Opinion ID: 660176
Heading Depth: 2
Heading Rank: 1

Heading: The End Result Test

Text: 21 Under the end result test, the step transaction doctrine will be invoked if it appears that a series of separate transactions were prearranged parts of what was a single transaction, cast from the outset to achieve the ultimate result. See Penrod, 88 T.C. at 1429. The government avers this test controls because the intention and end result of the taxpayers' scheme was to liquidate certain futures contracts and then to distribute the proceeds to themselves and to the Institute for its use as operating revenues, while avoiding tax liability for the long-term gains on the contracts. 22 For the government's characterization of the transaction to be accurate, the record facts would have to demonstrate that a prearranged plan for disposition of the futures contracts existed. See Blake v. Commissioner, 42 T.C.M. (CCH) 1336, 1351, 1981 WL 11142 (1981), aff'd, 697 F.2d 473 (2d Cir.1982); see also Kinsey v. Commissioner, 477 F.2d 1058, 1062-63 (2d Cir.1973). Further, although the arrangement to sell the donated property need not be a legally binding one, there must at least be a showing of an informal agreement or understanding between the parties. See Blake, 697 F.2d at 478-79. As we observed when evaluating the anticipatory assignment of income issue, there simply is no evidence of a prearranged plan between Greene and the Institute for selling the futures contracts immediately upon receipt. 23 In effect, the government's argument boils down to an attempt not to recharacterize several separate transactions as a whole one, but to describe two actual transactions as two hypothetical ones. Specifically, appellant urges that a donation followed by a sale by the donee is really a sale by the donor followed by a donation. In this fashion, the government turns fact into fiction. 24 Such an attempt to generate events that never took place under the rubric of a step transaction was rejected in Grove, 490 F.2d at 247-48. There the taxpayer donated stock for several years to a tax-exempt institution, his college, but retained a life estate in any income produced by the stock. Id. at 243. Each year the stock was redeemed by the corporation of which Grove was president, and the proceeds were invested in income producing securities by the college, which income was later paid to the donor Grove. Id. at 245. The Commissioner thought the actual form of the donations and redemptions should be disregarded and treated instead as a redemption of Grove's stock, followed by a cash gift to the institution. Id. We did not adopt this script, stating instead that while taxes obviously played a part in Grove's arrangement, tax planning alone could not transform a non-taxable event into a taxable event. Id. at 247. Accepting the Commissioner's position would have recharacterized two actual events into two invented ones. Id. 25 There is even less basis to recharacterize taxpayers' donation here. In Grove, the institution was required as a condition of the gifts to offer the shares for redemption to the donor's corporation. As a majority shareholder, Grove had control over whether the shares would be redeemed. Id. Thus, there was arguably a plan of redemption achieved through the donations. In the case at hand, as already stated, there was no evidence of a prearranged plan that the Institute would sell the futures contracts and taxpayers had no control over whether or not the Institute did so. Thus, the charitable plan at issue here was not a prearranged scheme of purportedly separate steps, or in actuality a single transaction so as to trigger the end result test of the step transaction doctrine.