                           T.C. Memo. 2011-133



                         UNITED STATES TAX COURT



 JOHN H. HENDRIX AND KAROLYN M. HENDRIX, DONORS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 10503-03.              Filed June 15, 2011.



        John W. Porter, Stephanie Loomis-Price, and Keri D. Brown,

for petitioners.

     Wanda M. Cohen, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


        PARIS, Judge:   By separate notices of deficiency dated

April 9, 2003, respondent determined a deficiency of

$6,939,597.53 in the Federal gift tax of each petitioner for

1999.     Petitioners petitioned the Court to redetermine those

determinations.
                                  - 2 -

      The parties dispute whether the defined value formula

clauses at hand (formula clauses) set the fair market value of

the John H. Hendrix Corp. (JHHC) stock that each petitioner

transferred on December 31, 1999, to various family trusts and to

a charitable foundation.     Our resolution of their dispute turns

on our deciding whether the formula clauses were reached at arm’s

length and whether the formula clauses are void as contrary to

public policy.      We decide that the formula clauses were reached

at arm’s length and that they are not void as contrary to public

policy.   We accordingly hold that the formula clauses set the

applicable value.     Unless otherwise indicated, section references

are to the applicable versions of the Internal Revenue Code.

Rule references are to the Tax Court Rules of Practice and

Procedure.

                            FINDINGS OF FACT

I.    Preface

      The parties submitted to the Court stipulated facts and

related exhibits.     We find those stipulated facts accordingly and

incorporate those facts and exhibits herein.     Petitioners resided

in Texas when their petition was filed.

II.   Petitioners

      John H. Hendrix (Mr. Hendrix) and Karolyn M. Hendrix (Ms.

Hendrix) are husband and wife.     They have three adult daughters:

Anne Leslie Hendrix Wood (Mrs. Wood), Kristen Lee Hendrix, and
                                - 3 -

Karmen Marie Hendrix (collectively, daughters).    On December 31,

1999, petitioners’ principal asset was JHHC stock.

III.    JHHC

       JHHC was incorporated on December 16, 1976, under Texas law.

JHHC initially had two classes of stock, i.e., nonvoting

preferred stock and voting common stock, and its only

shareholders were petitioners and their daughters (directly

and/or through trusts).    Petitioners owned all of the preferred

stock and 51 percent of the common stock.

       At the end of 1996 Stephen Dyer (Mr. Dyer), an attorney,

advised petitioners that they should operate JHHC as an S

corporation to eliminate any tax at the corporate level.

Petitioners accepted this advice, and they caused JHHC to redeem

its outstanding preferred stock to qualify for status as an S

corporation.    At the suggestion of Mr. Dyer, Mr. Hendrix retained

an appraisal firm, Howard Frazier Barker Elliot (Howard Frazier),

to value the JHHC preferred stock incident to the redemption.

       JHHC redeemed its outstanding preferred stock at the end of

1997.    Contemporaneously therewith, JHHC also exchanged its

outstanding common stock for a combination of newly issued

nonvoting common stock and newly issued voting common stock.      In

1998 JHHC elected to be taxed as an S corporation for Federal

income tax purposes.
                               - 4 -

IV.   Petitioners’ Charitable Interests

      Petitioners lived in Midland, Texas, for several years and

were active members of that community.    They each contributed

their time and money to several charitable organizations in their

community.   They also contributed money to charitable

organizations outside of their community.

      In or about 1999 petitioners asked Mr. Dyer for estate

planning advice.   Petitioners informed Mr. Dyer that they wanted

to give some of their JHHC stock to their daughters (through

trusts) and to a charitable entity.    Because the stock was hard

to value, Mr. Dyer suggested that petitioners use a formula

clause to define the stock transfer at the time of the gift in

terms of dollars rather than in percentages, while fixing for

Federal gift tax purposes the value of the transfer of the stock.

      In the light of petitioners’ interest in making charitable

gifts, Mr. Dyer advised them to establish a donor-advised fund at

a nonprofit community organization.1   Petitioners followed this

advice and chose the Greater Houston Community Foundation

(Foundation) to administer their contemplated donor-advised fund.

The Foundation is a tax-exempt organization that provides funds

to support cultural, educational, health, and welfare programs



      1
      A donor-advised fund is a charitable-giving account
administered by a tax-exempt entity and enables donors such as
petitioners to have authority over the ultimate recipient of the
donation.
                               - 5 -

and that manages charitable-giving funds for families,

corporations, and tax-exempt organizations.    The Foundation

currently manages nearly $270 million in assets in 639 funds and

is under the supervision of a board of directors consisting of 34

regular board members and 8 lifetime directors.    Petitioners

choose the Foundation, with which they had never previously been

involved, because they wanted to assist other needy parts of

Texas while maintaining their local commitment.

      Petitioners instructed Mr. Dyer to communicate with the

Foundation on their behalf.   During the summer of 1999, Mr. Dyer

contacted Robert Paddock (Mr. Paddock), the Foundation’s vice

president of development, and informed him that petitioners

wanted to make a significant charitable contribution to the

Foundation of (1) $20,000 to establish a donor-advised fund and

(2) JHHC nonvoting stock.   Mr. Paddock reported the contemplated

gift to the Foundation’s executive director.    Mr. Paddock also

consulted the Foundation’s counsel, Bill Caudill (Mr. Caudill).

The Foundation’s protocol on a donation of a hard-to-value asset

such as nonpublicly traded stock required that Mr. Paddock

consult with Mr. Caudill.

V.   The Creation of the Donor-Advised Fund at the Foundation

      On August 10, 1999, Mr. Dyer sent a letter to Mr. Paddock

and to Mr. Caudill, submitting a draft copy of an agreement

establishing a donor-advised fund at the Foundation and
                                  - 6 -

soliciting comments from them as to the draft.      Over

approximately the next 3 months, the parties to the draft

negotiated the terms of their agreement.      On November 9, 1999,

petitioners signed an agreement establishing the donor-advised

fund.      The next day, Mr. Dyer (on behalf of petitioners) sent

$20,000 to the Foundation with the signed agreement.

VI.   Preliminary Steps for Stock Contribution

      A.     Proposal of Agreements

      On October 6, 1999, Mr. Dyer sent to the Foundation a draft

of an assignment agreement and enclosed a dispute resolution and

buy-sell agreement (dispute resolution and buy-sell agreement)

executed by JHHC and its shareholders approximately 2 months

before.      The draft indicated that petitioners would give JHHC

stock to the Foundation and would transfer (part as a gift and

part as a sale) JHHC stock to the trusts benefiting the

daughters.      The draft indicated that a formula clause would set

the portion of JHHC stock transferred to the trusts and the

remaining portion given to the Foundation.      On November 19, 1999,

Mr. Caudill returned the assignment agreement with an attached

rider that addressed JHHC’s responsibility to distribute income

timely.

      B.     Howard Frazier Estimate

      Petitioners retained Howard Frazier in the fall of 1999 to

estimate the value of the JHHC nonvoting stock.      Howard Frazier
                                 - 7 -

did so on the basis of the 1997 redemption valuation of the JHHC

preferred stock, and JHHC’s accounts and tax records.       In

accordance with the estimate, petitioners decided that each of

them would give $50,000 of JHHC nonvoting stock to the Foundation

and would transfer $10,519,136.12 of JHHC nonvoting stock to a

generation-skipping tax (GST) trust and $4,213,710.10 of JHHC

nonvoting stock to an issue trust.       The issue trust, in turn,

benefited the daughters through other issue trusts.

       C.   Creation of Trusts

       On or about December 29, 1999, each petitioner executed

trust agreements forming a GST trust and an issue trust for the

benefit of the daughters.     The trustees of the trusts were Mr.

Klein and Mrs. Wood (collectively, trustees).       Each trust

consisted of three separate and equal shares for the benefit of

the daughters.

       D.   Partition of Community Property

       On December 30, 1999, petitioners entered into an agreement

that partitioned into separate property their community property

interests in the JHHC nonvoting common stock.       Afterwards, each

petitioner owned 403,241.85 shares of JHHC nonvoting stock.

VII.    Execution of Assignment Agreements and Related Agreements

       On December 31, 1999, each petitioner, the trustees, and the

Foundation executed an assignment agreement that irrevocably

assigned 287,619.64 shares of the assignor’s JHHC nonvoting stock
                                 - 8 -

to the assignor’s GST trust and to the Foundation.    Each

agreement effected the transfer pursuant to a formula under

which:   (1) A portion of the assigned shares having a fair market

value as of the effective date equal to $10,519,136.12 was

assigned to the trustees to be held in equal shares for the

benefit of the daughters, and (2) any remaining portion of the

assigned shares was assigned to the Foundation for the benefit of

the donor-advised fund.    The assignment agreements defined fair

market value as the price at which those shares would change

hands as of the effective date between a hypothetical willing

buyer and a hypothetical willing seller, neither under any

compulsion to buy or to sell and both having reasonable knowledge

of relevant facts.    The assignment agreements required that the

trusts pay proportionally any gift taxes imposed as a result of

the transfer.    The assignment agreements required that the

trustees sign promissory notes obligating the trustees to pay

$9,090,000 to each petitioner.

     On the same day, a second set of assignment agreements was

executed containing the same terms as the first set of assignment

agreements, except that each petitioner irrevocably transferred

115,622.21 of JHHC nonvoting stock to his or her corresponding

issue trust and to the Foundation, and the fair market value of

the stock for the benefit of the daughters was set at

$4,213,710.10.    The second set of assignment agreements directed
                                 - 9 -

the trustees to deliver to each petitioner a note in the amount

of $3,641,233.

     Under the assignment agreements, petitioners had no right or

responsibility for allocating the shares among the transferees on

a per-share basis.    The assignment agreements left that

allocation to the transferees.    The assignment agreements stated

that the dispute resolution and buy-sell agreement governed any

dispute among the parties and any transfer of JHHC stock.    The

dispute resolution and buy-sell agreement required that any

dispute related to the fair market value between or among JHHC,

the shareholders, assignees, or any party be resolved by

arbitration, if it could not be resolved by agreement.

     Also on December 31, 1999, the trustees delivered the

promissory (demand) notes in exchange for the shares, and

petitioners executed agreements stating that the trusts and the

Foundation as tenants in common would collectively own all of the

assigned shares.2    Petitioners also executed certificates of

stock transferring the assigned shares to the trusts and to the

Foundation as tenants in common as of December 31, 1999.    Each

petitioner also executed an irrevocable stock power document

stating that he or she irrevocably transferred the stock to the

trusts and to the Foundation as tenants in common.



     2
      The notes were secured by the corresponding shares
transferred to the trusts.
                                - 10 -

VIII.     Petitioners’ Federal Gift Tax Returns

        On April 12, 2000, each petitioner filed a Form 709, United

States Gift (and Generation-Skipping Transfer) Tax Return, for

1999.     On each return, the corresponding petitioner claimed a

charitable contribution deduction of $50,000 and a total taxable

gift of $1,414,581.37.

IX.     Evaluation and Confirmation Agreements

        Mr. Dyer represented the trusts in negotiating proposed

confirmation agreements as to the transfers of the JHHC stock.

Mr. Dyer advised the trusts to seek another appraisal of the JHHC

stock as of the date of the gift.     The trustees retained Howard

Frazier for this purpose.     Howard Frazier ascertained that the

fair market value of the JHHC stock was $36.66 per share on

December 31, 1999 (appraisal).     On April 12, 2000, Mr. Dyer sent

the appraisal to the Foundation and to its counsel.

        Mr. Paddock respected Howard Frazier’s qualifications as an

appraisal firm but his attorney advised him, and the Foundation’s

practice on hard-to-value assets required, that he retain another

independent appraisal firm to review the appraisal.     Mr. Paddock

retained White Petrov for that purpose, and White Petrov

concluded on or about May 8, 2000, that the appraisal was

reasonable and fair.     Approximately 1 month later, the Foundation

and the trustees entered into confirmation agreements, effective

as of December 31, 1999, that allocated amongst them the JHHC
                              - 11 -

nonvoting stock according to the fair market value of $36.66-per-

share listed in the appraisal.   Petitioners were not parties to

those confirmation agreements.

X.   Stipulation

      Petitioners and respondent have entered into the following

stipulation:

      If upon a final decision in this case it is determined
      that the defined value formula clauses contained in the
      Assignment Agreements executed by John H. Hendrix and
      Karolyn M. Hendrix on December 31, 1999, do not control
      the valuation of the shares of nonvoting common stock
      in John H. Hendrix Corporation transferred by John H.
      Hendrix and Karolyn M. Hendrix on December 31, 1999,
      then the fair market value of the shares transferred to
      each transferee shall be based on a per share value of
      $48.60 times the number of shares agreed to by each
      transferee in the Confirmation Agreements executed by
      the transferees.

Except for this stipulation, the only other evidence of the value

of the JHHC nonvoting shares is the $36.66-per-share value

ascertained by Howard Frazier and used by the trustees and the

Foundation to allocate the shares amongst themselves.

                              OPINION

I.   Overview

      The parties dispute the validity of the formula clauses.

Petitioners contend that the formula clauses are valid because

the clauses were used to fix the transferred amount of JHHC’s

hard-to-value stock and the parties to those clauses conducted

themselves at arm’s length.   Petitioners conclude that the

applicable value of the stock is $36.66 per share, as reported,
                                - 12 -

and that they may deduct the $100,000 claimed as charitable

contributions.    Respondent argues that the formula clauses are

invalid because they were not reached at arm’s length and are

contrary to public policy.     Respondent concludes that the value

of the stock is $48.60 per share and that each petitioner may

deduct charitable contributions totaling $66,284.57 (i.e., $48.60

multiplied by the number of shares transferred to the

Foundation).3    We agree with petitioners that the applicable

value of the stock is $36.66 per share and that each petitioner

may deduct the claimed $50,000 in charitable contributions.

II.   Burden of Proof

      Taxpayers normally bear the burden of proof in this Court.

See Rule 142(a)(1).     In certain cases, however, the burden of

proof may shift to the Commissioner.     See sec. 7491(a); Rule

142(a)(2).   Petitioners claim this is one of those cases.

Respondent does not dispute petitioners’ claim that the burden

has shifted to respondent with respect to the validity of the

formula clauses.    Respondent argues only that petitioners bear

the burden if they aspire to deduct more than $66,284.57 in

charitable contributions.     Because petitioners aspire only to


      3
      Respondent states repeatedly that the parties agreed that
the per-share value of the stock was $48.60 and points to the
stipulation quoted above to support that statement. We do not
read that stipulation similarly. We read that stipulation (and
the agreed-upon $48.60 value) as inapplicable to this case
because, as we hold, the formula clauses “control” the valuation
of the JHHC stock.
                                  - 13 -

deduct $50,000 in charitable contributions, respondent’s argument

is irrelevant.    Therefore, on the only issue for decision that

remains (validity of the formula clauses), we conclude on the

basis of the record that the burden of proof is on respondent.

III.   Statutory and Regulatory Law

       Sections 2501 and 2512 govern the valuation of the JHHC

stock transferred to the trusts and to the Foundation.      Section

2501 imposes a tax on an individual’s transfer of property by

gift during the calendar year.      Section 2512(a) provides that the

amount of the gift is the value of the property on the date of

the gift.     Section 2512(b) provides that where property is

transferred for less than an adequate and full consideration in

money or money’s worth, the amount by which the value of the

property exceeds the value of the consideration is a gift and is

included in computing the amount of gifts made during the year.

IV.    Succession of McCord

       A.   Discussion

       This case is appealable to the Court of Appeals for the

Fifth Circuit, and we follow precedent of that court that is

squarely on point.       See Golsen v. Commissioner, 54 T.C. 742

(1970), affd. 445 F.2d 985 (10th Cir. 1971).      Petitioners argue

that Succession of McCord v. Commissioner, 461 F.3d 614 (5th Cir.

2006), revg. 120 T.C. 358 (2003), is such precedent.      We agree.

As discussed below, Succession of McCord is dispositive of this
                              - 14 -

case except to the extent that respondent argues that:   (1) The

formula clauses are not the result of an arm’s-length transaction

or (2) the formula clauses are void as contrary to public policy.

     Succession of McCord is factually similar to this case.

There, Charles and Mary McCord (collectively, McCords)

transferred their interest in McCord Interests, Ltd., L.L.P.

(MIL), to nonexempt and exempt donees according to a formula

clause nearly identical to the one here.   MIL was a limited

liability partnership formed by the McCords, their sons, and the

sons’ limited liability partnership.

     On January 12, 1996, the McCords executed an assignment

agreement that used a formula clause to irrevocably dispose of

their class B limited partnership interest to GST trusts, to

their sons, to the Community Foundation of Texas, Inc. (CFT), and

to the Shreveport Symphony, Inc. (Symphony).4   The formula clause

stated that:   (1) GST trusts would receive interests in MIL with

a fair market value equal to the dollar amount of the McCords’

net remaining generation-skipping tax exemption, reduced by the

dollar value of any transfer tax obligation assumed by the

trusts; (2) the sons would receive interests in MIL with a fair

market value of $6,910,932.52, reduced by the dollar value of the

interests given to the GST trusts and any transfer tax obligation


     4
      The McCords had previously donated their entire class A
limited partnership interest in MIL to another charitable
foundation.
                               - 15 -

assumed by the sons; (3) the Symphony would receive an interest

in MIL with a fair market value of $134,000; and (4) CFT would

receive any remaining interest.    The assignment agreement defined

fair market value according to the willing buyer/wiling seller

test specified in the regulations and required the donees to

apply that standard to ascertain the fair market value of the

class B limited partnership interests.    The assignment agreements

did not specify any method that the donees had to employ to

equate their dollar amount of gifts to percentages of interest in

MIL, and the parties to the transaction lacked any agreement,

either oral or expressed, on any such method.    See id. at 618-

619.

       Howard Frazier was hired to value a 1-percent limited

partnership interest in MIL, and on February 28, 1996, the sons

and their trusts presented CFT and the Symphony with a Howard

Frazier appraisal stating that the fair market value of a 1-

percent limited partnership interest was $89,505 on the date of

the gift.    CFT exercised its right to retain outside counsel to

review the appraisal independently.     Although CFT did not retain

an independent appraiser, the CFT officers and their outside

counsel expressed confidence in Howard Frazier’s methodology and

service and accepted its valuation.     In March 1996 all the donees

executed a confirmation agreement allocating the partnership
                              - 16 -

interests to the parties according to the value stated in the

appraisal.

     By separate notices of deficiency, the Commissioner

determined a deficiency in the Federal gift tax of each of the

McCords on the basis of their understatement of the value of the

limited partnership interests.   The McCords petitioned this

Court, and we decided that they had inaccurately determined the

fair market value of the 1-percent limited partnership interest.

See McCord v. Commissioner, 120 T.C. 358 (2003).    The Court of

Appeals for the Fifth Circuit disagreed, holding that the fair

market value of the 1-percent limited partnership interest was as

determined by the Howard Frazier report and used by the McCords

to prepare their gift tax returns.     See Succession of McCord v.

Commissioner, supra at 628.   The court noted that the

Commissioner had relied in this Court on the doctrine of

violation of public policy but had waived that doctrine on

appeal.   See id. at 623.

     B.   Applicability to This Case

     Respondent states that Succession of McCord v. Commissioner,

supra, is not controlling precedent because the Court of Appeals

for the Fifth Circuit did not consider specific arguments that

respondent makes here.   We agree that Succession of McCord does

not control this case to the extent that respondent’s current

arguments implicate issues not decided by the Court of Appeals
                                - 17 -

for the Fifth Circuit in Succession of McCord.    Respondent makes

two such arguments in this case.    First, respondent argues as a

point of fact that the formula clauses are invalid because they

were not reached at arm’s length.    Second, respondent argues as a

point of law that the formula clauses are void as contrary to

public policy.   We proceed to address those two arguments.

Succession of McCord disposes of all other arguments.

V.   Arm’s-Length Transaction

      Generally, a taxpayer may structure a transaction in a

manner that minimizes or avoids taxes by any means the laws

allow.    Gregory v. Helvering, 293 U.S. 465, 469 (1935).   Courts,

however, may disregard the form of a transaction in favor of its

substance where there is collusion, an understanding, a side

deal, or another indicium that the transaction was not at arm’s

length.    The disregard of a transaction for lack of substance,

however, cannot be based on mere suspicion and speculation

arising from the fact that a taxpayer engaged in estate planning.

See Strangi v. Commissioner, 293 F.3d 279, 282 (5th Cir. 2002),

affg. in part and revg. in part T.C. Memo. 2003-145; Hall v.

Commissioner, 92 T.C. 312, 335 (1989).    Nor do we strictly

scrutinize a transaction, or presume that a transfer is a gift,

where, as here, the transaction involves a third party without

familial or financial ties to the transferee’s family group.    Cf.

Kimbell v. United States, 371 F.3d 257, 263 (5th Cir. 2004)
                              - 18 -

(applying the strict scrutiny standard and imposing a presumption

that the transferred property is a gift when a mother transferred

a large portion of her estate to three entities her son owned);

Harwood v. Commissioner, 82 T.C. 239, 258 (1984) (applying the

strict scrutiny standard and raising the presumption that the

property transferred among a family was a gift where a mother

transferred her partnership interest to her sons), affd. without

published opinion 786 F.2d 1174 (9th Cir. 1986).   Instead, we

must find credible evidence that the parties colluded or had side

deals or that the form of the transactions otherwise differed

from the substance.   We find no such credible evidence here.

     Respondent argues that the formula clauses failed to be

reached at arm’s length because petitioners and their daughters

(or their trusts) were close and lacked adverse interests, the

daughters benefited from petitioners’ estate plan, and the

clauses were not thoroughly negotiated.   We disagree.   The mere

facts that petitioners and their daughters were “close” and that

petitioners’ estate plan was beneficial to the daughters does not

necessarily mean that the formula clauses failed to be reached at

arm’s length.   Nor is a finding of negotiation or adverse

interests an essential element of an arm’s-length transaction,

see Kimbell v. United States, supra at 263; Huber v.

Commissioner, T.C. Memo. 2006-96; Estate of Stone v.

Commissioner, T.C. Memo. 2003-309, although we find nothing in
                              - 19 -

the record to persuade us either that the formula clauses were

not subject to negotiation or that petitioners and the daughters’

trusts lacked adverse interests.    We also note economic and

business risk assumed by the daughters’ trusts as buyers of the

stock (i.e., the daughters’ trusts could receive less stock for

their payment if the JHHC stock was overvalued) placed them at

odds with petitioners and the Foundation.

     Respondent asks the Court to find collusion between

petitioners and the Foundation.    We decline to do so.

Petitioners’ creation of the donor-advised fund at the Foundation

did not diverge from their usual course of donation, because they

could still request the Foundation to provide a grant to any of

their usual donees.   The Foundation, in turn, accepted various

potential risks incident to its receipt of petitioners’ gift of

the JHHC stock, including a loss of the Foundation’s tax-exempt

status if it failed to exercise due diligence as to the gift.

The Foundation, a manager of nearly $270 million in assets,

exercised its bargaining power when its counsel insisted that

petitioners pay local taxes and penalties as well as Federal and

State taxes and penalties if JHHC failed to distribute sufficient

income to pay those taxes.   The Foundation also was represented

by counsel independent of petitioners or their counsel, and the

Foundation conducted an independent appraisal through White

Petrov.   We also note that the Foundation had a fiduciary
                              - 20 -

obligation under Federal and State law to ensure that it received

the number of shares it was entitled to receive under the formula

clauses.   See sec. 501(c)(3); Tex. Rev. Civ. Stat. Ann. art.

1396-2.28 (West 1997).

VI.   Public Policy

      Respondent argues that the formula clauses are void as

contrary to public policy.   We disagree.    While the Court can

disallow a deduction on public policy grounds if allowing such a

deduction would severely and immediately frustrate sharply

defined national or State policies proscribing certain conduct,

see Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30, 35

(1958), the formula clauses do not immediately and severely

frustrate any national or State policy.     To the contrary, the

fundamental public policy here is one of encouraging gifts to

charity, and the formula clauses support that policy.

      Respondent relies on Commissioner v. Procter, 142 F.2d 824

(4th Cir. 1944), and its progeny, for a contrary result.     There,

a taxpayer assigned his interest in two trusts subject to the

life estate of his mother.   The taxpayer instructed the trustees

that, upon his mother’s death, certain amounts of the corpora

should be paid to him during his life, and the remaining corpora

should be delivered to his children or their representatives at

his death.   The amounts of the corpora paid to the taxpayer were

tied to the amounts due on loans from his mother secured by his
                               - 21 -

interests in the two trusts.    The trust indenture stated as a

saving provision that if it was ultimately determined that any

part of the transfer in trust was subject to gift tax, then the

property subject to the tax was not to be included in the

conveyance to the trust and would remain property of the

taxpayer.

     The Court of Appeals for the Fourth Circuit held that this

saving clause was void as contrary to public policy.     Such was

so, the court stated, for three reasons.    First, the provision

discouraged the collection of the tax because any attempt to

collect the tax would defeat the gift.    See id. at 827.     Second,

the effect of the condition was to obstruct the administration of

justice by requiring a court to pass upon a moot case.       See id.

Third, the provision would reduce a Federal court’s final

judgment to a declaratory judgment.     See id.   Since Commissioner

v. Procter, supra, Federal courts have relied upon that case to

invalidate other saving provisions.     See, e.g., Ward v.

Commissioner, 87 T.C. 78 (1986) (invalidating saving clause that

provided for a retroactive adjustment of stock to escape any

imposition of gift tax).

     The present case is distinguishable from Procter and its

progeny.    Here, unlike there, the formula clauses impose no

condition subsequent that would defeat the transfer.     Moreover,

as stated above, the formula clauses further the fundamental
                                  - 22 -

public policy of encouraging gifts to charity.       Recently, in

Estate of Christiansen v. Commissioner, 130 T.C. 1, 16-18 (2008),

affd. 586 F.3d 1061 (8th Cir. 2009), we held that an essentially

similar dollar-value formula disclaimer was not contrary to

public policy.       We know of no legitimate reason to distinguish

the formula clauses from that disclaimer, and we decline to do

so.    We hold that the formula clauses are not void as contrary to

public policy.

VII.    Conclusion

       We hold consistently with Succession of McCord v.

Commissioner, 461 F.3d 614 (5th Cir. 2006), that the formula

clauses control the transfers of the JHHC stock to the trusts and

the Foundation on December 31, 1999.       Given this holding, no

additional value passed to the Foundation as of December 31,

1999, and petitioners are entitled to deduct the $100,000 in

charitable contributions claimed.       All arguments for contrary

holdings have been considered and, to the extent not discussed

above, we find those arguments to be without merit.       Accordingly,


                                        Decision will be entered for

                                   petitioners.
