Court Opinion

ID: 4486705
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:38.540226+00
Date Added: 2024-06-11T15:03:49.789094
License: Public Domain

Colvin, Judge: Respondent determined deficiencies in petitioners’ Federal income tax of $75,293 for 1973, $244,229 for 1974, $4,234,380 for 1975, $124,345 for 1976, $72,325 for 1977, and $95,160 for 1978. Following concessions, a conditional settlement of various issues, and our opinion in Estate of Durkin v. Commissioner, T.C. Memo. 1992-325, the sole remaining issue for decision is whether petitioners’ bargain purchase of culm banks on June 26, 1975, resulted in a constructive dividend to petitioners. We hold that it did. In Estate of Durkin v. Commissioner, supra, filed June 8, 1992, we decided that the fair market value of culm banks acquired by petitioners on June 26, 1975, was $7.25 million, and that petitioner Anna Jean Durkin is not an innocent spouse under section 6013(e). A culm bank is a refuse pile produced as a byproduct of anthracite coal mining. Culm banks are sometimes reprocessed to produce additional coal. Estate of Durkin v. Commissioner, supra. All section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. FINDINGS OF FACT Some of the facts have been stipulated and are so found. All facts found in Estate of Durkin v. Commissioner, supra, are incorporated herein by reference. The following facts are restated for the reader’s convenience. 1. Petitioners James J. Durkin, Sr., and Anna Jean Durkin (petitioners) resided in Dallas, Pennsylvania, when the petition was filed. James J. Durkin, Sr., died on June 30, 1989. James J. Durkin, Jr., and Edward E. Durkin are petitioners’ sons. References to the Durkins are to petitioners and their sons. 2. The Entities Raymond Colliery Co., Inc. (Raymond Colliery), owned all the stock of Blue Coal Corp. (Blue Coal) and Olyphant Premium Anthracite, Inc. (Olyphant), as of April 1973. Petitioners purchased Blue Coal, Raymond Colliery, Olyphant, and various subsidiaries in November 1973 through a holding company called the Great American Coal Co. (GACC). James Riddle Hoffa (Hoffa), the former general president of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (Teamsters), and James J. Durkin, Sr., sought a $13 million loan from the Teamsters’ Central States, Southeast, and Southwest Areas Pension Fund (Central States Pension Fund) and the Mellon Bank to finance the stock purchase. The loan was not made. Hoffa brought Hyman Green (Green), a wealthy entrepreneur, into the transaction. Green sought a loan from Institutional Investors Trust (IIT), which gave GACC a commitment for a loan of about $8.5 million. Fifty percent of the stock of GACC was issued to Green and 50 percent was issued to petitioners. Between November 1973 and June 26, 1975, petitioners each owned 25 shares of the stock of GACC constituting 50 percent of the total authorized outstanding shares. Green owned the other 50 shares. Hoffa, Green, and James Durkin, Sr., had an understanding under which GACC stock ownership would be 50 percent for Hoffa, 40 percent for petitioners, and 10 percent for Green. However, the stock was not transferred because of restrictions imposed by IIT. James J. Durkin, Sr., was president and assistant treasurer, and Anna Jean Durkin was secretary and treasurer of GACC from April 13, 1973, to June 26, 1975. By July 15, 1974, Green was chairman of the board. James C.B. Millard, Jr. (Millard), Green’s attorney, was executive vice president. James J. Durkin, Sr., was a director of Raymond Colliery and president, assistant secretary, and a director of Blue Coal. Anna Jean Durkin was secretary and a director of Raymond Colliery; vice president, secretary, treasurer, and a director of Blue Coal; and secretary of Olyphant. Petitioners received substantial salaries from Blue Coal between November 1973 and June 26, 1975. James J. Durkin, Sr., became president of Blue Coal after GACC acquired Blue Coal. James J. Durkin, Jr., was Blue Coal’s vice president. Green initially had little involvement in Blue Coal’s operations. Frank Dougher, the comptroller for Blue Coal; Gene Zafft, Hoffa’s attorney; Charles Párente, the accountant for petitioners and their businesses; and Anna Jean Durkin were not aware of any animosity between James J. Durkin, Sr., and Hoffa. 3. The June 26, 1975, Transactions: Petitioners’ Purchase of Culm Banks From GACC and Sale of GACC Stock to Green a. Overview On June 26, 1975, petitioners purchased the Blue Coal culm banks from GACC and sold their GACC stock to Green. Petitioners also agreed to terminate their employment with Blue Coal. Green negotiated the transactions over a period of several months with James J. Durkin, Jr., who acted on behalf of petitioners. The transactions ended petitioners’ ownership of GACC stock and transferred coal properties from GACC to petitioners. Petitioners (through James J. Durkin, Jr.) and Green both exercised control over the transactions. The parties consulted with attorneys and accountants and attempted various structures before arriving at the final form. Tax effects were considered during the negotiations. b. Sale of Blue Coal Culm Banks to the Durkins and the Durkins’ GACC Stock to Green Early in 1975, James J. Durkin, Jr., began negotiating with Green to buy the Blue Coal culm banks. Green sought to buy the Durkins’ stock in Blue Coal on February 27, 1975, for $1.205 million and to have the Durkins resign their positions as officers and directors of GACC and its subsidiaries. On May 28, 1975, petitioners agreed to purchase certain culm banks’ access easements and a breaker site from Blue Coal, Raymond Colliery, and Olyphant for $2.97 million and a 1-dollar-per-ton royalty. Also, on May 28, 1975, petitioners and Millard (acting in ids capacity as gacc’s executive vice president) signed an agreement that petitioners’ culm bank purchase would be conditioned on the fact that, at the time of closing, neither petitioner would own or have an option to purchase any GACC stock. The May 28, 1975, purchase agreement was superseded by a June 26, 1975, agreement (the culm agreement), and modified on January 28, 1976. In the June 26, 1975, agreement, petitioners purchased the culm banks in issue. The purchase price of the assets sold under the June 26, 1975, agreement was $4.17 million and a 1-dollar-per-ton royalty. The $4.17 million consideration was composed of: Certified check . $254,000 Promissory note . 400,000 Cancellation of indebtedness by the Durkins . 2,333,920 Assumption of GACC debts by the Durkins . 610,000 Promissory note from petitioners, cosigned by their sons. 572,080 4,170,000 On June 26, 1975, the board of directors of Blue Coal adopted a resolution to convey parcels of land and the culm material to petitioners. Petitioners, Green, and Millard were the members of the board of directors of Blue Coal who authorized the resolution. c. Sale of Petitioners’ GACC Stock to Green On June 26, 1975, petitioners entered into an agreement to sell their GACC stock to Green for $205,000, to cancel all indebtedness owed to them from GACC, and to resign as officers, directors, and employees of GACC and its subsidiaries. On June 26, 1975, petitioners resigned as officers of GACC and its subsidiaries. On their 1975 Federal income tax return, petitioners reported that they sold their GACC stock and reported their basis in the GACC stock to be $205,000, thus resulting in no gain or loss on the stock sale. They also reported that they purchased the culm banks, and that the purchase was conditioned on the fact that, at the time of closing, petitioners would own no capital stock or options to buy capital stock in GACC. In Estate of Durkin v. Commissioner, T.C. Memo. 1992-325, we found that the fair market value of the culm banks was $7.25 million on June 26, 1975. OPINION The issue for decision is whether petitioners received a constructive dividend as a result of their bargain purchase of culm banks from GACC on June 26, 1975. Petitioners argue that their June 26, 1975, culm bank purchase and stock sale to Green should be taxed as if it had been structured as a redemption, citing Zenz v. Quinlivan, 213 F.2d 914 (6th Cir. 1954). Respondent argues that in Zenz the taxpayer consistently sought to have the transaction taxed based on its form, unlike petitioners here, who disavow the form they chose, and that a taxpayer’s ability to disavow the form it has chosen for a transaction is circumscribed, especially in the U.S. Court of Appeals for the Third Circuit, to which this case is appealable. Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967), revg. 44 T.C. 549 (1965). We agree with respondent. 1. Essential Nature of Petitioners’ Culm Bank Purchase and GACC Stock Sale Transaction Petitioners and Green negotiated at arm’s length to terminate petitioners’ interest in GACC. Petitioners argue that they lacked the ability to control this transaction because of animosity between Mr. Durkin and Green. We disagree. We do not believe that the claimed animosity kept petitioners and Green from jointly controlling these transactions. They distributed GACC’s culm banks under terms intended to further their mutual advantage. Petitioners purchased the culm banks for less than fair market value on the same day that Green purchased petitioners’ GACC stock for $205,000. Petitioners and Green chose a form for the transactions intended to avoid Federal income taxation of the sale of their GACC stock to Green by separately agreeing to that sale at a price equal to petitioners’ basis in the stock, and understating the value of the culm banks.1  2. Statutory Background Sections 301(b)(1) and (c)(1) and 316(a) generally provide that the fair market value of property distributed by a corporation out of earnings and profits for the taxable year to a stockholder is a dividend to the extent it exceeds the amount paid for the property. The Code provides exceptions to dividend treatment of certain stock redemptions. If a corporation redeems its stock, the redemption is not treated as a dividend if it is not essentially equivalent to a dividend, or if it is in complete termination of a shareholder’s interest in a corporation. Sec. 302(b)(1), (3). Section 302(a) and (b)(1) and (3) provides as follows: SEC. 302. DISTRIBUTIONS IN REDEMPTION OF STOCK. (a) General Rule. — If a corporation redeems its stock (within the meaning of section 317(b)), and if paragraph (1), (2), (3), or (4) of subsection (b) applies, such redemption shall be treated as a distribution in part or full payment in exchange for the stock. (b) Redemptions Treated as Exchanges.— (1) Redemptions not equivalent to dividends. — Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend. í{í ‡ # }{; íj; íj: íJ: (3) Termination of shareholder’s interest. — Subsection (a) shall apply if the redemption is in complete redemption of all of the stock of the corporation owned by the shareholder. Under section 317(b), stock is generally treated as redeemed by a corporation if the corporation acquires its stock from a shareholder in exchange for property. 3. Tax Treatment of Transactions Structured by Taxpayers as a Redemption Petitioners assert that their purchase of the culm banks and their sale of GACC stock to Green was in substance one integrated transaction in which they disposed of all of their stock, and which should be taxed as if petitioners had structured it as a redemption. Further, petitioners argue that “the real abuse” of the tax laws in this case is that Green, not petitioners, received a constructive dividend, and that “he, not petitioners, should pay any resultant tax consequences”. Petitioners cite Zenz v. Quinlivan, supra, for the proposition that this transaction should be treated as a redemption of petitioners’ interest, which, under section 302(b)(3), is taxable as a sale or exchange of their interest in GACC. In Zenz, the sole shareholder sought to sell her stock to a competitor. The buyer purchased part of the stock for cash. Three weeks later the corporation redeemed the taxpayer’s remaining stock. The taxpayer, in her tax return, reported the transaction as a complete redemption by the corporation in termination of her interest in the corporation and therefore not a dividend. Zenz v. Quinlivan, supra at 916. The Commissioner contended that the redemption was essentially equivalent to a dividend. The Commissioner argued that a dividend would have resulted if the redemption had preceded the stock sale, and that the taxpayer should not be allowed to avoid dividend treatment by arranging for the stock sale to precede the redemption. The Sixth Circuit recognized that the taxpayer had structured the transaction to avoid taxes, but stated that the question was not whether the taxpayer avoided taxes that would have been incurred if the taxpayer had chosen a different form. Zenz v. Quinlivan, supra at 917. The Court noted, id., that a taxpayer has the right to decrease the amount of what otherwise would be owing by means which the law permits. Gregory v. Helvering, 293 U.S. 465, 469 (1935). Instead, the Court of Appeals stated that the issue is whether the sale was a taxable dividend or the sale of a capital asset. In Zenz v. Quinlivan, supra at 917,2 the court concluded: where the taxpayer effects a redemption which completely extinguishes the taxpayer’s interest in the corporation, and does not retain any beneficial interest whatever, that such transaction is not the equivalent of the distribution of a taxable dividend to him. Tiffany v. Commissioner, 16 T.C. 1443 [1951]. The instant case is fundamentally different from Zenz v. Quinlivan, supra. The taxpayer in Zenz structured the transaction as a redemption that completely terminated her interest, reported it as a redemption of all her stock on her income tax return, and consistently sought to have it treated as a redemption. Zenz v. Quinlivan, supra at 916. In contrast, petitioners did not structure or report the transactions as a redemption. In a redemption, the corporation acquires its stock from a shareholder for property. Sec. 317(b). Instead, petitioners sold their gacc stock to Green for $205,000 (the amount of their basis), and purchased culm banks worth $7,250,000 (as we decided in Estate of Durkin v. Commissioner, T.C. Memo. 1992-325) for $4,170,000. They chose this form after informed negotiations which considered tax effects. Their object was to structure the sale and purchase to be totally free of Federal income tax, including capital gains tax that would result if they had patterned the deal after Zenz v. Quinlivan, supra, by using a redemption. But their plan failed. Their concealed bargain sale was revealed, and respondent determined petitioners received a constructive dividend. As a result, after having first tried to avoid the result in Zenz v. Quinlivan, supra, petitioners now rely on Zenz. We disagree that this reliance is justified. The taxpayer in Zenz sought to give effect to her treatment of the transaction, while petitioners here seek to disavow their treatment of the transaction. Zenz v. Quinlivan, supra, does not control here for the same reason that Frank Lyon Co. v. United States, 435 U.S. 561 (1978), was not controlling in Bradley v. United States, 730 F.2d 718 (11th Cir. 1984). In Bradley, the court barred the taxpayer from disavowing the form of a transaction. The taxpayer had cited Frank Lyon Co. v. United States, supra, in which the Supreme Court rejected the Commissioner’s attempt to disregard the form adopted by the taxpayer. The court in Bradley distinguished Frank Lyon Co. on grounds also applicable here: Frank Lyon is readily distinguishable from the present case. Unlike taxpayers in this case, the taxpayer in Frank Lyon did not seek to abandon its own agreement to obtain tax relief based upon the underlying economic substance of the transaction. The factual setting of Frank Lyon and this case are strikingly dissimilar and, therefore, inapposite. Accordingly, Frank Lyon, does not support taxpayers’ argument and does not invalidate the former Fifth Circuit’s ruling in Spector [u. Commissioner, 641 F.2d 376, 381 (5th Cir. 1981)]. Bradley v. United States, supra at 720. Petitioners also rely on McDonald v. Commissioner, 52 T.C. 82 (1969), in which we held that the step transaction doctrine was applicable in deciding whether a redemption was essentially equivalent to a dividend under section 302(b)(1). However, that case is no more apt than Zenz v. Quinlivan, supra. The taxpayer in McDonald structured a transaction as a redemption and reported it as a redemption on his income tax return. He treated it as a redemption during the litigation of his case. We held that, as in Zenz, the transaction may be taxed in the form chosen by the taxpayer. See also Clark v. Commissioner, 86 T.C. 138, 151-152 (1986), affd. 828 F.2d 221 (4th Cir. 1987), affd. 489 U.S. 726 (1989). Section 302(b)(3) provides that a redemption is not treated like a dividend if it is in complete termination of a shareholder’s interest in a corporation. Petitioners acknowledge that there was no redemption of GACC stock in the instant case. Accordingly, petitioners fail to meet the terms of section 302(b)(3). The Supreme Court has stated that although a court may have reference to * * * [the statutory] purpose when there is a genuine question as to the meaning of one of the requirements Congress has imposed, a court is not free to disregard [statutory] requirements simply because it considers them redundant or unsuited to achieving the general purpose in a particular case. * * * [Commissioner v. Gordon, 391 U.S. 83, 93 (1968).] Petitioners assert, however, that the sale of their GACC stock to Green and their purchase of the culm banks should be treated as a complete redemption because they are interrelated transactions which resulted in termination of their interest in GACC. They argue that “The redemption was not specifically couched in terms ‘redemption’ since there was an agreement between Mr. & Mrs. Durkin and Green for the sale of the Durkin stock to Green for $205,000.” We disagree with that assessment. Instead, we believe petitioners chose to avoid a redemption to conceal their bargain sale. We have previously rejected a taxpayer’s argument that a transaction should be treated like a redemption where no redemption occurred or was contemplated. Reitz v. Commissioner, 61 T.C. 443 (1974), affd. without published opinion 507 F.2d 1279 (5th Cir. 1975) (taxpayer donated all the stock of a corporation to a local Government immediately after corporation declared a dividend for the taxpayer). In Reitz we said: Perhaps petitioners could have fashioned the transaction as a sale, a redemption and gift, or a liquidation and gift. Instead they arranged a dividend followed by a gift. Of course, petitioners were entitled to choose the most favorable arrangement. But having chosen the method they did for accomplishing their goals, petitioners are bound by their choice. * * * {Reitz v. Commissioner, supra at 449; citations omitted.] 4. Disavowal of Form by Taxpayers Petitioners seek to disavow the form of this transaction, and to have it recognized for its substance. The Commissioner may look through the form of a transaction to its substance, Gregory v. Helvering, 293 U.S. 465 (1935), and bind a taxpayer to the form in which the taxpayer has cast a transaction. Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149 (1974); Bradley v. United States, supra; Hamlin Trust v. Commissioner, 209 F.2d 761 (10th Cir. 1954), affg. 19 T.C. 718 (1953). In contrast, “the taxpayer may have less freedom than the Commissioner to ignore the transactional form that he has adopted.” Bolger v. Commissioner, 59 T.C. 760, 767 n.4 (1973).3  In Commissioner v. National Alfalfa Dehydrating & Milling Co., supra at 149, the Supreme Court said; This Court has observed repeatedly that, while a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not, Higgins v. Smith, 308 U.S. 473, 477 (1940); Old Mission Portland Cement Co. v. Helvering, 293 U.S. 289, 293 (1934); Gregory v. Helvering, 293 U.S. 465, 469 (1935), and may not enjoy the benefit of some other route he might have chosen to follow but did not. “To make the taxability of the transaction depend upon the determination whether there existed an alternative form which the statute did not tax would create burden and uncertainty.” [Citations omitted.] Gray v. Powell, 314 U.S. 402, 414 (1941); Higgins v. Smith, 308 U.S. 473, 477 (1940); Hamlin Trust v. Commissioner, supra. Similarly, “It would be quite intolerable to pyramid the existing complexities of tax law by a rule that the tax shall be that resulting from the form of transaction taxpayers have chosen or from any other form they might have chosen, whichever is less.” Television Industries, Inc. v. Commissioner, 284 F.2d 322, 325 (2d Cir. 1960), affg. 32 T.C. 1297 (1959). A taxpayer is required to recognize his own corporation, Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943), even if the corporation has insufficient economic substance to be recognized for tax purposes. Strick Corp. v. United States, 714 F.2d 1194, 1206 (3d Cir. 1983). The rule binding taxpayers to the form of their transaction is not an absolute; in several situations taxpayers have been permitted to escape taxation based on their own conscious agreements. See Bartels v. Birmingham, 332 U.S. 126 (1947); Helvering v. F. & R. Lazarus & Co., 308 U.S. 252 (1939). In Commissioner v. Danielson, 378 F.2d at 778, the court said: In Helvering v. F. & R. Lazarus & Co., * * * the Supreme Court noted that one who must “bear the burden of exhaustion of capital investment” is entitled to a deduction for depreciation regardless of the fact that the taxpayer by agreement designated another as the legal owner. Similarly, in Bartels v. Birmingham, * * * the Supreme Court stated that “in the application of social legislation” such as the Social Security Act, “it is the total situation that controls” liability for employment taxes regardless of the fact that the taxpayer by agreement designated itself as the employer. In contrast, in the present situation there is no discernible policy which would require that the incidence of taxation fall upon a particular individual. As a result of the circumstances that an amount allocable to a covenant not to compete is amortizable by the buyer and ordinary income to the seller, it generally does not matter what amount is allocated. And where a loss of tax revenues from one taxpayer cannot be retrieved entirely from another because of differentials in tax brackets or other factors the Commissioner may challenge the allocation as not reflecting the substance of the transaction. [Citations omitted.] In Estate of Weinert v. Commissioner, 294 F.2d 750, 755 (5th Cir. 1961), revg. and remanding 31 T.C. 918 (1959), the court said: Resort to substance is not a right reserved for the Commissioner’s exclusive benefit, to use or not to use — depending on the amount of the tax to be realized. The taxpayer too has a right to assert the priority of substance — at least in a case where his tax reporting and actions show an honest and consistent respect for the substance of a transaction. * * * In this Court, a taxpayer generally may not disavow contract allocations in covenants not to compete without “strong proof” that the agreed allocation does not reflect reality. Sonnleitner v. Commissioner, 598 F.2d 464, 467-469 (5th Cir. 1979), affg. in part, revg. in part and remanding T.C. Memo. 1976-249 (taxpayer failed to provide strong proof that a covenant not to compete was devoid of economic realty or entered into under economic duress); Dixie Finance Co. v. United States, 474 F.2d 501, 505 (5th Cir. 1973), affg. Stewart v. Commissioner, T.C. Memo. 1971-114 (taxpayer met strong proof standard; Government had taken inconsistent positions in separate proceedings below involving both of the taxpayers, and prevailed in both); Barran v. Commissioner, 334 F.2d 58, 64 (5th Cir. 1964), affg. in part, revg. in part and remanding 39 T.C. 515 (1962) (taxpayer failed to meet strong proof standard); Ullman v. Commissioner, 264 F.2d 305 (2d Cir. 1959), affg. 29 T.C. 129 (1957) (sellers failed to meet strong proof standard). We have reached a similar result in a step transaction context. Glacier State Electric Supply Co. v. Commissioner, 80 T.C. 1047, 1054-1058 (1983) (taxpayer not allowed to invoke step transaction doctrine to disavow form of transaction). The strong proof requirement does not apply to the Commissioner. Empire Mortgage & Investment Co. v. Commissioner, T.C. Memo. 1971-270, affd. sub nom. Dixie Finance Co. v. United States, 474 F.2d 501, 505 (5th Cir. 1973). In the Third Circuit, to which this case is appealable, and in certain other circuits, taxpayers may disavow an allocation to a covenant not to compete only with evidence that would allow reformation of the agreement in an action with the other party to the transaction. Bradley v. United States, 730 F.2d 718 (11th Cir. 1984); Spector v. Commissioner, 641 F.2d 376 (5th Cir. 1981), revg. 71 T.C. 1017 (1979); Connery v. United States, 460 F.2d 1130, 1134 (3d Cir. 1972); Commissioner v. Danielson, supra; Coleman v. Commissioner, 87 T.C. 178, 201-204 (1986), affd. without published opinion 833 F.2d 303 (3d Cir. 1987). In Commissioner v. Danielson, supra, the taxpayers allocated amounts to sellers’ covenants not to compete. The taxpayers reported the amounts received as derived from the sale of capital assets. The Commissioner disallowed capital treatment for the amounts allocated to covenants not to compete. The court said: the Commissioner here is attempting to hold a party to his agreement unless that party can show in effect that it is not truly the agreement of the parties. And to allow the Commissioner alone to pierce formal arrangements does not involve any disparity of treatment because taxpayers have it within their own control to choose in the first place whatever arrangements they care to make. s}s % For these reasons we adopt the following rule of law: a party can challenge the tax consequences of his agreement as construed by the Commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction or to show its unenforceability because of mistake, undue influence, fraud, duress, etc. * * * [Commissioner v. Danielson, supra at 775.] The Third Circuit has also applied the Danielson rule to bar a taxpayer from disavowing the allocation of a sales price to leases. Sullivan v. United States, 618 F.2d 1001, 1007-1008 (3d Cir. 1980). Petitioners have not produced evidence that would be admissible in an action involving Green to alter the construction of their agreement, or to show its unenforceability because of mistake, fraud, undue influence, etc., and therefore, under Danielson, may not disavow the form of their culm bank purchase and GACC stock sale. It is clear that both the Danielson and the strong proof rules apply beyond cases involving allocation of payments to a covenant not to compete. Bradley v. United States, supra; Spector v. Commissioner, supra; Sullivan v. United States, supra at 1007; Coleman v. Commissioner, supra at 202; Miami Purchasing Service Corp. v. Commissioner, 76 T.C. 818, 830 (1981) (where title did pass from taxpayer to buyer); Stephens v. Commissioner, 60 T.C. 1004 (1973), affd. without opinion 506 F.2d 1400 (6th Cir. 1974) (whether taxpayers were legally obligated to buy stock). Under either the Danielson rule or the strong proof standard, these petitioners should not be allowed to disavow the form they chose. First, petitioners seek to disavow their own tax return treatment for the transaction. Illinois Power Co. v. Commissioner, 87 T.C. 1417, 1429-1430 (1986); Glacier State Electric Supply Co. v. Commissioner, supra at 1058; Legg v. Commissioner, 57 T.C. 164, 169 (1971), affd. per curiam 496 F.2d 1179 (9th Cir. 1974). Second, their tax reporting and actions do not show “an honest and consistent respect for the substance of * * * [the] transaction.” See Estate of Weinert v. Commissioner, 294 F.2d at 755. Instead, the prices chosen by petitioners were an attempt to eliminate petitioners from GACC at a price and in a form designed to conceal the value of the culm banks. Third, petitioners are unilaterally attempting to have the transaction treated as a redemption after it has been challenged. Glacier State Electric Supply Co. v. Commissioner, supra at 1058; Hoover Co. v. Commissioner, 72 T.C. 206, 248 (1979); Legg v. Commissioner, supra. In fact, petitioners first contended that the transaction should be treated as a redemption, and first relied on Zenz v. Quinlivan, 213 F.2d 914 (6th Cir. 1954), in 1991, 15 years after the transaction at issue. Fourth, it would unjustly enrich petitioners to permit them to belatedly change the deal made after well-informed negotiations with Green. Spector v. Commissioner, supra at 385. A party disavowing the form of a transaction may be unjustly enriched, particularly where the party was acting on tax advice, because the price may be influenced by tax considerations. Danielson v. Commissioner, 378 F.2d at 775. If a party disavows the form of a transaction, the Commissioner may be whipsawed between one party claiming taxation based on the form, and the opposite party claiming taxation based on the substance. Comdisco, Inc. v. United States, 756 F.2d 569, 578 (7th Cir. 1985). Petitioners’ argument on brief that the dividend concealed by their transactions is Green’s, not theirs, illustrates the risk posed to tax administration if a party might unilaterally disavow the form chosen after a negotiation. In considering whether the Commissioner is whipsawed, we need not consider whether in fact the Commissioner is barred from obtaining consistent treatment. See Coleman v. Commissioner, 87 T.C. at 203 (no whipsaw because one taxpayer was in the United Kingdom). Respondent’s challenge to the pricing of petitioners’ culm bank purchase does not open the door for petitioners to disavow the form of the transaction. E.g., Juden v. Commissioner, 865 F.2d 960 (8th Cir. 1989) (taxpayer was not permitted to disavow his transaction in a case where the Commissioner successfully challenged the value of property included in the transaction), affg. T.C. Memo. 1987-302. To hold otherwise would at a minimum be an untoward invitation to the kind of mispricing and concealment that petitioners attempted here. It is petitioners, not respondent, that seek to recharacterize their 1975 culm bank purchase and stock sale. Respondent’s determination accepts the form chosen by petitioners. Respondent determined that petitioners mispriced the culm banks, but a valuation dispute is not a recharacterization. A bargain purchase of property by a shareholder is a constructive distribution. Honigman v. Commissioner, 55 T.C. 1067, 1077 (1971), affd. in part, revd. in part and remanded 466 F.2d 69 (6th Cir. 1972); Epstein v. Commissioner, 53 T.C. 459, 474-475 (1969); sec. 1.301-l(j), Income Tax Regs. The distribution is a dividend if made from the corporation’s earnings and profits accumulated after February 28, 1913, or during the taxable year. Sec. 316(a). Dividends normally are taxed as ordinary income unless some specific exception or qualification applies. Commissioner v. Gordon, 391 U.S. 83, 89-90 (1968). Petitioners do not argue that the distribution was not made from earnings and profits, and they do not argue that the income resulting from the bargain sale itself is entitled to taxation as long-term capital gain. Instead, they argue that their culm bank purchase and stock sale should be recharacterized as a redemption. Thus it is petitioners, not respondent, that seek to recharacterize the transaction. Petitioner states that the doctrine enunciated in Zenz v. Quinlivan, 213 F.2d 914 (6th Cir. 1954), derives from the step transaction doctrine. However, this is not an appropriate case to permit the taxpayer to invoke the step transaction doctrine. In Penrod v. Commissioner, 88 T.C. 1415, 1428-1430 (1987), we summarized the step transaction doctrine as follows: The step transaction doctrine is in effect another rule of substance over form; it treats a series of formally separate “steps” as a single transaction if such steps are in substance integrated, interdependent, and focused toward a particular result. ;fí ífc Hí ‡ ❖ There is no universally accepted test as to when and how the step transaction doctrine should be applied to a given set of facts. Courts have applied three alternative tests in deciding whether to invoke the step transaction doctrine in a particular situation. The narrowest alternative is the “binding commitment” test, under which a series of transactions are collapsed if, at the time the first step is entered into, there was a binding commitment to undertake the later step. At the other extreme, the most far-reaching alternative is the “end result” test. Under this test, the step transaction doctrine will be invoked if it appears that a series of formally separate steps are really prearranged parts of a single transaction intended from the outset to reach the ultimate result. ‡ ‡ ‡ ‡ $ The third test is the “interdependence” test, which focuses on whether “the steps are so interdependent that the legal relations created by one transaction would have been fruitless without a completion of the series.” None of these tests is met here. The binding commitment test is not met because there was no binding commitment to redeem petitioner’s GACC stock at the time of their bargain purchase and stock sale. The end result test is not met because a redemption was not the end result of the transaction. The interdependency test is not met because a redemption was not done, much less made an interdependent part of the transaction. Petitioner invokes the step transaction doctrine in an effort to synthesize a redemption of GACC stock. Petitioner takes this position 15 years after the transaction at issue because section 302(b)(3) requires a redemption, and here they avoided use of a redemption. Petitioner is in effect arguing that since capital gains would apply if they had cast it in another form — a redemption — we should grant similar treatment to the form they used. This we cannot do. Glacier State Electric Supply Co. v. Commissioner; 80 T.C. 1047, 1054-1058 (1983). Although we agree with petitioner that where appropriate, under the step transaction doctrine, separate steps must be taken together in attaching tax consequences, this is not a correct case in which to apply that doctrine. Petitioner is not asking us to skip, collapse, or rearrange the steps he employed. * * * He is instead asking that we accept an entirely new series of steps or events that did not take place. The step transaction doctrine cannot be stretched so far. [Id., citation omitted.] In light of the foregoing, we reject petitioners’ contention that any gain should be treated as if there had been a redemption of their GACC stock. 5. Ownership of GACC Stock Petitioners assert that they owned only 40 percent of the GACC stock, that Hoffa owned 50 percent, and Green owned 10 percent, and argue that therefore they could not have had control. We recognize that another Federal court has found that petitioners owned 40 percent of the GACC stock. United States v. Gleneagles Investment Co., 565 F. Supp. 556, 566 (M.D. Pa. 1983), affd. in part and vacated in part sub nom. United States v. Tabor Court Realty Corp., 803 F.2d 1288 (3d Cir. 1986). However, on our record, we are not convinced that petitioners’ ownership changed from 50 percent before June 26, 1975. Petitioners and Green certified to IIT that petitioners and Green owned 50 percent each. At most they gave Hoffa an opportunity to buy 50 percent of the stock of GACC. Hoffa did not do so, however, because of restrictions imposed by IIT. Even if we had found that petitioners owned only 40 percent of the stock of GACC, we would still find that petitioners and Green negotiated together to structure petitioners’ culm bank purchase and stock sale to their mutual advantage. See, e.g., Green v. United States, 460 F.2d 412 (5th Cir. 1972). In Green, the taxpayer owned 7.90571 percent of the outstanding corporate stock. Petitioners’ ownership of 50 percent of the outstanding stock (even with an option to sell 10 percent of their stock to Hoffa or Green), their positions as officers, directors, and employees of the corporation, the arm’s-length negotiations with the other shareholder, the structure of the transactions as separate transactions with the stock sale for exactly petitioners’ basis in the stock, and the culm banks’ sale for less than fair market value show that they exercised substantial influence over GACC. We sustain respondent’s determination as modified by our finding of fair market value in Estate of Durkin v. Commissioner, T.C. Memo. 1992-325, and hold that petitioners received a constructive dividend to the extent that the purchase price of the culm banks was less than fair market value. Decision will be entered under Rule 155. Reviewed by the Court. Hamblen, Cohen, Jacobs, Gerber, Wright, Parr, Wells, and Ruwe, JJ., agree with the majority opinion. Swift, J., concurs in the result only. Chiechi, J., dissents.   For analyses of bootstrap transactions, see generally Bittker & Eustice, Federal Income Taxation of Corporations and Shareholders, par. 9.07 (5th ed. 1987); Jassy, “The Tax Treatment of Bootstrap Stock Acquisitions: The Redemption Route vs. the Dividend Route”, 87 Harv. L. Rev. 1459 (1974); Kingson, “The Deep Structure of Taxation: Dividend Distributions”, 85 Yale L.J. 861 (1976); Lang, “Dividends Essentially Equivalent to Redemptions: The Taxation of Bootstrap Stock Acquisitions”, 41 Tax L. Rev. 309 (1986).    The sequence of the redemption and the stock sale is irrelevant so long as both events are clearly part of an overall plan to eliminate the shareholder’s interest in the corporation. United States v. Carey, 289 F.2d 531 (8th Cir. 1961).    See generally Smith, "Substance and Form: A Taxpayer’s Right to Assert the Priority of Substance”, 44 Tax Law. 137 (1990).