder from the corporation. The record established that the corporation planned to eliminate the taxpayer as a shareholder and that the taxpayer had agreed to the sale of all its shares and to the purchase price, even though there was no binding.obligation on either party to consummate additional stock sales. - 61 6. Roebling v. Commissioner In Roeblfing v Commissioner, 77 T.C. 30 .(1981)., a taxpayer ownéd approximately 90 percent of the class B.preferred stock and approx:imately 45 percent of the ·common stock of Trenton Trust Co. (Trenton Trust)~. In 1958, Trentòn Trust adopted a plan of recapitalization to simplify and strengthen- its capital structur.e which, among*óther things, called'for,the redemption.of a specified amount- of the class B- preferredustock each year and required-Trenton Trust- to establish. a sinking fund for:that purpose. DuFing each of the·years 1965-69, part-of:the taxpayer's-class B preferred stock was redeemed, and in 1965 and 1966, "the 'taxpayër sold some shares. Among the issues presented to~thìs Court was whether the redemption.of the taxpayer's class B preferred shares was not essentially equivalent to a dividend within the meaning of section 302(b) (1) of the Internal Revenue Code bf 1-954 . . . Each year, Trenton Trust set.aside funds and decided how much of those funds.it would use to retire the class B preferred shares. Each retirement of shares required -action of Trenton Trust's board of directors and*the consent and.appro.val.-of the FDIC and the Department'of Banking and..Insurance of the State-of New Jersey.s^ Each year,- Trentoni Trust's; board of directors adopted a resolution to'applf for the necessary regulatory appróvals, and Trenton Trust then filed its applications. For . . - 62 - most of the relevant years, the applications were granted at least in part, but on one occasion the application was denied. Although the taxpayer in Roebling relied only upon section 302 (b) (1) to support her contention that each of the redemptions qualified as a sale or exchange under section 302(a), she argued that the redemptions were integrated steps in a firm and fixed plan to redeem all of the preferred stock and that the redemptions in the aggregate resulted in a meaningful reduction of the taxpayer's interest in Trenton Trust. Applying the same analysis used in cases involving section 302 (b) (3), this Court held that the redemptions were integrated steps in a firm and fixed plan even though there was no binding commitment on the· part of Trenton Trust to acquire the taxpayer's shares or on the taxpayer's part to tender her shares. The Court acknowledged that each redemption was subject to the financial condition of the bank and required regulatory approval, but emphasized that "this was about as firm and fixed a plan as a bank could have under the circumstances." 7. Roebling v. Commissioner, supra at 55. Monson v. Commissioner In Monson v. Commissioner, 79 T.C. 827 (1982), a closely held corporation owned by the taxpayer and his children redeemed all of the children's stock and a portion of the taxpayer's stock on July 30, 1976. Immediately following the redemption, the taxpayer was the corporation's sole shareholder. On August 2, - 63 - 1976, the taxpayer sold" all of his shares to a third party for cash ahd a promi-ssory note. e Minutes of a board of directors meeting held on-July 30; 1976, described the; redemption and -the subsequent sale of taxpayer's remainincJ stock to a third party as steps in the, sale The taxpayer reported the redemption proceeds as income from.the sale or-exchange of stock under -section 302 (a) . - , . Citing Zenz v. Quinlivan, 213 F.2d 914 (6th Cir. 1954), this Court examined the record to determine whether the .intent of the . taxpayer was to bring about a; complete .liquidations of his ownership iriterest in his corporation. súpra at 835-836. . . Monson: v. Commissioner, Because the record c-learly established that the· redemption of .the-taxpayer's stock wass partthe proposal to acquire ML 'CÁpital Resources' stock (June 1,. 1987) , and GATX/BCE had completed 'its due di 042l'igence reviewe During final ·'1.. negotiations, GATX had requested that ML 'Capi'tal:.Resources . s dispose of its Vessél Leasing* stock priort to closing because GATX/BCE ^ could not own Ves'sel :Leasing duento Federal law restrictions. Immediately thereafter the respective boards: of ML Capital Resources and ML Asset Management approved the sale of Vessel Leasing's stock to ML Asset Management, and the final 1987 crossLchain sale closed. n It is appareht 'that* the cross-chain sale of Vessel Leasing's stock to ML Asset IVlanagement was tarranged in anticipation of the immïrient Esale of ML Capital Resourcesl to GATX/BCEtand was part of a seamless nét öf tra'nsactions culminating in the complete term*ihation of ML ,Capitàl Resources' owners!hip interest in the issu[ing.·corporations\(whose stock was sold cross-chain .in tYansact'ions that qualified as sectión 304 rede'mptions:. >We find - 80 - therefore, that a firm and fixed plan to dispose of ML Capital Resources outside the consolidated group existed on the date of the Vessel Leasing cross-chain sale and that the Vessel Leasing cross-chain sale, like the other 1987. cross-chain sales, was an integrated step in that plan. Because the eight 1987 cross-chain sales (the deemed section 304 redemptions), when integrated with the sale of ML.Capital Resources' stock, resulted in the complete termination of ML Capital Resources' actual and constructive ownership interest in the issuing corporations, see section 304 (b), we hold that the redemptions qualified under section 302 (b) (3) and that, therefore, the redemptions shall be treated as a payment in exchange for the stock under section 302(a) and not as a dividend under section 301. IV. Conclusion . The record establishes that on the dates of the cross-chain sales, petitioner had agreed upon, and had begun to implement, a firm and fixed plan to completely terminate the target corporations' ownership interests in the issuing corporations (the subsidiaries whose stock was sold cross-chain). The plan was carefully structured to achieve very favorable tax basis adjustments resulting from the interplay of section 304 and the consolidated return regulations, and the steps of the plan were described in detail in written summaries prepared for meetings of - 81 Merrill Parent's board of directors. As described in those written summaries, the cross-chain sales of the issuing corporations' stock and the sales of the target corporations were part of the same seamless web of corporate activity intended by petitioner to culminate in the sale of the target corporations outside the .consolidated group. Under the test prescribed by this Court in Niedermeyer v. Commissioner, 62 T.C. 280 (1974), and other cases discussed herein, respondent properly integrated the cross-chain sales with the related sales of the target corporations to ascertairí the tax consequences of the transactions, and we sustain respondent's determination. We have considered the other arguments of the parties, and, to the extent not discussed herein, we conclude that the arguments are irrelevant, moot, or without merit. To reflect the foregoing, Decision will be entered under Ru'le 155. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Af93dc556357860db. Public record. Not legal advice.