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Estate of Stranahan v. Commissioner - 472 F.2d 867 (6th Cir. 1973)


A taxpayer is free to arrange his financial affairs to minimize his tax liability; thus, the presence of tax avoidance motives will not nullify an otherwise bona fide transaction.


A taxpayer needed to accelerate his income to take advantage of certain interest deductions. To this end he assigned to his son anticipated stock dividends from his company for which the son paid consideration. The company was instructed to issue future dividend checks to the son. When the dividends for the tax year in question were paid to the son, appellee United States government attributed the dividends to appellant taxpayer's estate and assessed tax accordingly. The United States Tax Court partially denied appellant estate's petition for a redetermination of a deficiency in the decedent's income tax. The estate sought review.


Did the trial court err when it denied the Estate"s petition for a redetermination of a deficiency in the decedent's income tax?




The court reversed because the transaction involving the sale of future dividends was valid and for consideration. The taxpayer reported the money paid to him by his son as income and the son likewise reported the dividend received as income.  The transaction was  economically realistic, with substance, and therefore should be recognized for tax purposes even though the consequences may be unfavorable to the Commissioner. The facts establish decedent did in fact receive payment. Decedent deposited his son's check for $115,000 to his personal account on December 23, 1964, the day after the agreement was signed. The agreement is unquestionably a complete and valid assignment to decedent's son of all dividends up to $122,820. The son acquired an independent right against the corporation since the latter was notified of the private agreement. Decedent completely divested himself of any interest in the dividends and vested the interest on the day of execution of the agreement with his son.

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