designated agent and trustee of the Institute. In particular, each donation agreement states:
NOW, THEREFORE, Greene hereby transfers, assigns and conveys all of his right, title and interest in the long term capital gain of the futures contracts to ISES and hereby delivers an irrevocable power of attorney for the above designated contracts to Spector as Agent and Trustee for ISES giving him absolute and complete discretion to determine when and if to sell said contracts, assuming he desires to do so and further directs that the long term capital gain which would otherwise be paid to Greene shall be remitted directly to ISES.
* * * *
IT IS UNDERSTOOD AND AGREED that as a result of this agreement and the attached irrevocable power of attorney . . . Greene will no longer have any control whatsoever in the above contracts.
Exhibit H to the Stipulation of Facts at 2. The plain meaning of this provision is unmistakable. It clearly indicates a donation of the contracts' long-term capital gain and the irrevocable delegation of control over the futures contracts to the Institute's trustee, Ralph Spector. Since the trustees of the Institute held total control over the contracts, we cannot say that Greene realized income from the long-term capital gains income from the futures contracts. Greene confirmed this at his deposition:
Q: Did you have the power or authority to direct anyone to sell the futures contracts that were the subject of the donation to the Institute?
A: No, I didn't.
Exhibit A to Stipulation of Facts at 35. This donation did not simply rest upon "skillfully devised" anticipatory arrangements that would cause us to view this an anticipatory assignment. See Lucas v. Earl, 281 U.S. 111, 114-15, 74 L. Ed. 731, 50 S. Ct. 241 (1930).
Perhaps most convincingly, Mr. Hartnett, the Merrill Lynch account executive overseeing the Special Account, stated that the standing instruction was given to him by Harry Reiner, the original trustee for the Special Account, and continued by Ralph Spector, the second trustee authorized to act for the Institute. See Hartnett Affidavit at P 5. According to Mr. Hartnett, "Leonard Greene never directed me to execute or not to execute a trade in the Special Account." Id.
While the question of Greene's control is a factual issue, the evidence in the record supports only one conclusion: Greene maintained no control over the sale of the donated futures contracts. Since plaintiffs have offered evidence directly supporting their position on this material issue of fact, defendant cannot rest on its pleadings but rather, to avoid summary judgment on this issue, must counter with evidentiary materials of its own. See Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The fact that Greene was the Institute's President and a Board member alone is not sufficient. See S.C. Johnson & Son, 63 T.C. 778.
This case at bar is unlike the situation in Kinsey v. Commissioner, 477 F.2d 1058 (2d Cir. 1973), cited by the government in its brief. In Kinsey, the stockholders of the donor company had already adopted a plan of liquidation before the gift of stock was made. Id. at 1059-60. As a result, the reality was that the liquidation of the gift stock was certain before the stock was donated to the recipient university.
Similar to the present case, the university's normal policy was to sell any stock it received as a gift. Id. at 1060. The court in Kinsey stressed that the circumstances nearly matched the facts of another case also cited by defendant, Hudspeth v. United States, 471 F.2d 275 (8th Cir. 1972), in which a taxpayer made a gift to a charity after a plan of complete liquidation had been adopted ana steps to carry it into effect had been taken. See Kinsey, 477 F.2d at 1061; see also Jones v. United States, 531 F.2d 1343 (6th Cir. 1976) (finding under "realities and substance" test that a gift of stock to charities after a liquidation plan had been adopted by the company's directors and stockholders constituted an anticipatory assignment of income).
Similarly, cases cited by the government like Salvatore v. Commissioner, 434 F.2d 600 (2d Cir. 1970), are unpersuasive. In Salvatore, the one-half interest in the gas station conveyed by the taxpayer, Mrs. Salvatore, to her children was only conveyed after a formal agreement of purchase and sale of the gas station was signed. While the court in Salvatore noted the brief duration of possession by her children, the court stressed that "Mrs. Salvatore, alone, rather than she and her children, was the seller of the gas station." Id. at 601.
Here, however, there is no evidence of any liquidation plan adopted by plaintiffs regarding sale of the contracts. Indeed, the only evidence bearing on this demonstrates that Greene neither planned, controlled, nor knew with certainty when the donated contracts would be sold. Unlike the company directors and stockholders in Kinsey or the parent in Salvatore who held the decision-making authority and approved the sales of the conveyed property, Greene executed powers of attorney that irrevocably removed such authority from his hands. No pre-transfer contracts of sale or formal liquidation plans existed. The sale decisions rested expressly and solely with the trustees. Under these circumstances, the donation of the contracts' long-term capital gain, while less tangible than many other forms of gifts, should still be considered a donation of property.
While the eventual, even immediate, sale of the contracts was implied by the nature of the property donated, the timing of the sale was controlled exclusively by the trustees. Viewing the entire record, the fact that the contracts were actually held for only a short period after their transfer to the Special Account is not alone determinative. On the present record, Greene's influence or control over the timing of sales of the futures contracts is simply an assumption, unsupported by any demonstrable evidence.
As a result, we conclude that defendant has failed to demonstrate that the factual issue of Greene's control over the sale of the donated futures contracts is in dispute. Because the only evidence in the record bearing on this issue shows that Greene retained no control over the timing of the contracts' sales, his donations of their long-term gain should not properly be considered an anticipatory assignment of income. Consequently, we conclude that plaintiffs should not be taxed on the long-term gain donated to the Institute and therefore grant summary judgment for the plaintiff's on this issue.
B. The Step Transaction Issue
Defendant alternatively argues that the transfers should be treated together with the later futures sales and division of proceeds as a single transaction. The government argues that Greene's plan was to meet the Institute's operating needs by selling selected futures contracts with unrealized appreciation of equal amounts. Rather than donating cash which would have placed a tax obligation on Greene for the entire gain, they argue that Greene tried to donate the futures contracts with a restriction that he would keep the short-term capital gain on their sale.
Plaintiffs claim that the crucial question is determining whether the step transaction theory applies is whether the property was donated with no strings attached or prearrangements made. They maintain that Greene donated all his interest in the long-term portions of the futures contracts to the Institute, free and clear.
As we mentioned earlier, the fact that a donor taxpayer controlled the foundation receiving the donation does not necessarily mean that the gift was a sham or that no real dominion over the property was donated. See Palmer v. Commissioner, 62 T.C. 684 (1974), aff'd, 523 F.2d 1308 (8th Cir. 1975). Plaintiffs point out that Ralph Spector and Harry Reiner acted as separate trustees for the Institute, held an irrevocable power of attorney, and had full discretion as to when to sell the contracts. Thus, plaintiffs stress, even if Greene expected the Institute to sell the contracts, he had no legal ability to compel their sale.
The question is how related were the decisions to sell the futures to their donation. If some prearrangement existed by which plaintiffs donated selected contracts to cover the Institute's operating expenses and received back short term gains without having to pay taxes on the full amount of the contracts, one might view the transfers as simply a step transaction within the larger plan. The United States Tax Court has held that:
if, by means of restrictions on a gift to a charitable donee, either explicitly formulated or implied or understood, the donor so restricts the discretion of the donee that all that remains to be done is to carry out the donor's prearranged plan for disposition of the stock, the donor has effectively realized the gain inherent in the appreciated property.
Blake v. Commissioner, 42 T.C.M. (CCH) 1336 (1981). Plaintiffs claim that their sale was not so much prearranged but rather simply the prudent act of a charity in need of operating capital.
Defendants argue that a standing instruction to Merrill Lynch existed directing that all futures transferred into the Special Account would be sold immediately. From this fact they argue that a reasonable inference can be drawn that a prearranged plan was in effect to use the charity to sell their futures, cover the foundation's needs with the long-term gains, and keep the short-term gains without having to pay taxes on the entire proceeds of the sale. Without such a plan, says defendant, the contracts could be sold at any time and no reasonable market value could be ascertained by Greene by which a deduction could be taken.
This case seems similar to the situation in S.C. Johnson & Son, 63 T.C. 778, in which the tax court held that donations of appreciated futures contracts to a charitable organization controlled by the taxpayer did not result in income to the taxpayer when the contracts were sold shortly after they had been donated. As we discussed above with the anticipatory assignment issue, the donation agreements and powers of attorney executed by Greene support plaintiff's position that the trustees held the reins over the sale of the futures contracts once they were transferred into the Merrill Lynch Special Account.
We may speculate that Greene, as the Institute's President and primary patron, controlled those reins. However, the record contains no evidence that the standing instruction in fact derived from Greene. Indeed, the evidence indicates otherwise. The Merrill Lynch account executive in charge of the special Account specifically stated the standing instruction was given by the trustees and he had no input on contract sales from Greene. There is simply no evidence to suggest that Greene was the source of the standing instruction. Hence, we must conclude on the record that the issue of Greene's control over the sale of the contracts was not such that the donations and sales could be viewed as step transactions encompassed within a unified plan. We therefore grant summary judgment for plaintiffs on this issue as well. The Clerk shall enter judgment for the plaintiffs in the amount of $ 249,012 refund plus interest from November 7, 1990, the date of plaintiffs' payment of the deficiency to the IRS.
Dated: White Plains, New York.
November 24, 1992.
GERARD L. GOETTEL