                       T.C. Memo. 1996-472



                     UNITED STATES TAX COURT



                JULIAN P. KORNFELD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13169-95.                  Filed October 22, 1996.




     Julian P. Kornfeld, pro se.

     Clarke L. Randall, for petitioner.

     Elizabeth Downs, for respondent.



                          MEMORANDUM OPINION


     TANNENWALD, Judge:     Respondent determined deficiencies in

petitioner's Federal income taxes for the taxable years 1990 and

1991 in the amounts of $11,803.00 and $13,122.00, respectively.

The sole issue for decision is whether petitioner is entitled to
                               - 2 -

amortize the cost of acquiring a life interest in tax-exempt

bonds where others simultaneously acquired the remaining

interests.

     The case was submitted fully stipulated under Rule 122.1

All of the stipulated facts, including those contained in the

attached exhibits, are found accordingly.

     Petitioner resided in Oklahoma City, Oklahoma, at all

relevant times, including the time when he filed his petition

herein.   He filed timely individual income tax returns for 1990

and 1991.

     Petitioner is an experienced lawyer, particularly in the

fields of business and tax law.2   He has two daughters, Meredith

Kornfeld (Meredith) and Nancy Kornfeld (Nancy), both of whom were

adults and college graduates at all relevant times.   At those

1
   All statutory 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.
2
   The stipulation of facts contains a detailed description of
petitioner's experience and of his analysis of the pertinent
authorities prior to entering into the transactions involved
herein. Petitioner has emphasized the description and the
analysis presumably to persuade the Court that his "expertise"
should be a significant factor influencing us to arrive at a
conclusion favorable to him. Respondent has utilized the
description presumably to persuade us that petitioner's tax
motivation predominated and should persuade us to decide the
instant case in her favor. We consider petitioner's background
and analysis peripheral (as to respondent's use of it) and
irrelevant (as to petitioner's use of it) to the accomplishment
of the task before us, namely, independently to reach our own
conclusions based on the stipulated factual elements of the
transactions involved.
                               - 3 -

times, petitioner also had a long-time secretary and

administrative assistant, Patsy D. Permenter (Permenter), who was

also an adult at such times and not otherwise related to

petitioner.

     Petitioner, acting through a revocable trust of which he and

Permenter were trustees, entered into agreements entitled Joint

Purchases of Life Estates and Remainder Interests pursuant to

which the parties would identify securities to be acquired in

which petitioner would have a life estate and the other parties

would have interests as indicated by the following:

     (1)   May 1, 1989, agreement - remainder interests in

Meredith and Nancy;

     (2)   June 19, 1989, agreement - remainder interest in Nancy;

     (3)   October 31, 1989, agreement - secondary life interest

in Nancy and remainder interest in Permenter;

     (4)   June 15, 1990, agreement - secondary life interest in

Nancy and remainder interest in Permenter.

     All of the agreements provided that the parties would

identify securities for joint investment by executing an agreed

form designated by the parties as Exhibit A, that each would pay

a proportionate share of the purchase price of the joint

investments and that the disposition of any such investments

could be made only upon the direction of all parties.

     The bonds purchased were tax-exempt bonds and were acquired

from unknown third parties through Prudential Bache Securities
                               - 4 -

(Prudential Bache) or from Prudential Bache's own inventory of

bonds.   Prudential Bache confirmed each purchase involved herein

by a confirmation slip addressed to the Julian P. Kornfeld Life

Estate, with an Oklahoma City address.

     After the purchases, but before the closing dates,

petitioner would calculate the value of the respective interests

in the bonds that he and the other parties were acquiring.    The

Exhibits A executed by the parties were dated the same day as the

Prudential Bache confirmations.   Petitioner's calculations were

based upon the actuarial values published by the Internal Revenue

Service.   The allocations reflected in such calculations are not

disputed by respondent.

     Based upon the aforesaid calculations, petitioner would

furnish Nancy, Meredith, and Permenter with the amounts indicated

as their share of the purchase price.    This would be accomplished

either by check or wire transfer to the respective bank accounts

before the closing date of the purchase.   During the years in

issue, Nancy's bank account was in Minneapolis, Minnesota,

Meredith's bank account was in Los Angeles, California, and

Permenter's in Oklahoma City, Oklahoma.

     With respect to every purchase, the amounts furnished by

petitioner were deposited in the bank accounts.   Thereafter, and

before the closing dates, Nancy, Meredith, and Permenter issued

their separate checks to Prudential Bache in the amounts

reflected in petitioner's calculations as allocable to the
                                - 5 -

interest each was acquiring.    The monthly statements of

Prudential Bache for the Julian P. Kornfeld Life Estate indicated

the separate receipt of funds from petitioner, Meredith, Nancy,

and Permenter.

     Neither Meredith, Nancy, nor Permenter was under any legal

obligation to utilize the funds received from petitioner to

acquire their interests in the purchased bonds.    However, they

and petitioner intended that the funds would be so used.

     Annexed hereto as Exhibit 1 is a schedule reflecting the

date and amount of each bond purchase involved herein, the

closing date of Prudential Bache, dates of petitioner's gifts3 to

the other parties, and the dates of payments by petitioner and

the other parties.

     Petitioner furnished Nancy, Meredith, and Permenter with

funds in rounded amounts equal to the payments they made to

Prudential Bache.    Neither Nancy, Meredith, nor Permenter

expended any amount in excess of the funds so furnished to make

any part of such payments.

     Petitioner filed gift tax returns reflecting the gifts to

Nancy, Meredith, and Permenter but paid no tax on account of the

unified credit.   See sec. 2505.   Petitioner reported no other

gifts to Meredith, Nancy, or Permenter during the years at issue.


3
   The use of the word "gifts" is not dispositive of the subject
of the gifts by petitioner, i.e., of funds or interests in the
bonds, which is the critical issue herein.
                               - 6 -

     When purchased bonds were redeemed, each party to the

agreements received their proceeds based upon the actuarial

values thereof published by the Internal Revenue Service.    The

values are not disputed by respondent.

     At issue is the right of petitioner to amortize, ratably

over his expected life, his cost of acquiring his life interests

in bonds purchased pursuant to joint purchase agreements.

Petitioner argues that he purchased his interests and that the

other participants acted independently in purchasing their

interests.   Respondent contends that:   (1) While, in form, the

purchases were by petitioner and the other participants, i.e.,

petitioner's daughters and secretary, in substance, petitioner

purchased the bonds as a whole, retaining life interests for

himself and donating the remaining4 interests to the other

participants with the result that (2) petitioner split

nondepreciable assets and is not entitled to an amortization

deduction.   We dealt with the same issue in Gordon v.

Commissioner, 85 T.C. 309 (1985), in which we sustained

respondent's contentions and rejected the taxpayer's claim of an

amortization deduction, and in Richard Hansen Land, Inc. v.

Commissioner, T.C. Memo. 1993-248, where we applied Gordon and

rejected respondent's contentions and sustained the taxpayer's

4
   We use the word "remaining" instead of "remainder" because of
the secondary life interest of Nancy in some of the bonds and the
fact that the proper characterization of that interest is in
question. See infra pp. 13-14.
                               - 7 -

claim of an amortization deduction in a case involving the

acquisition of land.

     Initially, we note that the fact that the bonds involved

herein were tax-exempt bonds does not operate to deprive

petitioner of his claimed amortization deduction.    See Gordon v.

Commissioner, supra at 322 n.6 (citing Manufacturers Hanover

Trust Co. v. Commissioner, 431 F.2d 664 (2d Cir. 1970), affg. a

Memorandum Opinion of this Court).5    We further note that there

is no issue as to the amount of petitioner's claimed amortization

deduction if we hold that he is entitled to such deduction.

     The basic question is whether or not the transactions were

structured in the right way, i.e., whether they were in fact what

they appear to be in form.   See Gordon v. Commissioner, supra;

Hobby v. Commissioner, 2 T.C. 980, 985 (1943).    This is a

question that the courts have been faced with many times in a

variety of contexts.   Compare Cumberland Public Service Corp. v.

Commissioner, 338 U.S. 451 (1950), with Commissioner v. Court

Holding Co., 324 U.S. 331 (1945) (whether a sale was by a

corporation or its shareholders).     Compare also Zenz v.

Quinlivan, 213 F.2d 914 (6th Cir. 1954), with Wall v. United

States, 164 F.2d 462 (4th Cir. 1947) (dividend or capital gain on

redemption of shares of corporation).    We see no need to repeat

5
   We note that the extent to which amortization deductions could
be taken with respect to tax-exempt income-producing property was
not changed by the enactment in 1989 of sec. 167(e). See infra
p. 13 and note 6.
                               - 8 -

the underpinnings of that question which we explored in detail in

Gordon v. Commissioner, supra, and Richard Hansen Land, Inc. v.

Commissioner, supra.   We think it important, however, to

recognize, as we did in those cases, that the fact that tax

reasons generated the choice of the structure used is not, in and

of itself, sufficient to require us to sustain respondent.

     Against the foregoing background, we proceed to examine the

various elements involved herein, upon which the base resolution

of the ultimate factual question, i.e., were there separate

purchases of a life interest by petitioner and of the remaining

interests by the other parties or was there a purchase of the

entire ownership of the bonds by petitioner followed by a gift of

the interests in the bonds remaining after petitioner's retained

life estate.   The burden of proof is on petitioner, Rule 142(a),

and that burden is not lessened because this is a fully

stipulated case.   Borchers v. Commissioner, 95 T.C. 82, 91

(1990), affd. 943 F.2d 22 (8th Cir. 1991).

     Some preliminary observations are in order.   First, we

recognize, as we did in Gordon v. Commissioner, supra, that the

holders of the remaining interests were related to petitioner,

i.e., daughters, or closely identified with petitioner, i.e.,

petitioner's longtime secretary.6   While such relationships are

6
   While Permenter was not "related" to petitioner in the same
way as his daughters, see secs. 167(e)(5)(B) and 267, we are
satisfied that, on the basis of the record herein, her
                                                   (continued...)
                               - 9 -

not determinative, their existence provides a basis for

"skepticism" in accepting the form of the transaction.    See

Gordon v. Commissioner, 85 T.C. at 325-326.   Moreover, as we also

noted in Gordon, the pattern of tax benefits flowing from the

transactions involved herein are such as to constitute "a yellow

caution signal on our road to decision."   Id. at 326.

     Second, a substantial portion of the stipulation dealt with

assets possessed by the participants other than petitioner during

the years at issue.   While the values of those assets,

particularly those of a corporation owned by the daughters, is

not clearly established, it would appear that substantial amounts

were involved and petitioner argues that the availability of such

assets as a potential source of payment for the remaining

interests of Nancy, Meredith, and Permenter in the bonds should

be considered in determining whether such interests were

independently purchased.   We agree with respondent that the

availability of such assets is irrelevant to the issue before us.

That such assets might have been used does not answer the

question of how to characterize the transactions involved herein

where the funds used were supplied by petitioner.7

6
 (...continued)
"relationship" should not be treated differently in view of the
fact that we have concluded that sec. 167(e) does not impact our
conclusion. See infra p. 13.
7
   We note that in Gordon v. Commissioner, 85 T.C. 309, 328
(1985), we indicated that the presence of other assets available
                                                   (continued...)
                              - 10 -

        Finally, petitioner relies heavily on cases involving what

he claims to be analogous transactions, especially those dealing

with gifts of stock to a charity followed by a redemption of such

stock by the corporation.   We dealt at some length with these

cases and cases involving seemingly analogous situations in

Gordon v. Commissioner, 85 T.C. at 327, and concluded that such

cases "are sufficiently distinguishable in terms of their factual

context and the issue involved so as not to furnish any

significant guidance to our decision herein."   We continue to

adhere to that view.

      Petitioner attaches great significance to the fact that gift

tax returns were filed in respect of all the funds provided by

petitioner, whereas in Gordon v. Commissioner, supra, most of the

transfers of funds by the taxpayer to the holder of the remainder

interest were not reflected in any gift tax returns.   We are not

persuaded that this provides a significant basis for

distinguishing Gordon.   Such returns merely reflect the values of

the gifts8 to the recipients which happen to coincide with the

amounts of the funds transferred.   Although the gift tax returns

stated that the gifts were cash gifts, such self-serving labeling

is not determinative and its impact is not significant in light


7
 (...continued)
to the holder of the remainder but not used was a factor
unfavorable to the taxpayer's position.
8
    See supra note 3.
                              - 11 -

of the other factors discussed herein which cause us to conclude

that interests in the bonds themselves were the subject matter of

the gifts.   Moreover, the tax impact of the gifts, i.e., the

potential loss, at an indeterminate future date, of a portion of

petitioner's estate tax exemption by virtue of the utilization of

the unified credit is a far cry from the income tax consequences

of the receipt of wages by Hansen in Richard Hansen Land, Inc. v.

Commissioner, T.C. Memo. 1993-248.

     Petitioner's principal argument rests on the absence of any

legal obligation on Nancy, Meredith, or Permenter to use the

funds provided by petitioner to acquire the remaining interests.

While this is an important element, it is not controlling, as our

opinion in Gordon v. Commissioner, supra, makes clear.   Indeed,

as we pointed out in Gordon, the freedom of Nancy, Meredith, and

Permenter legally to refuse to utilize the funds provided by

petitioner to pay for the remaining interests "is of minimal

significance where * * * the facts reveal that the entire

transaction was set up around the expectation that the joint

implementation of the * * * [taxpayer's] investment strategy

would occur."   Gordon v. Commissioner, 85 T.C. at 331 n.16.    We

think that the pattern of the transactions herein unquestionably

falls within the "expectation" parameter.9   Unquestionably,

petitioner was the architect of the investment strategy and

9
   Cf. Muserlian v. Commissioner, 932 F.2d 109, 113 (2d Cir.
1991, affg. T.C. Memo. 1989-493.
                              - 12 -

orchestrator of its implementation.    We are aware that the

parties have stipulated that 'Because of Julian's tax, financial,

and business expertise, Meredith and Nancy generally consult with

Julian about all major or significant financial transactions.'

But such a general description lacks the quality necessary to

support the conclusion that there was meaningful advance

consultation and exercise of independent judgment by Nancy and

Meredith in respect of the specific transactions involved herein,

to say nothing of the fact that the stipulation does not include

any reference to Permenter.   Moreover, we note that Exhibits A

executed by petitioner and Nancy, Meredith, or Permenter were

uniformly dated the same day as the confirmations from Prudential

Bache.   The amounts of funds provided from time to time by

petitioner to Nancy, Meredith, and Permenter were, within

pennies, equal to the amounts of the checks they issued to

Prudential Bache; by way of contrast, the separate funds of the

trust in Gordon v. Commissioner, supra, were used albeit to a

minor extent.   The time spans between confirmation, payment, and

closing dates reflected in Exhibit 1 to this opinion are such as

to indicate that neither Nancy, Meredith, nor Permenter had any

meaningful opportunity or desire to exercise dominion and control

over the funds and elect not to participate in the purchases.

     In short, we are satisfied that, on the basis of the record

as a whole, petitioner, like the taxpayer in Gordon v.

Commissioner, supra, acquired the entire ownership in the bonds
                              - 13 -

and then divided that ownership by retaining a life interest and

transferring the remaining interests to Nancy, Meredith, and

Permenter.

     In arriving at this conclusion, we recognize that we reached

an opposite result in Richard Hansen Land, Inc. v. Commissioner,

supra.   However, the factual circumstances in Hansen Land were

quite different; in particular, in the case of Richard Hansen, he

acquired the remainder interest with funds that he received as

taxable income in a transaction whose bona fides were not

questioned by respondent.   His wholly owned corporation, whose

separateness was also not questioned by respondent, acquired the

amortizable term interest, and the Kammerzells utilized their own

separate funds.

     Concededly, the disposition of cases such as the one before

us inevitably involves the difficult task of line drawing.    But,

as we have previously observed:

     the necessity of drawing lines is part of the daily
     grist of judicial life and should not influence us to
     adopt another rule simply to avoid difficulties in
     application. See Estate of Lillie MacMunn Stewart [v.
     Commissioner], 52 T.C. 830, 836 (1969), revd. on other
     grounds 436 F.2d 1281 (3d Cir. 1971). [Allen v.
     Commissioner, 66 T.C. 340, 346 (1976); fn. ref.
     omitted.]

     In view of our conclusion, we have no need to address the

application of section 167(e) in respect of the transactions

under the October 31, 1989, and June 15, 1990, agreements and the

question whether Nancy's secondary life interest constituted a
                             - 14 -

remainder interest for the purpose of that section.    See H. Rept.

101-247 at 1361-1362 (1989); H. Conf. Rept. 101-386 at 625-626

(1989).

     In view of the foregoing,

                                      Decision will be entered

                                 for respondent.



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