UNITED STATES TAX COURT



GERALD A. AND HENRIETTA V. RAUENHORST, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 1982-00.               Filed October 7, 2002.



     Ps owned stock warrants in NMG. WCP sent a letter
to NMG regarding its intention to purchase all the
issued and outstanding stock of NMG. Ps then assigned
their warrants to four charitable institutions. At the
time of the assignments, the donees were under no legal
obligation, and could not be compelled, to sell the
warrants. The donees subsequently sold their warrants
to WCP. R determined that the contributions by Ps were
anticipatory assignments of income. Ps moved for
partial summary judgment arguing that the anticipatory
assignment of income doctrine does not apply where
donees are not legally obligated, and cannot be
compelled, to sell contributed property. Ps rely on
Rev. Rul. 78-197, 1978-1 C.B. 83. R argues that he is
not bound by his ruling but has neither withdrawn nor
modified that ruling.

     Held: Rev. Rul. 

, provides that, in
the case of a charitable contribution of stock, the
Internal Revenue Service will treat proceeds of the
                               - 2 -

     sale of the stock as income to the donor only if at the
     time of the gift, the donee is legally bound, or can be
     compelled, to sell the shares. We treat Rev. Rul. 78-
     

, as a concession in the instant case. See
     Walker v. Commissioner, 

(1993). There
     remains no genuine issue of material fact regarding
     whether the charitable donees were legally obligated,
     or could be compelled, to sell the stock warrants at
     the time of the assignments by Ps. Accordingly, Ps are
     entitled to judgment as a matter of law.



     John K. Steffen, Walter A. Pickhardt, and David R. Brennan,

for petitioners.

     David L. Zoss, for respondent.



                              OPINION


     RUWE, Judge:   The matter is before us on petitioners’ motion

for partial summary judgment pursuant to Rule 121.1   Respondent

determined a deficiency of $1,322,295 in petitioners’ Federal

income taxes, and an accuracy-related penalty of $264,459

pursuant to section 6662(a), for 1993.   The issue for decision is

whether the transfer of stock warrants to four charitable

institutions was an anticipatory assignment of the proceeds from

a sale of those warrants.




     1
      All section references are to the Internal Revenue Code in
effect for the tax year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
                                - 3 -

                             Background

     At the time of filing the petition, petitioners resided in

Naples, Florida.    Petitioners were the only partners of Arbeit &

Co. (Arbeit), a general partnership.2       NMG, Inc. (NMG), was a

Delaware corporation which did business as George Rice & Sons.

     On March 31, 1992, Arbeit and NMG executed an agreement

which required that Arbeit surrender 2,500 shares of NMG series A

preferred stock, a subordinated promissory note, and certain

previously issued NMG warrants.   Pursuant to this same agreement,

NMG issued to Arbeit a senior subordinated promissory note of $5

million and a junior subordinated promissory note of $2.4

million.   NMG also issued a warrant which gave Arbeit the right

to purchase 772.14 shares of NMG class A common stock at an

exercise price of $1 per share.   Before November 12, 1993,

Arbeit, Sieben Investment Co., Berkeley Atlantic Income, Ltd.,

and BG Services, Ltd., held warrants to purchase NMG class A

common stock in the following amounts:

           Warrantholder                Number of Shares

           Arbeit                            772.14
           Sieben                             18.36
           Berkeley                          115.41
           BG Services                       230.82
             Total                         1,136.73


     Before December 22, 1993, NMG’s outstanding stock consisted

     2
      Arbeit’s sole purpose was to act as a nominee for
petitioners, as trustee of the Gerald Rauenhorst Revocable Trust.
This trust was a revocable grantor trust, and its assets were
treated as owned by Mr. Rauenhorst under sec. 676.
                                   - 4 -

of 2,400 shares of class A common stock and 660 shares of series

B preferred stock that were convertible share for share into NMG

common stock.    NMG’s stock was owned as follows:

                                             Common Stock
                             Shares of        Ownership        Shares of
       Shareholder          Common Stock      Percentage    Preferred Stock

     Grossberg family1         1,176            49.00%           660
     E. James Cooper             349            14.54              0
     John J. Woodlock            349            14.54              0
     Randolph K. Ginsberg        349            14.54              0
     John J. Zamora              177             7.38              0
       Total                   2,400           100.00            660

           1
             The Grossberg family consisted of Ewel Grossberg and June Marion
     Grossberg, in their capacities as trustees of the Grossberg Trust of
     1983, and their children, Linda Finkel and Alan B. Grossberg.

If all preferred shares were converted into NMG common shares,

and if all warrants were exercised, the following would represent

the percentage ownership of NMG shares as of September 28, 1993:

     Shareholders and            Shares of                  Ownership
      Warrantholders            Common Stock                Percentage

     Grossberg family             1,836.00                    43.75%
     E. James Cooper                349.00                     8.32
     John J. Woodlock               349.00                     8.32
     Randolph K. Ginsberg           349.00                     8.32
     John J. Zamora                 177.00                     4.22
     Arbeit                         772.14                    18.40
     Sieben                          18.36                     0.44
     Berkeley                       115.41                     2.75
     BG Services                    230.82                     5.50
                                                            1
       Total                      4,196.73                   100.00

           1
             As a result of rounding the percentages, the total should
     actually be 100.02 percent.


     On September 28, 1993, World Color Press, Inc. (WCP), wrote

a letter to the chairman of the board of directors of NMG, Ewel

Grossberg, in which it stated its intention to purchase all the

issued and outstanding shares of NMG on the terms and conditions
                                 - 5 -

outlined in the letter.    This letter of intent was signed by

Robert G. Burton, as chairman, president, and CEO of WCP.    The

letter was accepted by Ewel Grossberg, as chairman of NMG; by

Randolph K. Ginsberg, as president of NMG; by Jim Cooper, as vice

president of manufacturing of NMG; and by John Woodlock, as vice

president of finance of NMG.    On October 22, 1993, WCP’s board of

directors adopted a resolution to negotiate and to enter into the

agreement for the purchase of all the issued and outstanding

capital stock of NMG.

     On November 9, 1993, Arbeit executed an assignment of its

rights in the NMG warrant to four institutions:    (1) The

University of St. Thomas; (2) Marquette University; (3) the Mayo

Foundation; and (4) the Archdiocese of St. Paul and Minneapolis,

Catholic Community Foundation.    The rights to purchase 772.14

shares of NMG class A common stock were allocated as follows:

(1) University of St. Thomas, 260.00 shares; (2) Marquette

University, 130.00 shares; (3) Mayo Foundation, 190.00 shares;

(4) Archdiocese of St. Paul and Minneapolis, 190.00 shares; and

(5) Arbeit, 2.14 shares.    The donee institutions were

organizations described in section 170(c)(2).

     On November 9, 1993, the general manager of Arbeit wrote a

letter to the chief financial officer of NMG requesting that the

warrant formally held by Arbeit be reissued to reflect the

assignments and that the reissued warrants be delivered by mail
                                - 6 -

to the new owners by November 12, 1993.    Legal counsel for NMG

sent letters dated November 11, 1993, which enclosed reissued

warrants, to Arbeit, the University of St. Thomas, Marquette

University, the Mayo Foundation, and the Archdiocese.    The donees

each acknowledged having received the reissued warrants on

November 12, 1993, in letters addressed to Mr. Rauenhorst.     Legal

counsel for NMG requested that each of the donees execute an

“Additional Party Signature Page” which related to a stockholders

agreement and registration rights agreement dated March 31, 1992.

On November 12, 1993, each of the donees signed an Additional

Party Signature Page.    Neither the Additional Party Signature

Page, nor the stockholders agreement, nor the registration rights

agreement bound the donees to sell their stock warrants to NMG or

WCP.

       On November 15, 1993, the general manager of Arbeit sent a

letter to NMG and WCP in which he confirmed Arbeit’s intention to

surrender its warrant to purchase 2.14 shares for cash as part of

WCP’s acquisition of NMG stock.    Arbeit executed a warrant

purchase and sale agreement dated as of November 19, 1993, in

which Arbeit agreed to sell its warrant (for 2.14 shares of NMG

stock) to WCP for $7,598.48 per share on or before December 31,

1993.    This agreement was contingent upon WCP’s acquisition of

all the issued and outstanding stock of NMG pursuant to a stock

purchase agreement.
                                    - 7 -

     On November 16, 1993, legal counsel for NMG sent a letter to

each of the donees enclosing a warrant purchase and sale

agreement, pursuant to which each donee would agree to sell its

reissued warrant to WCP.     The letters requested that each donee

sign the agreement and return it for receipt by NMG’s legal

counsel on November 18, 1993.       The donees each signed a warrant

purchase and sale agreement dated November 19, 1993, in which

they agreed to sell their reissued NMG warrants to WCP for

$7,598.48 per share on or before December 31, 1993.

     On November 22, 1993, NMG, NMG’s stockholders, and WCP

executed an agreement for the purchase of all the issued and

outstanding stock of NMG at a stated purchase price of $31

million allocated among the shares of stock and the warrants.

WCP acquired all the issued and outstanding stock of NMG and all

the issued and outstanding warrants to purchase NMG stock in a

transaction that was closed on December 22, 1993.         Pursuant to

this transaction, the holders of the reissued warrants sold those

warrants and received the following consideration:

                        Number of           Price Per       Total
    Warrantholder        Shares               Share     Consideration

  Univ. of St. Thomas   260.00              $7,598.48   $1,975,604.80
  Marquette Univ.       130.00               7,598.48      987,802.40
  Mayo Foundation       190.00               7,598.48    1,443,711.20
  Archdiocese           190.00               7,598.48    1,443,711.20
  Arbeit                  2.14               7,598.48       16,260.75

     Each of the donees filed a Form 8282, Donee Information

Return, with its Federal income tax return for 1993, in which

each reported November 12, 1993, as the date it received its
                                - 8 -

warrant.    The Forms 8282 filed by the University of St. Thomas,

Marquette University, and the Mayo Foundation report a sale of

their warrants on December 22, 1993.       The Form 8282 filed by the

Archdiocese reports a sale of its warrant on November 19, 1993.

     Petitioners did not report any gain from the sale of the

warrants by the donees on their Federal income tax return for

1993.    On November 18, 1999, respondent issued a notice of

deficiency in which he determined that “the donation of N.M.G.,

Inc. stock, was an anticipatory assignment of income, resulting

in an increase in capital gains of $4,722,484 in 1993.”

                             Discussion3

A. Motion for Partial Summary Judgment

     This matter arises in the context of petitioners’ motion for

partial summary judgment.    Summary judgment is designed to

expedite litigation and to avoid unnecessary and expensive

trials.    Shiosaki v. Commissioner, 

, 862 (1974).     We

shall grant a motion for partial summary judgment where there is


     3
      The parties agree that this case is appealable to the Court
of Appeals for the Eleventh Circuit. Binding precedent in the
Eleventh Circuit includes decisions of the Court of Appeals for
the Fifth Circuit filed before Oct. 1, 1981. Shepherd v.
Commissioner, 

, 1262 n.6 (11th Cir. 2002), affg. 

(2000); Bonner v. City of Prichard, Ala., 

,
1207 (11th Cir. 1981). We follow a decision of the Court of
Appeals to which an appeal from our disposition of a case lies so
long as that decision is squarely in point and a failure to
follow that decision would result in an inevitable reversal.
Lardas v. Commissioner, 

, 494-495 (1992); Golsen v.
Commissioner, 

, 757 (1970), affd. 

(10th
Cir. 1971).
                               - 9 -

no genuine issue as to any material fact relevant to the issues

involved.   Elec. Arts, Inc. v. Commissioner, 

, 238

(2002).   The moving party has the burden of proving that no

genuine issue of material fact exists and that party is entitled

to judgment as a matter of law.   FPL Group, Inc. & Subs. v.

Commissioner, 

, 74-75 (2001).   In all cases, the

evidence must be viewed in the light most favorable to the

nonmoving party.   Bond v. Commissioner, 

, 36 (1993).

A partial summary adjudication may be made even though all the

issues are not disposed of.   Rule 121(b); Turner Broad. Sys.,

Inc. & Subs. v. Commissioner, 

, 323-324 (1998).

B. Charitable Contributions of Appreciated Property

     This case involves a charitable gift of appreciated

property; namely, warrants to purchase stock at a set price.4     It

is well established that “A gift of appreciated property does not

result in income to the donor so long as he gives the property

away absolutely and parts with title thereto before the property


     4
      Charitable contributions of appreciated property typically
give rise to a deduction equal to its fair market value; however,
the deduction for capital gain property is generally limited to
30 percent of the taxpayer’s adjusted gross income. Sec.
170(a)(1), (b)(1)(C)(i), (F); sec. 1.170A-1(c)(1), Income Tax
Regs. On their Form 1040, U.S. Individual Income Tax Return, for
1993, petitioners claimed a charitable deduction of $5,304,530 in
accordance with a valuation report they submitted with their
return. Respondent raises as an amendment to his answer an issue
regarding the correct amount of the charitable deduction that
petitioners claimed for 1993. Petitioners concede that issue
cannot be decided on a summary judgment motion.
                               - 10 -

gives rise to income by way of a sale.”    Humacid Co. v.

Commissioner, 

, 913 (1964); see also Carrington v.

Commissioner, 

, 708 (5th Cir. 1973), affg. T.C. Memo.

1971-222; Campbell v. Prothro, 

(5th Cir. 1954).

However, it is equally well established that the incidence of

taxation depends on the substance rather than the form of a

transaction.    Commissioner v. Court Holding Co., 

,

334 (1945); Crenshaw v. United States, 

, 475 (5th

Cir. 1971).    To that end, the Commissioner has used a number of

doctrines as a basis for recharacterizing a purported gift of

appreciated property, including the anticipatory assignment of

income doctrine, e.g., Ferguson v. Commissioner, 

(1997), affd. 

(9th Cir. 1999), the step transaction

doctrine, e.g., Blake v. Commissioner, T.C. Memo. 1981-579, affd.

(2d Cir. 1982), and the sham transaction doctrine,

e.g., Caruth Corp. v. United States, 

(5th Cir.

1989).   He invokes the anticipatory assignment of income doctrine

as the basis for his recharacterizing the purported gifts of

stock warrants in this case.

     1. Anticipatory Assignment of Income Doctrine

     The general principles underlying the assignment of income

doctrine are well established.   It taxes income “to those who

earn or otherwise create the right to receive it and enjoy the

benefit of it when paid.”    Helvering v. Horst, 

, 119
                               - 11 -

(1940).    Further, “the mere assignment of the right to receive

income is not enough to insulate the assignor from income tax

liability” where “the assignor actually earns the income or is

otherwise the source of the right to receive and enjoy the

income”.    Commissioner v. Sunnen, 

, 604 (1948).   A

person cannot escape taxation by anticipatory assignments,

however skillfully devised, where the right to receive income has

vested.    Harrison v. Schaffner, 

, 582 (1941).   A mere

transfer which is in form a gift of appreciated property may be

disregarded for tax purposes if its substance is an assignment of

a right to income.    See Palmer v. Commissioner, 

, 692

(1974), affd. on other grounds 

(8th Cir. 1975).

However, the precise contours of the anticipatory assignment of

income doctrine in the context of charitable contributions of

appreciated property have been the subject of some contention.

     In Palmer, the taxpayer exercised effective control over

both a corporation and a tax-exempt foundation that he had

organized.    The taxpayer sought to transfer a certain asset, a

college, from the corporation to the foundation in a way that

would enable the taxpayer to maintain control over the direction

and operation of the college and that would yield the most

favorable tax consequences.    To that end, the taxpayer caused the

foundation to acquire certain shares of stock in the corporation

which were held by a trust in which he was a trustee and income
                              - 12 -

beneficiary.   The taxpayer then transferred shares of stock that

he owned directly to the foundation so that it held 80 percent of

the issued and outstanding shares of the corporation.   Finally,

the board of directors and the shareholders of the corporation

approved the redemption of the foundation’s stock in exchange for

the operating assets of the college.

     The Commissioner argued that there was an anticipatory

assignment of the proceeds of the redemption.    We disagreed and

held that neither the anticipatory assignment of income doctrine

nor the step transaction doctrine was applicable.    

We noted that “Even though the donor anticipated or was aware

that the redemption was imminent, the presence of an actual gift

and the absence of an obligation to have the stock redeemed have

been sufficient to give such gifts independent significance.”

v. 

; DeWitt v. United

States, 

(Ct. Cl. 1974); and Sheppard v. United

States, 

, 

(1966)).   We held:

     When the foundation received the gift of stock from the
     petitioner, no vote for the redemption had yet been
     taken. Although we recognize that the vote was
     anticipated, nonetheless, under the Hudspeth reasoning,
     that expectation is not enough. We have found that the
     foundation was not a sham, was not an alter ego of the
     petitioner, and that it received his entire interest in
     the 238 shares of the corporation stock. On the same
     day, it acquired enough shares of stock from the trust
     to hold in the aggregate 80 percent of the outstanding
     shares of the corporation. Thereafter, the foundation
     voted for the redemption. It did so because the
     redemption was in its interest. At the time of the
     gift, that vote had not yet been taken, and by the
                              - 13 -

     afternoon of August 31, 1966, the foundation had the
     voting power to prevent the redemption, if it wished to
     do so. In these circumstances, at the time of the
     gift, the redemption had not proceeded far enough along
     for us to conclude that the foundation was powerless to
     reverse the plans of the petitioner. In light of the
     presence of an actual, valid gift and because the
     foundation was not a sham, we hold that the gift of
     stock was not in substance a gift of the proceeds of
     redemption. [Id. at 695.]

     The Internal Revenue Service (IRS), in Rev. Rul. 78-197,

1978-1 C.B. 83, acquiesced to our decision in Palmer v.

, and in doing so devised a “bright-line” test

which focuses on the donee’s control over the disposition of the

appreciated property.   Rev. Rul. 78-197, 1978-1 C.B. at 83,

states:

          In Palmer v. Commissioner, 

(1974),
     aff’d on another issue, 

(8th Cir. 1975),
     the United States Tax Court held that the Internal
     Revenue Service incorrectly treated a gift of stock to
     an organization exempt from income taxation pursuant to
     section 511(c)(3) of the Internal Revenue Code of 1954,
     followed by a prearranged redemption of the stock, as a
     redemption of the stock from the donor followed by a
     gift of the redemption proceeds to the donee. The
     Service will follow Palmer on this issue, acq., page 6,
     this Bulletin.

          In Palmer, the taxpayer had voting control of both
     a corporation and a tax-exempt private foundation.
     Pursuant to a single plan, the taxpayer donated shares
     of the corporation’s stock to the foundation and then
     caused the corporation to redeem the stock from the
     foundation. It was the position of the Service that the
     substance of the transaction was a redemption of the
     stock from the taxpayer, taxable under section 301 of
     the Code, followed by a gift of the redemption proceeds
     by the taxpayer to the foundation. The United States
     Tax Court rejected this argument and treated the
     transaction according to its form because the
     foundation was not a sham, the transfer of stock to the
                              - 14 -

     foundation was a valid gift, and the foundation was not
     bound to go through with the redemption at the time it
     received title to the shares.

          Also see, Grove v. Commissioner, 

(2nd
     Cir. 1973); Behrend v. United States, No. 72-1153,
     72-1156 (4th Cir. 1972); and Carrington v.
     Commissioner, 467 [sic] F.2d 704 (5th Cir. 1973).

          The Service will treat the proceeds of a
     redemption of stock under facts similar to those in
     Palmer as income to the donor only if the donee is
     legally bound, or can be compelled by the corporation,
     to surrender the shares for redemption.

In Carborundum Co. v. Commissioner, 

(1980), S.C.

Johnson & Son, Inc. v. Commissioner, 

(1975), and

Palmer v. 

, we considered the donees’ control

over the course of disposition and the donees’ ability to reverse

a set course of disposition as significant factors in deciding

that the donors were not taxable on the donees’ subsequent

receipt of proceeds.5   However, we have indicated our reluctance

to elevate the question of donee control to a talisman for

resolving anticipatory assignment of income issues.   For example,

in Allen v. Commissioner, 

, 347-348 (1976), we stated

that the donee’s power to reverse the donor’s anticipated course

of disposition was “only one factor to be considered in


     5
      See also Hudspeth v. United States, 

, 279 (8th
Cir. 1972) (finding significant that “the donees here were
powerless to vitiate taxpayer’s manifest intent to liquidate or
provide them with the corporation’s assets through redemption”);
Kinsey v. Commissioner, 

, 264 (1972), affd. 

(2d Cir. 1973) (wherein we found significant the fact that
“the donee was powerless, both legally and as a practical matter,
to change the course of events already unfolding”).
                               - 15 -

ascertaining the ‘realities and substance’ of the transaction.”

Cf. Jones v. United States, 

, 1346 (6th Cir. 1976).

In a more recent opinion, we further extrapolated our position as

follows:

     In determining the reality and substance of a transfer,
     the ability, or the lack thereof, of the transferee to
     alter a prearranged course of disposition with respect
     to the transferred property provides cogent evidence of
     whether there existed a fixed right to income at the
     time of transfer. Although control over the
     disposition of the transferred property is significant
     to the assignment of income analysis, the ultimate
     question is whether the transferor, considering the
     reality and substance of all the circumstances, had a
     fixed right to income in the property at the time of
     transfer. [Ferguson v. Commissioner, 

;
     citations omitted.]

     This Court has not adopted the “bright-line” test stated in

Rev. Rul. 

, as the test for resolving anticipatory

assignment of income issues, and instead we have considered the

donee’s control to be merely a factor, albeit an important

factor.    For example, in Estate of Applestein v. Commissioner, 

(1983), the taxpayer transferred to custodial accounts

for his children stock in a corporation that had entered into a

merger agreement with another corporation.   The merger agreement

was approved by the shareholders of both corporations before the

transfer.   Although the transfer occurred before the effective

date of the merger, this Court held that the “right to the merger

proceeds had virtually ripened prior to the transfer and that the

transfer of the stock constituted a transfer of the merger
                             - 16 -

proceeds rather than an interest in a viable corporation.”   

see also Greene v. United States, 

, 581 (2d

Cir. 1994); Jones v. United States, supra at 1346; S.C. Johnson &

Son, Inc. v. 

at 786.

     2. Arguments of the Parties

     Petitioners filed a motion for partial summary judgment and

argue that they are entitled to judgment as a matter of law on

the issue of whether they must account for the gains realized on

the sales of the assigned warrants.   Petitioners rely on

Carrington v. Commissioner, 

(5th Cir. 1973),6 and

Rev. Rul. 

, and they argue that where the donees are



     6
      In Carrington v. Commissioner, 

(5th Cir.
1973), affg. T.C. Memo. 1971-222, the taxpayer was the sole
shareholder in a corporation that was, in turn, a partner in a
partnership. The taxpayer also belonged to a church that was
interested in acquiring a rectory. The partnership owned a
residence which was suitable for a rectory, and, accordingly, the
taxpayer initiated a series of transactions for the purpose of
placing that residence into the hands of the church “at the
maximum tax benefit” to the taxpayer: (1) The taxpayer
transferred 51 of the 100 outstanding shares in the corporation’s
stock to the church; (2) the partnership then conveyed the
residence to the corporation; and (3) the corporation conveyed
the residence to the church in redemption of the church’s 51
shares. The Commissioner applied the step transaction doctrine,
treated the taxpayer as receiving the residence in redemption of
his stock and then transferring the residence to the church, and
determined that the taxpayer realized dividend income. Both this
Court and the Court of Appeals for the Fifth Circuit refused to
ignore the “gift step” and held that the taxpayer did not realize
an actual or constructive dividend on the redemption of the 51
shares. The Court of Appeals stressed that the church had full
title and full dominion and control over the contributed stock,
and it was under no prior obligation to redeem its shares. 

                              - 17 -

not legally bound and cannot be compelled to sell the contributed

property, the anticipatory assignment of income doctrine does not

apply.

     Respondent argues that petitioners are not entitled to

judgment as a matter of law and that genuine issues of material

fact remain for trial.   Respondent argues that the question

whether the donees were bound or could be legally compelled to

surrender their NMG warrants is not “the critical issue” to be

resolved and, accordingly, neither Carrington v. 

, nor Rev. Rul. 

, controls this case.   It is

respondent’s position that “the critical issue” in this case is

“a factual one”:   whether petitioners’ rights to receive the

proceeds of the stock transaction involving WCP “ripened to a

practical certainty” at the time of the assignments.   Respondent

relies on Ferguson v. Commissioner, 

(9th Cir. 1999),

Jones v. United States, supra, Kinsey v. Commissioner, 

(2d Cir. 1973), affg. 

(1972), Hudspeth v. United

States, 

(8th Cir. 1972), and Estate of Applestein v.

.

     Respondent purports to distinguish both Carrington and Rev.

Rul. 

, on the facts of the case and the ruling.     To

that end, he contends that Carrington and Rev. Rul. 

, are not inconsistent with the cases he relies upon above.

Respondent claims that in this case, and the cases upon which he
                              - 18 -

relies, there was a pending “global” transaction for the purchase

and sale of all the stock of a corporation at the time of the

gift or transfer at issue.   He then surmises that because

Carrington and Rev. Rul. 

, did not involve a pending

“global” transaction, the legal principles of those authorities

do not apply.   Instead, he argues that we must apply the

principles of the cases he relies upon, and, accordingly, we must

conduct a detailed factual inquiry for purposes of determining

whether the sale of the stock warrants had ripened to a practical

certainty at the time of the assignments.

     We cannot agree that respondent has effectively

distinguished Carrington and Rev. Rul. 

, on their

facts.   First, neither this Court nor the Courts of Appeals have

adopted respondent’s theory of a pending “global” transaction as

a means of distinguishing cases such as Carrington and Palmer v.

Commissioner, 

(1974).    Indeed, the caselaw in this

area applies essentially the same anticipatory assignment of

income principles to cases of a “global” nature as those

applicable to cases of a “nonglobal” nature.    See, e.g., Greene

v. United States, supra at 581.     We can only interpret

respondent’s use of the phrase “pending global transaction” as

simply a restatement of the principles contained in the cases

upon which he relies.   Thus, we cannot agree that respondent’s

reliance on a pending global transaction distinguishes either
                              - 19 -

Carrington, Rev. Rul. 

, or other cases upon which

petitioners rely.   With that being said and leaving Carrington

and those other cases aside at this point, the bright-line test

of Rev. Rul. 

, which focuses solely on the donee’s

control over the contributed property, stands in stark contrast

to the legal test and the cases upon which respondent relies and

which consider the donee’s control to be only a factor.

     We are convinced that respondent, in this case, is arguing

against the principles which he states in Rev. Rul. 

.   In his memorandum in opposition to petitioners’ motion

for partial summary judgment at 30, respondent argues:

                c. Revenue Ruling 78-197, 1978-1 C.B. 83, is
           not controlling in this case.

          Revenue rulings are not binding on respondent or
     the courts. Stubbs, Overbeck & Assoc., Inc. v. U.S.,
     

, 1147 (5th Cir. 1971). Moreover, Rev.
     Rul. 78-197, 1978-1 C.B. 83, is not controlling in this
     case for the very same reasons, stated above, that
     Carrington v. Commissioner is not controlling. Indeed,
     in Blake v. 

, the
     Second Circuit found that Rev. Rul. 78-197 does not
     apply to circumstances such as those in the present
     case, stating:

                More troublesome is the case of Palmer v.
           Commissioner, 62 TC 684 (1974), aff’d on other
           grounds, 

(8th Cir. 1975), which held
           that even an expectation of a stock redemption
           would not warrant denying charitable contribution
           status. The Service, in Revenue Ruling 78-197,
           1978-1, C.B. 83, acquiesced in Palmer, stating
           that it would treat redemption proceeds under
           facts similar to Palmer as income to the donor
           “only if the donee is legally bound or can be
           compelled by the corporation, to surrender the
           shares for redemption.” 

cited
                              - 20 -

          both Grove and Carrington as support for its
          position; what we have said above indicates our
          belief that this Ruling reads too much into those
          decisions. Where there is, as here, an
          expectation on the part of the donor that is
          reasonable, with an advance understanding that the
          donee charity will purchase the asset with the
          proceeds of the donated stock, the transaction
          will be looked at as a unitary one. A wooden view
          that would require legal enforceability of an
          understanding or obligation to purchase the asset
          contemplated to be donated ab initio is not what
          the tax law contemplates. At least, this circuit
          will not take it to do so. Judgment affirmed.

Respondent’s quotation from the Blake7 opinion makes his position

patently clear.   Respondent is disavowing Rev. Rul. 

, in this case.   When respondent’s arguments are boiled down

to their essential elements, he argues against the validity of

the bright-line test of Rev. Rul. 

.

     The Commissioner has neither revoked nor modified Rev. Rul.

, in response to the comments in Blake.    Indeed, the

Commissioner has continued to rely on Rev. Rul. 

, in

issuing his private letter rulings.    See, e.g., Priv. Ltr. Rul.




     7
      The Court of Appeals for the Second Circuit in Blake v.
Commissioner, 

(2d Cir. 1982), affirmed our decision
in T.C. Memo. 1981-579. The above quotation from Blake could be
characterized as dictum. In our Memorandum Opinion, we did not
discuss Rev. Rul. 78-197, 1978-1 C.B. 83. Instead, we decided,
and the Court of Appeals agreed, that there was a legally
enforceable obligation on the part of the donee to purchase a
yacht from the donor with the proceeds of a sale of transferred
stock. We held that a gift of the stock had not been made to the
donee.
                                - 21 -

2002-30-004 (July 26, 2002).8    Moreover, the Commissioner has in

a private letter ruling dismissed the statements made in Blake v.

at 480-481, as “dicta”, and stated that “Rev.

Rul. 78-197 remains in effect, however” despite the statements

made in that case.   See Priv. Ltr. Rul. 1994-13-020 (Apr. 1,

1994), which states in relevant part:

          In Rev. Rul. 78-197, 1978-1 C.B. 83, the Internal
     Revenue Service announced that it will treat the
     proceeds of a redemption of stock under facts similar
     to those in Palmer v. Commissioner, 

(1974),
     acq. on this issue 1978-2 C.B. 2, aff’d on another
     issue, 

(8th Cir. 1976), as income to the
     donor only if the donee is legally bound or can be
     compelled by the corporation to surrender the shares
     for redemption. In Palmer the taxpayer-donor had
     voting control of both a corporation and a tax-exempt
     private foundation. Pursuant to a single plan, the
     taxpayer donated shares of the corporation to the
     foundation and then caused the corporation to redeem
     the stock from the foundation.

          In Blake v. Commissioner, 

(2nd Cir.
     1982), the court, in dicta, questioned the Service’s
     acquiescence in Palmer in Rev. Rul. 78-197, suggesting
     that a mere understanding between the contributing
     shareholder and the charity concerning the fact that
     the contributed stock would be redeemed should be
     enough to treat the shareholder as having received
     redemption proceeds. Rev. Rul. 78-197 remains in
     effect, however.

          Although in the case at hand there is some
     expectation that C will sell the farm items at such


     8
      Private letter rulings may be cited to show the practice of
the Commissioner. See Rowan Cos., Inc. v. United States, 

, 261 n.17 (1981); Hanover Bank v. Commissioner, 

, 686-687 (1962); Estate of Cristofani v. Commissioner, 

, 84 n.5 (1991); Woods Inv. Co. v. Commissioner, 

, 281 n.15 (1985); Thurman v. Commissioner, T.C. Memo. 1998-
233.
                             - 22 -

     time as their value can be realized, C will be under no
     legally binding obligation to do so at the time the
     farm items are transferred to the unitrust. Thus,
     based upon the representations made and the principle
     enunciated in the authorities cited above, A will not
     recognize any income on a sale by the unitrust of farm
     items that he has transferred to it.

     Although we do not question the validity of the opinions of

this Court and the Courts of Appeals upon which respondent

relies,9 we are not prepared to allow respondent’s counsel to


     9
      It appears that the result we reached in Ferguson v.
Commissioner, 

(1997), affd. 

(9th Cir.
1999), is consistent with the result that would have been
obtained under Rev. Rul. 78-197, 1978-1 C.B. 83, because in
Ferguson, we found that the donee could have been compelled to
surrender the stock at the time of the gift. In Ferguson v.

at 263, we stated:

     We believe, instead, that when more than 50 percent of
     the outstanding shares of AHC stock had been tendered
     or guaranteed, which in effect was an approval of the
     merger agreement, and the charities could not vitiate
     the intention of the shareholders who had tendered or
     guaranteed a majority of AHC stock, of petitioners, and
     of DC Acquisition and CDI, the right to merger proceeds
     matured. * * *

Likewise, in the other cases upon which respondent relies, the
donees were powerless, at the time of the gifts, to reverse the
courses of disposition set by the donors or third parties. See
Jones v. United States, 

(6th Cir. 1976)
(contribution of 10-percent stock interest in corporation whose
shareholders had overwhelmingly approved a plan of complete
liquidation); Hudspeth v. United 

(taxpayer’s retained control over corporation rendered donees
with minority interest powerless to vitiate the taxpayer’s
“manifest intent to liquidate”); Estate of Applestein v.
Commissioner, 

(1983) (bargain sale of 3-percent stock
interest in corporation following approval of merger plan by
shareholders); Kinsey v. Commissioner, 

(charitable
donee with 56-percent majority interest did not have the legal
power to stop a complete liquidation). Unlike the donees in
                                                   (continued...)
                                - 23 -

argue the legal principles of those opinions against the

principles and public guidance articulated in the Commissioner’s

currently outstanding revenue rulings.

     We agree with respondent that revenue rulings are not

binding on this Court, or other Federal courts for that matter.

See Frazier v. Commissioner, 

, 248 (1998); N. Ind.

Pub. Serv. Co. v. Commissioner, 

, 350 (1995), affd.

(7th Cir. 1997).    However, we cannot agree that the

Commissioner is not bound to follow his revenue rulings in Tax

Court proceedings.   Indeed, we have on several occasions treated

revenue rulings as concessions by the Commissioner where those

rulings are relevant to our disposition of the case.      Walker v.

Commissioner, 

, 550-551 (1993); Burleson v.

Commissioner, T.C. Memo. 1994-364.10     In Phillips v.




     9
      (...continued)
those cases, the donees in the instant case had the legal power,
at the time of the assignments, to decide not to sell their stock
warrants to NMG or WCP.
     10
      Other cases where we have treated revenue rulings as
concessions by the Commissioner include: Nissho Iwai Am. Corp.
v. Commissioner, 

(1987); Cascade Designs, Inc. v.
Commissioner, T.C. Memo. 2000-58; Merritt v. Commissioner, T.C.
Memo. 1995-44; Stalcup v. Commissioner, T.C. Memo. 1995-43;
Nikkila v. Commissioner, T.C. Memo. 1993-628; Boice v.
Commissioner, T.C. Memo. 1993-627; Callison v. Commissioner, T.C.
Memo. 1993-626; Zuhone v. Commissioner, T.C. Memo. 1988-142,
affd. 

(7th Cir. 1989).
                              - 24 -

Commissioner, 

(1987),11 a Court-reviewed opinion, we

stated:

     Respondent’s position in this case directly
     contradicted his long-standing and clearly articulated
     administrative position as set forth in Rev. Rul. 72-
     539, 1972-2 C.B. 634, and reiterated in Rev. Rul. 83-
     183, 1983-2 C.B. 220. Respondent’s counsel may not
     choose to litigate against the officially published
     rulings of the Commissioner without first withdrawing
     or modifying those rulings. The result of contrary
     action is capricious application of the law. * * *
     [Phillips v. Commissioner, 

; citation
     omitted.]

     Respondent cites Stubbs, Overbeck & Associates, Inc. v.

United States, 

(5th Cir. 1971), which states:    “A

ruling is merely the opinion of a lawyer in the agency and must

be accepted as such.   It may be helpful in interpreting a

statute, but it is not binding on the Secretary or the courts.”

  However, the Court of Appeals for the Fifth

Circuit made those statements in the context of its rejection of

the Government’s argument that a revenue ruling should have “the

force and effect of law.”   

  Given the circumstances

of that case, we construe the statement in Stubbs that the



     11
      Our decision in Phillips v. Commissioner, 

(1987), involving an award of litigation costs under sec. 7430,
was subsequently reversed by the Court of Appeals for the
District of Columbia Circuit, 

(1988). However,
that reversal was not a result of the statements quoted above.
Instead, the Court of Appeals found the Commissioner’s reliance
on our prior decision in Durovic v. Commissioner, 

(1970), affd. in part, revd. in part, and remanded 

(7th Cir. 1973), to be “substantially justified” under sec. 7430.
Phillips v. 

.
                             - 25 -

Secretary is not bound by his revenue rulings to be dictum.

Indeed, the Court of Appeals for the Fifth Circuit, without

mentioning Stubbs, subsequently rejected an argument by the

Commissioner that he was not bound by his revenue rulings.

Estate of McLendon v. Commissioner, 

(5th Cir.

1998), revg. T.C. Memo. 1996-307; see also Silco, Inc. v. United

States, 

(5th Cir. 1986).   The Court of Appeals, in

Estate of McLendon v. 

at 1024-1025, stated:

     Most questions of deference to a revenue ruling involve
     an argument by the taxpayer that a particular ruling is
     contrary to law. Here, however, the argument to ignore
     or minimize the effect of Rev. Rul. 80-80 comes from
     the Commissioner, the very party who issued the ruling
     in the first place. In such a situation, this circuit
     has a well established rule that is sufficient to
     resolve this case without probing the penumbrae of the
     general deference question. [Fn. ref. omitted.]

               *    *    *    *    *     *    *

          Silco stands for the proposition that the
     Commissioner will be held to his published rulings in
     areas where the law is unclear, and may not depart from
     them in individual cases. Furthermore, under Silco the
     Commissioner may not retroactively abrogate a ruling in
     an unclear area with respect to any taxpayer who has
     relied on it. [Fn. ref. omitted.]

          Applying Silco to this case, it quickly becomes
     clear that Rev. Rul. 80-80 must govern our decision.
     McLendon went to great lengths to structure his
     transaction to comply with applicable law, and the
     Commissioner does not dispute that in so doing McLendon
     expressly relied on Rev. Rul. 80-80’s clarification of
     the admittedly murky area of future and dependent
     interest valuation. The Commissioner ignored the clear
     language of his own ruling in declaring deficiencies,
     and it is precisely this kind of tactic that Silco
     declares to be intolerable. * * * [Fn. ref. omitted.]
                               - 26 -

     While this Court may not be bound by the Commissioner’s

revenue rulings, and in the appropriate case we could disregard a

ruling or rulings as inconsistent with our interpretation of the

law, see Stark v. Commissioner, 

, 251 (1986), in this

case it is respondent who argues against the principles stated in

his ruling and in favor of our previous pronouncements on this

issue.    The Commissioner’s revenue ruling has been in existence

for nearly 25 years, and it has not been revoked or modified.    No

doubt taxpayers have referred to that ruling in planning their

charitable contributions, and, indeed, petitioners submit that

they relied upon that ruling in planning the charitable

contributions at issue.   Under the circumstances of this case, we

treat the Commissioner’s position in Rev. Rul. 78-197, 1978-1

C.B. 83, as a concession.    Accordingly, our decision is limited

to the question whether the charitable donees were legally

obligated or could be compelled to sell the stock warrants at the

time of the assignments.12




     12
      Respondent does not contend that Rev. Rul. 78-197, 1978-1
C.B. 83, is limited to cases involving redemptions. Indeed, the
Commissioner has applied this ruling to factual scenarios which
do not involve stock redemptions. For example, in Priv. Ltr.
Rul. 94-13-020 (Apr. 1, 1994), the Commissioner applied the
ruling favorably to a gift and subsequent sale of farm items by
the trustee of a charitable remainder unitrust. We find that
there is no difference in principle in the application of the
revenue ruling, between a redemption of stock by a corporation
and a sale of stock or stock warrants to an acquiring
corporation.
                              - 27 -

     3. Valid Inter Vivos Gift

     The requirements of a valid inter vivos gift must be met if

the purported gift is to qualify as a charitable contribution

under section 170(a).   Ferguson v. Commissioner, 

;

Guest v. Commissioner, 

, 15-16 (1981).13   Generally, the

delivery of a gift of stock is “complete upon relinquishment of

dominion and control of the stock by the donor, which [occurs]

upon actual transfer on the books of the issuing corporation.”

Ferguson v. Commissioner, 

; see also Londen v.

Commissioner, 

, 110 (1965); sec. 1.170A-1(b), Income

Tax Regs.

     There is no dispute regarding whether petitioners made a

completed gift, at least in form, of their warrants to purchase

NMG stock.   With respect to the timing of that gift, the parties

stipulated that “On November 9, 1993, Arbeit executed an

assignment of rights under the Arbeit NMG Warrant for the

purchase of 772.14 shares of NMG class A common stock to four

organizations”, that counsel for NMG mailed each of the donees a



     13
      The elements of an inter vivos gift are: (1) Delivery,
(2) intention to make a gift on the part of the donor, and (3)
absolute disposition by him of the thing which he intends to give
to another. Oehler v. Falstrom, 

, 585 (Minn.
1966); see also Carrington v. 

(“A
gift of stock between competent parties requires donative intent,
actual delivery, and relinquishment of dominion and control by
the donor.”); Madison Trust Co. v. Skogstrom, 

, 250
(Wis. 1936) (elements are: (1) Intention to give; (2) delivery;
(3) end of dominion of donor; (4) creation of dominion of donee).
                               - 28 -

reissued warrant on November 11, 1993, that the donees

acknowledged receiving those warrants on November 12, 1993, and

that on November 12, 1993, NMG’s warrant ledger was changed to

reflect the donees as owners of the warrants.    We find that the

requisites for completed gifts were met no later than November

12, 1993.   Accordingly, we must decide whether, as of that date,

the charitable donees were legally bound, or could be compelled,

to sell their stock to NMG or WCP.

     4.     Whether the Donees Were Legally Bound or Could Be
            Compelled To Sell the Stock Warrants

     Petitioners argue that as of November 12, 1993, the date the

warrants were transferred on the books of NMG, the donees had not

entered into any agreement to sell the warrants and could not be

compelled by any legal means to transfer the warrants.

Accordingly, they contend that, as a matter of law, there was not

an assignment of income.    Petitioners submitted affidavits from

representatives of the donees in support of their motion for

partial summary judgment.    Each of those affidavits outlines the

events which preceded the assignments, each states that the stock

warrants were received on November 12, 1993, and each also states

that, as of that date, the donees had not entered into agreements

to sell the stock warrants.

     Respondent questioned the reliability of those affidavits,

and he contended that the affidavits were deficient in that they

failed to state the personal involvement of the representatives
                              - 29 -

with respect to petitioners’ contributions.   He also asserted

that the testimony of those affiants is “unknown”, and he

questioned whether they were involved in any negotiations or

discussions with NMG, WCP, or Arbeit regarding WCP’s proposed

acquisition of NMG stock and warrants.   Respondent also

questioned the affiants’ competency “to opine upon, or reach any

conclusion as to, what constitutes a binding agreement or whether

their respective organizations had indeed entered binding

agreements in connection with the transactions at issue.”    We do

not share respondent’s reservations with respect to the

affidavits, and we find those affidavits credible.

     First, in response to respondent’s allegations, petitioners

submitted additional affidavits from each of the affiants.    Each

of those affidavits states:   (1) The affiants were personally

involved with respect to petitioners’ contributions; (2) before

the donees’ execution of the warrant purchase and sale agreement,

there were no agreements amongst the donees, Arbeit, Mr.

Rauenhorst, or any other person or entity regarding the sale of

the warrants; and (3) through November 12, 1993, there were no

negotiations or communications between the donees and NMG or

parties representing NMG, except for the letters from NMG’s legal

counsel requesting that the donees sign an Additional Party

Signature Page.
                              - 30 -

     Second, respondent relies on nonspecific allegations of an

informal agreement or understanding between the donees and NMG,

WCP, Mr. Rauenhorst, and/or Arbeit.    Summary assertions and

conclusory allegations are simply not enough evidence to raise a

genuine issue of material fact.     Daniels v. Commissioner, T.C.

Memo. 1994-591 (citing Lechuga v. S. Pac. Transp. Co., 

, 798 (5th Cir. 1992)).   Also, Rule 121(d) provides:

     When a motion for summary judgment is made and
     supported as provided in this Rule, an adverse party
     may not rest upon the mere allegations or denials of
     such party’s pleading, but such party’s response, by
     affidavits or as otherwise provided in this Rule, must
     set forth specific facts showing that there is a
     genuine issue for trial. * * *

See also Celotex Corp. v. Catrett, 

(1986); King v.

Commissioner, 

, 1217 (1986).     Respondent alleges no

facts or evidence to substantiate his position, and he has

submitted no affidavits in response to the affidavits that

petitioners submitted.   Instead, he points out that the record

lacks information regarding any discussions, deliberations, or

negotiations which may have taken place between the donees and

the other parties.   Respondent has had ample opportunity to

investigate the facts surrounding these transactions, and it is

clear that respondent could have requested additional information

from the individuals involved.    See Rule 121(e).   He has

requested neither additional discovery nor a continuance for

purposes of additional discovery.    He has not demonstrated to our
                                - 31 -

satisfaction that the only available method for opposing the

statements in the affidavits is through cross-examination at

trial.    Further, it is insufficient for the opposing party to

argue in the abstract that the legal theory involved in the case

encompasses factual questions.    Hibernia Natl. Bank v. Carner,

, 98 (5th Cir. 1993); Daniels v. 

.

Since petitioners have offered affidavits directly supporting

their position on a material issue of fact, and since respondent

has failed to counter those affidavits with anything other than

unsupported allegations, respondent cannot avoid summary judgment

on this issue.    See Greene v. United States, 

,

1171 (S.D.N.Y. 1992), affd. 

(2d Cir. 1994).    Thus, we

find that there is no genuine issue of material fact regarding

whether the donees entered into a legally binding agreement to

sell their stock warrants before, or at the time of, the

assignments by petitioners.14




     14
      The record indicates that no agreement was entered into by
the donees before Nov. 19, 1993, the date they signed the warrant
purchase and sale agreement. On Nov. 16, 1993, NMG’s legal
counsel sent letters to each of the donees enclosing a warrant
purchase and sale agreement. Those letters state that pursuant
to the warrant purchase and sale agreement, the donees would
agree to sell their reissued warrants to WCP and “to abstain from
either exercising its Warrant or selling or otherwise
transferring it to any other party through Dec. 31, 1993.”
Certainly, the formality of having the donees enter into the
warrant purchase and sale agreements suggests that they had not
entered into any binding agreements before Nov. 19, 1993.
                               - 32 -

     In support of respondent’s position that the right to sale

proceeds had “ripened to a practical certainty” at the time of

the contributions, he cites:   (1) The September 28, 1993, letter

of intent from WCP expressing its intention to purchase all the

issued and outstanding stock of NMG; (2) the October 22, 1993,

resolution by WCP’s board of directors, which authorized its

officers to negotiate and enter into the agreement for the

purchase of all the issued and outstanding capital stock of NMG;

and (3) a valuation report prepared by Houlihan, Lokey, Howard, &

Zukin (Houlihan Lokey), which was attached to petitioners’ 1993

return and which opined that, as of November 12, 1993, there was

little chance the transaction involving WCP would not close on or

before December 31, 1993.   Those items might be particularly

relevant for determining whether the stock warrant purchase

ripened to a practical certainty; however, none of those items

alone, or in combination, show that the donees were legally

bound, or could be compelled, to sell their stock warrants.

     The letter of intent merely confirms WCP’s “intention * * *

to purchase all of the issued and outstanding shares of the

capital stock of N.M.G., Inc., * * * from the stockholders of the

Company”; however, it was not an offer to purchase those shares

as respondent claims.   Although the letter of intent outlines the

terms and conditions of the proposed purchase and sale of stock,

including the aggregate purchase price and the repayment of
                               - 33 -

outstanding indebtedness of NMG, it was only a proposal, and it

cannot be construed as a legally operative offer for the purchase

of all the issued and outstanding shares of NMG.   To that effect,

the letter of intent states:

          This letter represents general intentions of the
     parties and, except for paragraphs 4, 6 and 7, does not
     purport to be and does not constitute a binding
     agreement among the Buyer, Sellers and the Company, and
     except as set forth in paragraphs 4, 6 and 7, none of
     us will have any legal obligation to any other
     hereunder until and unless the Agreement is executed by
     the Exclusivity Date.

          If you believe the foregoing reflects our
     understanding, please so indicate by signing below.[15]

Further, despite respondent’s contentions otherwise, the

individuals from NMG who accepted and agreed to the letter of

intent did not accept an offer for the purchase of their stock

interests.   Those individuals accepted and agreed to the letter

of intent (essentially to those sections dealing with

investigations by WCP, public disclosure, and an exclusivity

period) in their capacities as officers of NMG, and, in the case

of Ewel Grossberg, as chairman of NMG’s board of directors.    They



     15
      As the quoted matter above suggests, there were certain
parts of the letter of intent which constituted legally binding
obligations. However, those items represented typical
preliminary obligations which might appear in purchase and sale
negotiations. Par. 4 deals with WCP investigation rights, par. 6
deals with public disclosure of the proposed acquisition, and
par. 7 establishes an exclusivity period in favor of WCP with
respect to the purchase of NMG’s stock and prohibits any
distributions to its shareholders or other payments, loans, or
distributions out of the ordinary course of NMG’s business.
                               - 34 -

did not accept as shareholders representing a majority of NMG’s

issued and outstanding shares.    The letter of intent was just

that, a letter of intent.    It did not bind WCP to purchase the

stock and stock warrants, and it did not bind NMG’s stockholders

and warrantholders to sell their stock and warrants.

       Nevertheless, respondent argues that the letter of intent

triggered certain provisions of the NMG stock warrants, which, in

turn, gave rise to a legally binding obligation to sell on the

part of the donees.    First, respondent contends that the letter

of intent triggered NMG’s right of first refusal under the terms

of the NMG warrant.    We cannot agree that the right of first

refusal was triggered by the letter of intent.    The right of

first refusal arose under the warrant only in the case of a “bona

fide offer” for the purchase of warrants which is received by the

warrantholder.    The letter of intent from WCP was not a bona fide

offer for the purchase of the warrants.    Further, it was not

received by petitioners or the donees16 but was instead addressed

to and accepted by the officers and the chairman of the board of

NMG.    NMG, in turn, was the party in whose favor the right of



       16
      Even if we were to assume the letter of intent was a bona
fide offer to purchase the warrants, a right of first refusal is
generally not triggered until the owner’s receipt of an offer and
his good-faith decision to accept it. 3 Corbin, Corbin on
Contracts, sec. 11.3, at 470-471 (rev. ed. 1996). In this case,
neither Arbeit’s nor the charitable donees’ willingness to enter
into a sale agreement with WCP was expressed until after the
assignments of the warrants.
                               - 35 -

refusal applies.    We cannot agree that under those circumstances

and in the absence of a bona fide offer to the warrantholders the

right of first refusal was triggered.

     Respondent also points to a portion of the letter of intent

which proposes:    “Buyer will contribute to the capital of the

Company the funds necessary to repay the Company’s outstanding

indebtedness, currently estimated to be $55,000,000.”    Respondent

contends that since the pending stock acquisition by WCP involved

a prepayment of all NMG’s subordinated debt, a mandatory call

provision contained in the NMG warrants was triggered.

Respondent claims that “Accordingly, NMG was free to redeem

Arbeit’s NMG warrant at any time thereafter, as and if necessary,

to facilitate acceptance and/or consummation of WCP’s offer.”      We

cannot agree.    The mandatory call provision was only triggered

upon the prepayment or voluntary redemption of the subordinated

debt.   Those events did not occur until after the assignment of

the warrants.

     Respondent notes that the letter of intent was “accepted and

agreed” by Ewel Grossberg, Randolph K. Ginsberg, Jim Cooper, and

John Woodlock.    He argues that those individuals’ acceptance and

agreement was significant in that they held approximately 92.62

percent of NMG’s outstanding common stock and 100 percent of

NMG’s outstanding preferred stock as of September 28, 1993, and
                               - 36 -

that this triggered the antidilution provision of the NMG

warrants.17   That provision is:

     if a purchase, tender or exchange offer shall have been
     made to and accepted by the holders of more than 50% of
     the outstanding shares of Capital Stock, and if the
     holder of such Warrants so designates in a notice given
     to the Company, the holder of such Warrants shall be
     entitled to receive in lieu thereof, the highest amount
     of securities or other property to which such holder
     would actually have been entitled as a shareholder if
     such holder had exercised such Warrants prior to the
     expiration of such purchase, tender or exchange offer
     and accepted such offer * * *

However, the letter of intent was not an offer; it was neither a

purchase, tender, or exchange offer as the antidilution provision

specifies.    Further, Ewel Grossberg, Randolph K. Ginsberg, Jim

Cooper, and John Woodlock did not accept and agree to the

conditions stated in the letter of intent in their capacities as

shareholders of NMG.    Instead, they did so in their capacities as

officers of NMG, thus obligating NMG to some of the preliminary

matters stated in the letter of intent.   Moreover, the

antidilution provisions cannot be construed to legally bind the

warrantholders to sell their warrants to NMG or WCP.    Those

provisions, on the contrary, protect the warrantholders and give

them the option of participating on the same terms as the

majority shareholders.


     17
      Those individuals would continue to hold 68.69 percent of
NMG’s outstanding capital stock if all outstanding preferred were
treated as common shares and all NMG warrants were exercised.
Respondent contends that this approach would be consistent with
the antidilution provision in the NMG warrants.
                                - 37 -

     Respondent cites WCP’s board of directors resolution which

directed its officers to negotiate and complete the acquisition

of NMG shares.     The resolution by WCP’s board of directors does

not demonstrate that the warrantholders were legally bound, or

could be compelled, to sell their stock warrants at the time of

the assignments.    Although that resolution preceded the

assignments of the warrants to the charitable donees, WCP did not

complete its acquisition of NMG stock and warrants until after

the assignments.    WCP did not reach an agreement with the donees

herein until November 19, 1993, and they did not finally

consummate the transaction until they entered into the stock

purchase agreement of November 22, 1993, and closed the

transaction on December 22, 1993.    Those events occurred after

petitioners assigned the warrants.       The resolution simply

authorizes WCP’s officers to negotiate and complete the

acquisition.   The resolution itself does not affect the rights of

the donees in their warrants.

     Respondent relies on a correspondence report prepared by

Houlihan Lokey, dated January 3, 1994.       He relies upon a section

of the Houlihan Lokey report entitled “Management Comments On The

Transaction”, which states:    “Management believes that there is

very little change [sic] the transaction will not close on or
                                - 38 -

before December 22, 1993.”18    Again, this information might be

relevant to a determination whether the right to sale proceeds

“ripened”; however, nothing in the Houlihan Lokey report suggests

that the warrantholders were legally bound, or could be

compelled, to sell their warrants to WCP.

     Respondent also points to Del. Code Ann. tit. 8, sec. 271

(2001) and argues that the donees could have been compelled to

surrender their NMG warrants.    That section provides:

          SEC. 271. Sale, lease or exchange of assets;
     consideration; procedure.

          (a) Every corporation may at any meeting of its
     board of directors or governing body sell, lease or
     exchange all or substantially all of its property and
     assets * * * upon such terms and conditions and for
     such consideration * * * as its board of directors or
     governing body deems expedient and for the best
     interests of the corporation, when and as authorized by
     a resolution adopted by the holders of a majority of
     the outstanding stock of the corporation entitled to
     vote thereon * * *




     18
      We note that despite the report’s conclusion that there
was little chance the transaction involving WCP would not be
consummated, Houlihan Lokey took significant discounts for the
risk that the transaction would not be completed. The report
reflects that there was a 15- to 25-percent probability that the
deal would fall through as of Nov. 12, 1993, and this discount
figured into the valuation analysis of the warrants. Further,
although respondent relies significantly on the valuation report
with respect to petitioners’ motion for partial summary judgment,
we point out that respondent essentially takes the position in
his amended answer that the valuation report is wrong in
assigning a value of $6,889 per warrant and that petitioners’
charitable deductions are limited to $424.10 per warrant, or
$326,577 in the aggregate.
                                - 39 -

We might agree that the donees in this case were powerless to

prevent the majority shareholders of NMG from selling

substantially all the property and assets of NMG.    However, we

cannot agree that the donees could have been compelled to sell

their stock warrants under this provision.    The donees’ stock

warrants were not the property or an asset of NMG.    Further,

WCP’s intentions clearly did not contemplate a direct acquisition

of NMG’s property and assets.

     As petitioners suggest, respondent might have cited other

provisions of Delaware’s General Corporation Law, including

section 251, which deals with the merger of two or more entities

into one corporation following a resolution of the board of

directors and upon a vote of a majority of the outstanding voting

stock, and section 275, which deals with the dissolution of a

corporation following a resolution of the board of directors upon

a vote of a majority of the outstanding voting stock.    However,

neither of those situations is present in this case.    Neither WCP

nor NMG contemplated a merger, liquidation, or dissolution

involving those entities.    On the contrary, the expressed

intentions of WCP contemplate only an acquisition of NMG stock

and warrants from the stockholders and warrantholders.    In the

actual course of events, WCP in fact acquired the stock and

warrants in this manner.    We are not inclined to posit any

hypothetical scenarios which might have occurred wherein the
                                - 40 -

donees might conceivably have been forced to surrender their

stock warrants by merger, liquidation, or dissolution, absent

some plan or other corporate action to that effect.

     Petitioners submitted affidavits in support of their

position regarding a material issue of fact.    Respondent makes

unsupported and nonspecific allegations in response to the

statements in the affidavits.    Respondent points to nothing in

the record nor does he allege facts which raise a genuine issue

of material fact regarding whether the donees were legally bound,

or could be compelled, to sell the stock warrants at the time of

the assignments by petitioners.    Respondent has had ample time

for investigation and does not request additional time for

discovery.   This matter is now ripe for decision, and we hold

that petitioners are entitled to judgment as a matter of law on

the anticipatory assignment of income issue.

     5. Conclusion

     Rev. Rul. 78-197, 1978-1 C.B. 83, is contrary to

respondent’s litigation position in this case.    Instead of

accepting the legal principles articulated in that ruling,

respondent’s counsel contends that the Commissioner is not bound

by revenue rulings, and his reliance on Blake v. 

, demonstrates that he is taking the position

in this case that the ruling is incorrect.
                                - 41 -

     The Department of the Treasury’s statement of procedural

rules, contained in the regulations, provides in relevant part:

          (2) Objectives and standards for publication of
     Revenue Rulings and Revenue Procedures in the Internal
     Revenue Bulletin.--(i)(a) A “Revenue Ruling” is an
     official interpretation by the Service that has been
     published in the Internal Revenue Bulletin. Revenue
     Rulings are issued only by the National Office and are
     published for the information and guidance of
     taxpayers, Internal Revenue Service officials, and
     others concerned.

                *       *   *   *    *   *   *

          (iii) The purpose of publishing revenue rulings
     and revenue procedures in the Internal Revenue Bulletin
     is to promote correct and uniform application of the
     tax laws by Internal Revenue Service employees and to
     assist taxpayers in attaining maximum voluntary
     compliance by informing Service personnel and the
     public of National Office interpretations of the
     internal revenue laws, related statutes, treaties,
     regulations, and statements of Service procedures
     affecting the rights and duties of taxpayers. * * *

                *       *   *   *    *   *   *

          (v)   * * *

                *       *   *   *    *   *   *

               (d) Revenue Rulings published in the
          Bulletin do not have the force and effect of
          Treasury Department Regulations (including
          Treasury decisions), but are published to provide
          precedents to be used in the disposition of other
          cases, and may be cited and relied upon for that
          purpose. * * *

               (e) Taxpayers generally may rely upon
          Revenue Rulings published in the Bulletin in
          determining the tax treatment of their own
          transactions and need not request specific rulings
                              - 42 -

          applying the principles of a published Revenue
          Ruling to the facts of their particular cases.
          * * * [Sec. 601.601(d)(2), Statement of
          Procedural Rules.]

Similar statements appear in the introduction section of each

volume of the Commissioner’s Internal Revenue Bulletin.    See,

e.g., 1978-1 C.B. at iii.   Surely, given these statements,

taxpayers should be entitled to rely on revenue rulings in

structuring their transactions, and they should not be faced with

the daunting prospect of the Commissioner’s disavowing his

rulings in subsequent litigation.

     Recently, the IRS, in a joint statement issued by the

Commissioner, the Chief Counsel, and the Acting Assistant

Secretary (Tax Policy) of the Department of the Treasury, has

indicated its “continuing commitment to serve the public through

the published guidance process”.    Department of the Treasury

2002-2003 Priorities for Tax Regulations and Other Administrative

Guidance (July 10, 2002).   To that end, the IRS has committed

itself “to increased and more timely published guidance”, in the

form of revenue rulings and revenue procedures, in the hopes of

achieving increased taxpayer compliance and resolving “frequently

disputed tax issues”.   These stated goals will not be achieved if

the Commissioner refuses to follow his own published guidance and

argues in court proceedings that revenue rulings do not bind him

or that his rulings are incorrect.     Certainly, the Commissioner’s

failure to follow his own rulings would be unfair to those
                              - 43 -

taxpayers, such as petitioners herein, who have relied on revenue

rulings to structure their transactions.    Moreover, it is highly

inequitable to impose penalties, which respondent has done in

this case.   Accordingly, in this case, we shall not permit

respondent to argue against his revenue ruling, and we shall

treat his revenue ruling as a concession.



                                 An appropriate order will be

                            issued granting petitioners’ motion

                            for partial summary judgment.