Opinion ID: 162075
Heading Depth: 5
Heading Rank: 6

Heading: sale indicia

Text: 74 The taxpayers' sixth general assertion also does not support a reversal of the district court's order. They argue that the list of sale indicia from Leahy supports the characterization of the transaction as a loan. While some of the indicia from Leahy might support viewing the transaction as a loan in another context, the point in the cited section of that case is that the characterization of a transaction as a sale is to be determined by looking at the written agreement in light of the surrounding circumstances. See Leahy, 87 T.C. at 66. As already discussed, the attendant circumstances overwhelmingly show that the transaction in question was not a loan. 13 75 The analysis above reveals the parties' understanding about the loan — namely, that the transaction was in substance a sale, regardless of the form in which the parties happened to cloak it. We find it particularly telling that the parties contemplated a direct sale of the team when drafting the agreement and that, apparently, the only two hurdles for drafting the transaction as a sale were 1) Mr. Fogelman's fondness for the team and 2) the negative tax consequences to the creditors of a direct sale. See Aplts' App. vol VIII, at 1803 (deposition testimony of Mr. Magids, dated Feb. 20, 1999). As Mr. Magids stated 76 I think ... toward the end of the process [of negotiating the agreement,] when it became more evident that the benefits of the loan as originally conceptualized[ — ] includ[ing] Mr. Fogelman's being able to both take care of his creditors and keep the Royals[ — ]were fading, [] we revisited the idea of a sale internally, quite frankly, and with the creditors. They were interested in it, but there was no way that the thing could work with a sale, as I recall ... [b]ecause ... the 1990 taxes would have taken cash out of the pot. 77 Id. at 1803-04. While the parties may have found an alternative form to avoid paying these taxes, the substance of the transaction was that of a sale of Mr. Fogelman's interest in the Royals. No reasonable fact-finder would be swayed by the assertion that a man owing nearly $1 billion to his creditors — who borrowed $34 million secured by his interest in a baseball team and who granted an option eliminating his ownership rights in the team — nevertheless had the subjective desire to retain his share of that team. As stated by the district court: 78 The transaction gave Mr. Fogelman no incentive or obligation to repay his purported debt ... and he parted with all of the burdens, and all but two of the benefits[,] of his Royals interest on the date the loan closed. Moreover, he had no way to continue to retain even those two benefits beyond January 4, 1991 and had absolutely no right to retain his Royals interest simply by paying off his purported debt in light of the option he granted to [the Royals] as an integral part of the transaction. This is the stuff of substance. Legally, it overwhelms the nominal form of the transaction, in which the parties paid a minimal loan tax ... [and] overwhelms any evanescent desire Mr. Fogelman may have had to perpetuate his dream of Royals ownership by having the transaction structured as a loan. Mr. Fogelman agreed on July 31, 1990 to a transaction that gave him no right to retain any ownership in the Royals even if he paid off his loan. 79 Rogers I, 58 F.Supp.2d at 1245 (emphasis in original). The conclusion of the district court comports with our analysis. 80 The substance over form tax doctrine allows the court to ensure that business transactions do not permit some taxpayers to avoid tax at the expense of others in a way that was not intended by the political system. Hariton, Sorting Out the Tangle of Economic Substance, 52 Tax Law. at 236. We agree with the district court's conclusion that the economic realities of the transaction, even granting the plaintiffs all the factual inferences to which they are entitled, overwhelmingly dictate the legal conclusion that a sale, or more properly, a redemption of Mr. Fogelman's Royals stock, and not a loan, took place. Rogers I, 58 F.Supp.2d at 1241 (emphasis added). The analysis above shows that the transaction was properly recharacterized as a sale for tax purposes. See, e.g., Twenty Mile Joint Venture, PND, Ltd. v. Commissioner, 200 F.3d 1268, 1278 (10th Cir.1999) (substance prevailed over form where form did not reflect the reality of the situation). Because we conclude that no reasonable fact-finder could find in favor of the non-moving party that the transaction was not in substance a sale, summary judgment was appropriate. See True, 190 F.3d at 1176. We therefore affirm the district court's order on summary judgment regarding characterizing this transaction as a redemption.