ESTATE OF EDWARD S. REDSTONE, DECEASED, MADELINE M.
   REDSTONE, EXECUTRIX, PETITIONER v. COMMISSIONER
          OF INTERNAL REVENUE, RESPONDENT

       Docket No. 8401–13.            Filed October 26, 2015.

      R determined a gift tax deficiency against E, the estate of
   D, a deceased individual. D worked in a family business with
   his father and his brother. This business was reorganized in
   1959 as National Amusements, Inc. (NAI). Upon NAI’s incor-
   poration, D’s father contributed a disproportionate amount of
   capital, but the three were each listed as registered owners of
   1⁄3 of NAI’s shares. D was eventually forced out of the busi-

   ness. Upon departure he demanded all of his stock, which his

                                                                     259
260          145 UNITED STATES TAX COURT REPORTS                          (259)

      father refused to deliver. Citing the disproportionate capital
      contributions in 1959, his father insisted that a portion of D’s
      stock had been held since NAI’s inception in an ‘‘oral trust’’
      for the benefit of D’s children. After lengthy negotiations and
      the filing of two lawsuits, the parties in 1972 reached a settle-
      ment on advice of their respective counsel. Pursuant to the
      settlement, D transferred 1⁄3 of the disputed shares into a
      trust for his children, in consideration of which D was
      acknowledged as outright owner of 2⁄3 of the disputed shares,
      which NAI redeemed for $5 million. R determined that D’s
      transfer of stock for the benefit of his children was a taxable
      gift. While agreeing that D transferred the stock in settlement
      of a bona fide dispute, R contends that the transfer was not
      made ‘‘in the ordinary course of business’’ or ‘‘for a full and
      adequate consideration in money or money’s worth,’’ sec.
      25.2511–1(g)(1), Gift Tax Regs., because no consideration was
      furnished by D’s children, the transferees of the stock.
         1. Held: D’s transfer of stock was made in the ordinary
      course of business and for a full and adequate consideration
      in money or money’s worth, namely, recognition by D’s father
      and brother that he was the outright owner of 2⁄3 of the dis-
      puted shares.
         2. Held, further, D received adequate consideration even
      though that consideration was not furnished by his children.
         3. Held, further, D did not make a taxable gift and is not
      liable for any gift tax for the period at issue.

   Howard J. Castleman and Loretta R. Richard, for peti-
tioner.
   Carina J. Campobasso and Janet F. Appel, for respondent.
   LAUBER, Judge: Respondent determined a deficiency of
$737,625 in the Federal gift tax of the Estate of Edward S.
Redstone, Deceased (estate) for the calendar quarter ended
June 30, 1972. Respondent also determined an addition to
tax of $368,813 under section 6653(b) for fraud and (alter-
natively) an addition to tax of $36,881 under section 6653(a)
for negligence and an addition to tax of $184,406 under sec-
tion 6651(a)(1) for failure to file a timely gift tax return. 1
   The deficiency stems from the settlement in 1972 of a
family dispute concerning Edward Redstone’s ownership of
shares in National Amusements, Inc. (NAI), a family-owned
  1 All statutory references are to the Internal Revenue Code in effect for

the tax period at issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure. We round all dollar amounts to the nearest dol-
lar. During 1972, the tax period at issue, what are now ‘‘penalties’’ for
fraud and negligence were denominated ‘‘additions to tax.’’
(259)         ESTATE OF REDSTONE v. COMMISSIONER                       261


corporation. This dispute was settled by a compromise
whereby Edward released his claim to 331⁄3 NAI shares,
which at his father’s insistence were placed in trusts for
Edward’s children. In exchange for this release, Edward’s
father and brother acknowledged Edward’s ownership of
662⁄3 NAI shares, which NAI immediately redeemed for cash.
The focus of the parties’ dispute is whether Edward’s
transfer of stock in trust for his children was made for ‘‘an
adequate and full consideration in money or money’s worth.’’
See sec. 2512(b). We find that it was. We accordingly hold
that the 1972 transfer was not a ‘‘gift’’ for Federal gift tax
purposes.

                          FINDINGS OF FACT

  Some of the facts have been stipulated and are so found.
The stipulations of facts and the attached exhibits are incor-
porated by this reference. Edward Redstone died on
December 23, 2011. Edward married Madeline Redstone in
1989, and she is his surviving spouse and the executrix of
the estate. Madeline was a California resident at the time
the petition was filed.
Family and Business Background
  Michael ‘‘Mickey’’ Redstone was born on April 11, 1902. He
married Belle Redstone, and the couple had two children,
Sumner and Edward. Edward attended college and business
school before joining the family business in 1952. He married
Leila, his first wife, who died in 1987. They had two children,
Michael and Ruth Ann.
  Sumner graduated from Harvard College in 1944 and Har-
vard Law School in 1947. He practiced law for several years,
including a stint in the Tax Division of the U.S. Department
of Justice, before starting work in 1954 for the family busi-
ness. Sumner married Phyllis, and they had two children,
Brent and Shari. 2
  2 Sumner   is the petitioner in a companion case, Redstone v. Commis-
sioner, T.C. Dkt. No. 8097–13 (filed Apr. 10, 2013). That case has not been
consolidated with the instant case. While the cases share a common factual
background, they present different issues, the resolution of which depends
to a large degree on different evidence.
262        145 UNITED STATES TAX COURT REPORTS           (259)


   Mickey entered the drive-in movie theater business in
1936. Between 1936 and 1954 Mickey bought real estate
throughout the Northeast and built numerous drive-in thea-
ters. He incorporated Northeast Theatre Corporation (North-
east) in 1954, and it became the management company for
the Redstone family business. For each drive-in theater,
Mickey typically incorporated three separate corporations:
one to own the real estate, one to operate the theater, and
one to manage refreshments. Mickey, Edward, and Sumner
eventually came to own various percentages of these various
corporations, with Mickey’s aggregate share being the
largest.
   As the family business grew, this complex corporate struc-
ture made it cumbersome to obtain financing. To solve this
problem and to consolidate the interests of Mickey, Edward,
and Sumner in a single entity, NAI was incorporated as a
holding company on August 28, 1959. Its articles of incorpo-
ration named Mickey, Edward, and Sumner as the original
directors; Mickey was elected president, Sumner vice presi-
dent, and Edward secretary-treasurer. To this date NAI is a
closely held corporation headquartered in Norwood,
Massachusetts.
   Upon NAI’s incorporation, Mickey, Edward, and Sumner
each contributed to it their stock in the pre-existing movie
companies. The book value of the stock that each contributed
was $30,328, $17,845, and $18,445, respectively. Mickey also
contributed $3,000 in cash. According to the minutes of the
first meeting of directors dated September 1, 1959, a total of
300 shares of class A voting common stock were to be issued:
100 shares each to Mickey, Edward, and Sumner. It was
Mickey’s decision to divide the shares evenly. Consistently
with these decisions, the stock certificates indicated that
Mickey, Edward, and Sumner were each registered owners of
100 unrestricted shares of NAI common stock. All of the
physical stock certificates were retained in NAI’s corporate
office.
   The decisions taken at NAI’s organizational meeting con-
tained the seeds of the problem that would blossom into the
tax dispute now before us. Whereas Mickey, Edward, and
Sumner were each registered owners of 33.33% of NAI’s
stock, the values of their contributions to NAI were dis-
proportionate to their shareholdings, as follows:
(259)        ESTATE OF REDSTONE v. COMMISSIONER             263


        Item            Mickey    Sumner    Edward      Total
 Cash contributed        $3,000     -0-       -0-      $3,000
 Property contributed   $30,328   $18,445   $17,845   $66,618
  Total                 $33,328   $18,445   $17,845   $69,618
 Percentage              47.88%    26.49%    25.63%     100%

  Mickey gave Sumner, his elder son, the more public and
glamorous job of working with movie studios and acquiring
new theaters. Edward had principal responsibility for oper-
ational and back-office functions. His duties included
maintaining existing properties and developing new prop-
erties.
The 1968 Redemption
  As he approached age 70, Mickey developed a plan to retire
gradually from active involvement in NAI’s operations. To
implement this plan, he decided to transfer a portion of his
common stock to his grandchildren and to exchange the bal-
ance of his shares for preferred stock.
  On May 6, 1968, Mickey as settlor executed an agreement
of trust for the benefit of his four grandchildren (Grand-
children’s Trust). The three trustees were Belle, Edward, and
Sumner. That same day Mickey transferred 50 shares of NAI
common stock to the Grandchildren’s Trust. He filed a timely
Federal gift tax return valuing these shares at $564,075 and
paying gift tax accordingly. Belle likewise filed a Federal gift
tax return, consenting to have Mickey’s gift treated as having
been made one-half by her.
  Mickey then exchanged his remaining 50 shares of NAI
common stock for preferred stock. In December 1968 NAI’s
charter was amended to provide for a class of preferred stock,
and in March 1969 Mickey’s 50 shares of common stock were
redeemed in exchange for 86,780 shares of NAI preferred
stock. Thus, as of March 31, 1969, NAI had outstanding 250
shares of voting common stock that were owned by Sumner
(100 shares), Edward (100 shares), and the Grandchildren’s
Trust (50 shares).
1971 Dispute
  Toward the end of the 1960s the first of many conflicts
developed within the Redstone family. Edward’s son Michael
began to manifest serious psychiatric problems. After strug-
264        145 UNITED STATES TAX COURT REPORTS            (259)


gling with these problems for several years, Edward and
Leila decided that they had no alternative but to have their
son admitted as a resident psychiatric patient at McLean
Hospital in Boston. Mickey, Belle, and Sumner strongly dis-
agreed with this course of action, in part because they feared
it reflected badly on the Redstone family name. Mickey and
Sumner insisted that Edward remove Michael from the
facility and restore him to the family. Edward eventually
acquiesced, but he greatly resented this intrusion into his
and Leila’s personal lives. For his part, Mickey began to
doubt whether Edward had Michael’s best interests at heart.
   About this time Edward began to feel marginalized, not
only within his extended family, but also within the family
business. He became dissatisfied with his role at NAI, with
certain business decisions that Mickey and Sumner had
made, and with what he regarded as a lack of respect for his
views. He began to discuss, in general terms, the possibility
that he might leave the family business. This possibility
became more concrete when Sumner, without first discussing
the matter with Edward, hired Jerry Swedrow to take over
Edward’s responsibilities for NAI operations. When Edward
learned of this he became incensed. In June 1971 he abruptly
quit the family business.
   Upon leaving, Edward demanded but did not receive
possession of the 100 shares of common stock registered in
his name. To help secure possession of these shares, Edward
hired attorney James R. DeGiacomo. Edward took the posi-
tion that he was legally entitled to, and had an unrestricted
right to sell, the shares registered in his name. He threat-
ened to sell the shares to an outsider if NAI did not redeem
them at an appropriate price.
   Edward’s threat to sell his shares to an outsider was
anathema to Mickey and Sumner because they wished to
keep control of the Redstone business within the family.
Mickey refused to give Edward his stock certificates, con-
tending that NAI had a right of first refusal to repurchase
the shares. Mickey and his attorneys also developed an argu-
ment that a portion of Edward’s stock, though registered in
his name, had actually been held since NAI’s inception in an
‘‘oral trust’’ for the benefit of Edward’s children. This argu-
ment built on the fact that Mickey in 1959 had contributed
48% of NAI’s capital yet had received only 33.33% of its
(259)       ESTATE OF REDSTONE v. COMMISSIONER               265


stock. In effect, Mickey contended that he had gratuitously
accorded Edward more stock than he was entitled to, and
that, to effectuate Mickey’s intent in 1959, the ‘‘extra’’ shares
should be regarded as being held in trust for Edward’s chil-
dren. Mickey initially insisted that at least half of Edward’s
shares were covered by this alleged oral trust.
   The parties negotiated for six months in search of a resolu-
tion. They explored, without success, various options whereby
Edward would remain in the business as an employee or
consultant. Edward offered to sell his 100 shares back to
NAI, and the parties explored various pricing scenarios
under which this might occur. As the family patriarch, how-
ever, Mickey had most of the leverage, and he insisted that
Edward acknowledge the existence of an oral trust for the
benefit of Edward’s children. Mickey’s insistence on an oral
trust was a ‘‘line in the sand’’ and a ‘‘deal breaker.’’
   Upon reaching an impasse, Edward authorized Mr.
DeGiacomo to file in Massachusetts Superior Court two law-
suits against Mickey, Sumner, and the Redstone family
companies: Redstone v. Nat’l Amusements, Inc., No. 94575
EQ (NAI Action), and Redstone v. Northeast Theatre Com.,
No. 94576 EQ (Northeast Action). The NAI action, filed in
December 1971, alleged that Edward owned 100 shares of
voting common stock, that these shares were ‘‘unencumbered
and unrestricted as to their transferability,’’ and that the 100
shares should be delivered immediately to Edward. Mickey
answered that he had possession of all the stock registered
in Edward’s name and that a portion of the shares so reg-
istered were ‘‘held in trust for the benefit of * * * [Edward’s]
children.’’
   This litigation became quite adversarial, and its public
nature was extremely distressing to the Redstone family,
especially to Mickey’s wife (and Edward’s mother) Belle. She
implored Edward to reach some accommodation with his
father. In the course of negotiations, it became apparent to
Mr. DeGiacomo that Edward had to separate completely from
NAI and that Mickey would not be placated unless Edward
acknowledged the supposed ‘‘oral trust’’ and placed some of
the disputed shares in trust for his children, Michael and
Ruth Ann.
   A settlement was ultimately reached along these lines.
Notwithstanding that 100 shares of NAI voting common
266        145 UNITED STATES TAX COURT REPORTS            (259)


stock were registered in Edward’s name, the parties agreed
that Edward was the owner ‘‘free and clear of all trusts,
restrictions and encumbrances’’ of only 662⁄3 shares of such
stock. They further agreed that the remaining 331⁄3 shares of
NAI stock registered in Edward’s name were then held, and
had always been held by Edward, ‘‘for the benefit of his chil-
dren * * * in trust and not as beneficial owner.’’ This settle-
ment was a compromise of the parties’ respective positions.
It reflected, on the one hand, Mickey’s desire to ensure the
financial security of Edward’s children and, on the other
hand, Edward’s desire to conclude the litigation by securing
payment for at least a portion of his shares.
   The parties agreed that NAI would purchase from Edward
the 662⁄3 shares of stock that he was deemed to own. They
further agreed that ‘‘Ed’s 2⁄3 stock interest was to be valued
at Five Million Dollars for purposes of a settlement agree-
ment’’ dated June 30, 1972 (Settlement Agreement). Edward
executed an assignment transferring to NAI, in exchange for
$5 million, 662⁄3 shares of NAI voting common stock.
   The Settlement Agreement further required Edward to
execute irrevocable declarations of trust, likewise dated June
30, 1972, for the benefit of his children. These trusts were
styled the Ruth Ann Redstone Trust (Ruth Ann Trust) and
the Michael David Redstone Trust (Michael Trust). Sumner
was named the sole trustee of each trust. Edward executed
two assignments, each transferring 162⁄3 shares of NAI stock
to Sumner as trustee of the respective Trusts.
   Finally, the Settlement Agreement required the parties to
execute various releases. All parties executed mutual
releases respecting claims concerning Edward’s ownership
interests in NAI and Northeast. Edward resigned from all
positions he had held in the Redstone family businesses and
resigned as trustee (or relinquished the right to serve as suc-
cessor trustee) of all Redstone family trusts. The Settlement
Agreement also resolved certain disputes in the Northeast
Action that are not relevant here.
   On July 19, 1972, the parties filed with the Massachusetts
Superior Court a Stipulation in the NAI Action setting forth
the terms of this settlement. That same day, the Massachu-
setts Superior Court issued a Final Decree incorporating the
terms of the Settlement Agreement.
(259)         ESTATE OF REDSTONE v. COMMISSIONER                       267


O’Connor Litigation
   Litigation commenced in 2006 sheds further light on the
events involved in this case. See O’Connor v. Redstone, 

(Mass. 2008). Michael Redstone and the trustees
of certain Redstone family trusts sued Sumner, Edward, and
NAI, arguing (among other things) that additional stock
should have been transferred to the various Trusts in 1972
based on the purported existence of a prior ‘‘oral trust.’’ The
‘‘oral trust’’ issue was the subject of extensive deposition and
trial testimony. 3 At the conclusion of trial the Massachusetts
Superior Court ruled that the plaintiffs had failed to prove
that an oral trust was ever created.
   Edward testified during the O’Connor trial about the back-
ground and resolution of the 1971–1972 dispute. He testified
that he firmly believed he was entitled to all 100 shares of
NAI stock that were originally registered in his name. How-
ever, he ultimately accepted Mr. DeGiacomo’s advice that it
was in his best interest to compromise and settle the litiga-
tion. He explained that he paid no gift tax in 1972 upon
transferring the stock to the Michael and Ruth Ann
Trusts because he ‘‘made no gift.’’ Rather, he stated that he
had been forced to renounce his ownership interest in
the 331⁄3 shares in order to obtain payment for the remaining
662⁄3 shares.
   Edward testified that Mickey and Sumner had developed
the concept of an oral trust as a means of justifying their
position. In Edward’s view, he had never held any NAI
shares under an oral trust for his children, notwithstanding
the provision in the Settlement Agreement reciting that
331⁄3 of his shares had always been so held. He testified that
he had been forced to acknowledge the existence of an oral
trust in order to placate his father and settle the litigation.
As he stated: ‘‘I was forced to do this. * * * I had to accept
the writing in order to settle the matter, indicate that there
was an oral trust.’’


  3 The trial transcript of the O’Connor litigation, and the transcripts of

certain depositions taken in that case, are included among the exhibits to
the parties’ stipulation of facts in the instant case.
268           145 UNITED STATES TAX COURT REPORTS                        (259)


Notice of Deficiency
   Edward did not file a Federal gift tax return for the second
quarter of 1972. In his and his accountants’ view, the NAI
shares that he transferred to the Michael and Ruth Ann
Trusts did not constitute a taxable gift. In 2010, apparently
as a result of the O’Connor litigation, Edward’s 1972 transfer
of stock came to the attention of the Internal Revenue
Service (IRS). On January 11, 2013, after an examination,
the IRS issued the estate a notice of deficiency determining
a deficiency of $737,625 in Federal gift tax for the calendar
quarter ended June 30, 1972. 4 Respondent also determined
an addition to tax for fraud of $368,813 under section 6653(b)
and (as an alternative to fraud) an addition to tax for neg-
ligence of $36,881 under section 6653(a) and an addition to
tax of $184,406 under section 6651(a)(1). The estate timely
petitioned this Court.
                                  OPINION

I. Burden of Proof
  The Commissioner’s determinations in a notice of defi-
ciency are generally presumed correct, and the taxpayer
bears the burden of proving those determinations erroneous.
Rule 142(a); Welch v. Helvering, 

, 115 (1933).
The estate does not contend that the burden of proof shifts
to respondent under section 7491(a) as to any issue of fact.
II. Application of Gift Tax
  A. Governing Legal Principles
  During 1972 the Federal gift tax was imposed for each cal-
endar quarter ‘‘on the transfer of property by gift’’ during
   4 According to respondent’s theory—that Edward made a taxable gift and

was required to file a return reporting the 1972 transfer—the notice of de-
ficiency was timely. Section 6501(c)(3) provides that, ‘‘[i]n the case of fail-
ure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment, at any time.’’
The estate does not contend that Edward filed a gift tax return reporting
the 1972 transfer or that the period of limitations has expired for any
other reason. The estate has thus waived any affirmative defense. See Rule
39. In any event, because we rule for the estate on the merits, any issue
regarding the period of limitations is moot. Cf. Estate of Brown v. Commis-
sioner, T.C. Memo. 2013–50.
(259)       ESTATE OF REDSTONE v. COMMISSIONER              269


that quarter. Sec. 2501(a)(1). ‘‘Where property is transferred
for less than an adequate and full consideration in money or
money’s worth, then the amount by which the value of the
property exceeded the value of the consideration shall be
deemed a gift.’’ Sec. 2512(b). A necessary corollary of this
provision is that a transfer of property in exchange for ‘‘an
adequate and full consideration’’ does not constitute a ‘‘gift’’
for Federal gift tax purposes. See, e.g., Commissioner v.
Wemyss, 

(1945).
   The Treasury Regulations confirm that ‘‘[t]he gift tax is not
applicable to a transfer for a full and adequate consideration
in money or money’s worth, or to ordinary business trans-
actions.’’ Sec. 25.2511–1(g)(1), Gift Tax Regs. The application
of the gift tax depends ‘‘on the objective facts of the transfer
and the circumstances under which it is made, rather than
on the subjective motives of the donor.’’ 

on the part of the transferor is not an
essential element in the application of the gift tax.’’ 

a ‘‘transfer of property made in the
ordinary course of business’’ as ‘‘a transaction which is bona
fide, at arm’s length, and free from any donative intent.’’ Sec.
25.2512–8, Gift Tax Regs.; see Weller v. Commissioner, 

, 806 (1962). A transaction meeting this standard
‘‘will be considered as made for an adequate and full consid-
eration in money or money’s worth.’’ Sec. 25.2512–8, Gift Tax
Regs. That is so even if one party to the transaction later
concludes that the consideration he received was inadequate.
See Estate of Anderson v. Commissioner, 

, 720
(1947) (‘‘Bad bargains * * * are made every day in the busi-
ness world * * * ; but no one would think for a moment that
any gift is involved[.]’’).
   A transfer of property within a family group normally
receives close scrutiny. See, e.g., Frazee v. Commissioner, 

, 561 (1992). However, a transfer of property
between family members may be treated as one ‘‘in the ordi-
nary course of business’’ if it meets the criteria set forth
above. See Stern v. United States, 

, 1330 (5th
Cir. 1971); Rosenthal v. Commissioner, 

, 509 (2d
Cir. 1953), rev’g 

(1951); Estate of Anderson, 

. In Harris v. Commissioner, 

, 109
(1950), for example, the Supreme Court found no taxable gift
where a divorcing couple ‘‘voluntarily unravelled their busi-
270          145 UNITED STATES TAX COURT REPORTS                       (259)


ness interests on the basis of * * * [a] compromise.’’ As the
Court explained, 

 This transaction * * * [was] not ‘‘in the ordinary course of business’’ in
 any conventional sense. Few transactions between husband and wife
 ever would be * * * . But if two partners on dissolution of the firm
 entered into a transaction of this character or if chancery did it for them,
 there would seem to be no doubt that the unscrambling of the business
 interests would satisfy the spirit of the Regulations. No reason is
 apparent why husband and wife should be under a heavier handicap
 * * *.

   On numerous occasions, this Court has held that a transfer
of property between family members, in settlement of bona
fide unliquidated claims, was made for ‘‘a full and adequate
consideration’’ because it was a transaction in the ‘‘ordinary
course of business.’’ For example, in Beveridge v. Commis-
sioner, 

(1948), acq. 1949–1 C.B. 1, the taxpayer
had transferred certain property as a gift to her daughter,
then unmarried. The daughter later decided to marry a man
to whom the taxpayer objected, causing a complete estrange-
ment between the two, and the daughter reluctantly
returned the property to the taxpayer. Several years after
the marriage, the daughter made demand for the property,
alleging that she had returned the property under duress
and threatening suit. After lengthy negotiations and upon
advice of her attorneys, the taxpayer agreed to, and did,
place $120,000 in trust for her daughter, thereby securing
from her daughter a release of all claims.
   The IRS determined that the $120,000 transfer was a tax-
able gift because it was made ‘‘to secure the release of
unproven claims which had no ascertainable 

–918. We disagreed, finding that the taxpayer had
received in exchange for the transfer a ‘‘release from unliqui-
dated claims’’ and that this release had recognizable mone-
tary value, 

 [T]he settlement to which she agreed on her attorneys’ advice was that
 which they and she regarded as advantageous economically under the
 circumstances. Perhaps she could have successfully resisted the daugh-
 ter’s threatened suit, but her attorneys were not certain of the outcome
 of the litigation and so advised her; the value of the property defended
 was substantial, and by accepting that settlement, she avoided addi-
 tional legal expense. She acted, in our opinion, as one would act in the
 settlement of differences with a stranger.
(259)       ESTATE OF REDSTONE v. COMMISSIONER               271


  We accordingly ruled in Beveridge that the taxpayer’s
$120,000 transfer to her daughter was not a gift but ‘‘was for
an adequate and full consideration in money or money’s
worth.’’ 

–918. We have ruled similarly in other
cases involving arm’s-length transfers of property in settle-
ment of genuine disputes between family members. See, e.g.,
Estate of Friedman v. Commissioner, 

(1963);
Estate of Natkanski v. Commissioner, T.C. Memo. 1992–380,

; Estate of Noland v. Commissioner, T.C.
Memo. 1984–209, 

; Lampert v.
Commissioner, T.C. Memo. 1956–226, 

;
Chase Nat’l Bank v. Commissioner, 

(1953).
  B. Analysis
   A transfer of property will be regarded as occurring ‘‘in the
ordinary course of business’’ and thus will be considered to
have been made ‘‘for an adequate and full consideration in
money or money’s worth’’ only if it satisfies the three ele-
ments specified in section 25.2512–8, Gift Tax Regs. To meet
this standard, the transfer must have been bona fide, trans-
acted at arm’s length, and free of donative intent. In
applying this regulation to settlements of family disputes, we
have identified certain subsidiary factors that may also be
relevant. We have considered, for example: whether a gen-
uine controversy existed between the parties; whether the
parties were represented by and acted upon the advice of
counsel; whether the parties engaged in adversarial negotia-
tions; whether the value of the property involved was
substantial; whether the settlement was motivated by the
parties’ desire to avoid the uncertainty and expense of litiga-
tion; and whether the settlement was finalized under judicial
supervision and incorporated in a judicial decree. See, e.g.,
Estate of 

; Estate of

–1645.
  1. Bona Fide
  The requirement that the transfer be ‘‘bona fide’’ considers
whether the parties were settling a genuine dispute as
opposed to engaging in a collusive attempt to make the
transaction appear to be something it was not. See Black’s
Law Dictionary 199 (9th ed. 2009) (defining ‘‘bona fide’’ as
272        145 UNITED STATES TAX COURT REPORTS             (259)


‘‘[m]ade in good faith; without fraud or deceit’’). There is no
indication that the 1971–1972 dispute within the Redstone
family was a sham designed to disguise a gratuitous transfer
to Edward’s children. All the evidence points in the opposite
direction.
   Edward was not working in concert with Mickey or
Sumner in any sense of the word. To the contrary, Edward
was genuinely estranged from his father and his brother
during 1971–1972, and this estrangement grew worse as
time went on. On both the business and family fronts,
Edward had legitimate grievances against Mickey and
Sumner, and they had (or thought they had) legitimate griev-
ances against him.
   Edward’s agreement to release his claim to 331⁄3 shares of
NAI stock represented a bona fide settlement of this dispute.
Although Edward had a reasonable claim to all 100 shares
registered in his name, Mickey had possession of these
shares and refused to disgorge them, forcing Edward to com-
mence litigation. The ‘‘oral trust’’ theory on which Mickey
relied was evidently a theory in which he passionately
believed. And it had some link to historical fact: at NAI’s
inception, Edward was listed as a registered owner of 33.33%
of NAI’s shares even though he had contributed only 25.6%
of its assets.
   The Massachusetts courts, 37 years later, ultimately found
insufficient evidence that an oral trust was ever created. But
this theory had sufficient plausibility to generate a great deal
of litigation over the course of many years. See 

(finding that settlement was not a gift
where ‘‘the various claims of petitioner’s children were
not * * * so ‘extremely tenuous in nature’ that the
agreement * * * settling such claims was without adequate
consideration’’). Edward testified during the O’Connor trial
that he had been forced to acknowledge the existence of an
oral trust, and to relinquish his claim to 331⁄3 shares, in
order to placate his father and receive payment for the
remaining 662⁄3 shares. This testimony comports with the
evidence at trial and convinces us that Edward’s transfer of
stock in trust for his children represented the bona fide
settlement of a genuine dispute.
(259)       ESTATE OF REDSTONE v. COMMISSIONER              273


  2. Arm’s Length
   The requirement that the transfer be ‘‘arm’s length’’ is
satisfied so long as the taxpayer acts ‘‘as one would act in the
settlement of differences with a stranger.’’ 

. Edward was genuinely estranged from Mickey and
Sumner in 1972. The evidence establishes that they settled
their differences as such.
   Edward hired a lawyer, Mr. DeGiacomo, who testified
convincingly at trial. He commenced two lawsuits against
Mickey, Sumner, and NAI. The lawyers for all parties nego-
tiated for many months as genuine adversaries in search of
a compromise. They eventually reached a settlement that
Edward accepted on his lawyer’s advice; both evidently
regarded this compromise ‘‘as ‘advantageous economically.’ ’’
Estate of Friedman, 

(quoting 

). ‘‘The presence of counsel at the conference table
for the purpose of advising and representing the respective
parties as to their rights and obligations, together with other
relevant facts and circumstances, dispels any rational theory
that a payment made in connection with such settlement was
intended for or could have been a gift.’’ Lasker v. Commis-
sioner, 

, 991 (7th Cir. 1943).
   All the elements of arm’s-length bargaining existed here.
There was a genuine controversy among Edward, Mickey,
and Sumner; they were represented by and acted upon the
advice of counsel; they engaged in adversarial negotiations
for a protracted period; the compromise they reached was
motivated by their desire to avoid the uncertainty and
embarrassment of public litigation; and their settlement was
incorporated in a judicial decree that terminated the law-
suits. Because Edward acted ‘‘as one would act in the settle-
ment of differences with a stranger,’’ his transfer of shares
in trust for his children was an arm’s-length transaction. See

; Estate of Natkanski, 64 T.C.M.
(CCH) at 59; Estate of 

–
1645; 

–1190.
  3. Absence of Donative Intent
  Although donative intent is not prerequisite to a ‘‘gift,’’
Commissioner v. 

, the absence of
donative intent is essential for a transfer to be treated as
274          145 UNITED STATES TAX COURT REPORTS                  (259)


made ‘‘in the ordinary course of business,’’ sec. 25.2512–8,
Gift Tax Regs.; see Weller, 

. Generally, dona-
tive intent will be found lacking when a transfer is ‘‘not
actuated by love and affection or other motives which nor-
mally prompt the making of a gift.’’ 

; see Estate of 

–1645.
   Edward transferred 331⁄3 NAI shares in trust for his chil-
dren, Michael and Ruth Ann. Although his relations with
Michael may have been strained at this time, we assume
that both children remained objects of his affection. A
transfer of stock to one’s children, however, is not necessarily
imbued with donative intent. The transferees in most of the
cases discussed above were the transferor’s children, but
these transfers were nevertheless held to have been made ‘‘in
the ordinary course of business.’’
   Edward’s objective throughout the 1971–1972 dispute was
to obtain for himself ownership of (or full payment for) the
100 NAI shares originally registered in his name. Mickey
floated in late 1971 the concept that Edward had held a por-
tion of these shares since 1959 in trust for his children. If
Edward had been motivated by donative intent toward his
children, he could have embraced Mickey’s concept at once
and resolved the dispute without the expense and family
disharmony generated by filing two lawsuits. Edward filed
these lawsuits because he refused to embrace the ‘‘oral trust’’
theory and wished to obtain possession, in his own name, of
all 100 shares. 5
   The evidence clearly established that Edward transferred
stock to his children, not because he wished to do it, but
because Mickey demanded that he do it. Mickey disagreed
with how Edward was raising his children, especially
Michael, whom Edward had institutionalized against
Mickey’s wishes. The transfer of stock in trust for Michael
and Ruth Ann was prompted by Mickey’s twin desires to
ensure his grandchildren’s financial security and to keep the
Redstone family business within the Redstone family. At the
time of the settlement, Edward had no desire to transfer
  5 Both economic and family reasons may have motivated Edward to in-

sist on securing outright ownership of (or payment for) all 100 shares.
Having abruptly quit the family business, he was likely concerned about
his own financial security. And he may have been reluctant to transfer
wealth to his son, whom he had recently placed in a mental hospital.
(259)       ESTATE OF REDSTONE v. COMMISSIONER               275


stock to his children. He was forced to accept this transfer
in order to placate Mickey, settle the family dispute, and
obtain a $5 million payment for the remaining 662⁄3 shares.
  We find that Edward acquiesced in the notion of an ‘‘oral
trust’’ because he had no other alternative; this was a ‘‘deal
breaker’’ for Mickey. There is no evidence that Edward, in
making this transfer, was motivated by love and affection or
other feelings that normally prompt the making of a gift.
Because Edward’s transfer of stock to his children rep-
resented the settlement of a bona fide dispute, was made at
arm’s length, and was ‘‘free from any donative intent,’’ it
meets the three criteria for a transaction ‘‘in the ordinary
course of business’’ specified in section 25.2512–8, Gift Tax
Regs.
  4. Source of the ‘‘Consideration’’
  Respondent does not seriously challenge any of the conclu-
sions set forth above. Instead, he emphasizes that Ruth Ann
and Michael were not parties to the litigation or settlement
of the dispute. As a result, they did not provide (and could
not have provided) any consideration to Edward for the
transfer of the shares. Because no consideration flowed from
the transferees, respondent contends that Edward’s transfer
was necessarily a ‘‘gift.’’
  Respondent’s argument derives no support from the text of
the governing regulations. Section 25.2511–1(g)(1), Gift Tax
Regs., provides unequivocally that ‘‘[t]he gift tax is not
applicable to a transfer for a full and adequate consideration
in money or money’s worth.’’ Section 25.2512–8, Gift Tax
Regs., provides that a ‘‘transfer of property made in the ordi-
nary course of business * * * will be considered as made for
an adequate and full consideration in money or money’s
worth.’’ Section 25.2512–8, Gift Tax Regs., specifies three ele-
ments that an ordinary business transaction must meet, and
we have found that Edward’s transfer met all three ele-
ments. The consequence of that determination is that ‘‘[t]he
gift tax is not applicable to * * * [the] transfer.’’ Sec.
25.2511–1(g)(1), Gift Tax Regs.
  Respondent’s argument focuses on whether the transferees
provided consideration. But that is not the question the regu-
lation asks. It asks whether the transferor received consider-
ation, that is, whether he made the transfer ‘‘for a full and
276         145 UNITED STATES TAX COURT REPORTS                    (259)


adequate consideration’’ in money or money’s worth. Sec.
25.2511–1(g)(1), Gift Tax Regs. (emphasis added). We have
determined that Edward received ‘‘a full and adequate
consideration’’ for his transfer—namely, the recognition by
Mickey and Sumner that Edward was the outright owner of
662⁄3 NAI shares and NAI’s agreement to pay Edward $5 mil-
lion in exchange for those shares. Section 2512(b) and its
implementing regulations require that the donor receive ‘‘an
adequate and full consideration’’; they make no reference to
the source of that consideration.
   The parties have not brought to our attention, and our
research has not discovered, any Tax Court precedent
addressing the ‘‘source of consideration’’ question that
respondent presents for decision. However, the result we
reach accords with that reached by the U.S. District Court in
Shelton v. Lockhart, 

(W.D. Mo. 1957). The
taxpayer there, an Osage Indian, applied for a certificate of
competency from the Bureau of Indian Affairs (BIA). This
certificate would have afforded her (among other things) the
unrestricted right to own and dispose of $600,000 in property
that the BIA held on her behalf. In her application she stated
that she would make a portion of this property available to
her children when they reached the age of 18.
   Fearing that the property might be dissipated before then,
the BIA replied that it would issue her a certificate of com-
petency only if she first placed in trust irrevocably for her
children $300,000 of the property that the BIA held. She
rejected that demand, and counsel for the parties commenced
negotiations. Ultimately, the taxpayer agreed to place
$200,000 of the disputed property into a trust for her chil-
dren. The BIA then issued her a certificate of competency
affording her unrestricted rights to the rest of the property,
then worth $412,857.
   The IRS contended that the taxpayer’s transfer in trust for
her children was a taxable gift. The District Court disagreed,
ruling that the transfer qualified as a transaction in the
‘‘ordinary course of business’’ under section 25.2512–8, Gift
Tax Regs. The court found it irrelevant that the taxpayer’s
children were not parties to the dispute or its settlement:
 In essence, this transaction simply represents a business venture
 between Mrs. Shelton and the * * * [BIA]. It was the result of negotia-
 tions extending over a period of many months. The fact that in her
(259)         ESTATE OF REDSTONE v. COMMISSIONER                         277


  original application she indicated that one of the purposes of the applica-
  tion was to be in position to make adequate trust provisions for her chil-
  dren after they reached majority does not in any way negative the
  unalterable conclusion that the result here—a trust she did not want,
  made at a time she did not want to make it, and for an amount she was
  unwilling to pay at the time—was the completion of a cold business bar-
  gain, as bona fide as any business bargain could be, negotiated at arm’s
  length, and obviously free from any donative intent. * * * 

.]

Concluding that the transfer satisfied all three elements req-
uisite to the ‘‘ordinary course of business’’ exception, the
court held that the transfer was not subject to the Federal
gift tax. 

Shelton are remarkably similar to those here.
In both cases the assets in dispute were held by a third
party. Edward, like Mrs. Shelton, initially demanded 100% of
the disputed assets; when the party in actual possession of
those assets demurred, lengthy negotiations ensued in which
both sides were represented by counsel. Eventually a com-
promise was reached whereby the taxpayer obtained unre-
stricted ownership rights over 2⁄3 of the assets in exchange
for transferring 1⁄3 of the assets in trust for the children. In
both cases the consideration received by the taxpayer flowed,
not from the transferee children, but from the third party
who had possession of the disputed assets. The District Court
in Shelton found the source of the consideration irrelevant
and concluded that the taxpayer’s transfer resulted from a
‘‘cold business bargain.’’ We reach the same conclusion here. 6

  6 Respondent   contends that the children in Shelton provided ‘‘consider-
ation’’ because they assertedly gave up claims to a greater percentage of
the disputed assets. But Mrs. Shelton’s children did not and could not re-
linquish anything because they were not parties to the dispute or its set-
tlement. The BIA was negotiating on their behalf, just as Mickey was ne-
gotiating on behalf of Michael and Ruth Ann. In both cases, the party ne-
gotiating on the children’s behalf was in possession of the disputed prop-
erty; the dispute was settled by the taxpayer’s transferring a portion of the
disputed property to the children in consideration of receiving the balance
of the disputed property in his or her own right. In Shelton, the BIA was
the sole source of the ‘‘consideration’’ received by Mrs. Shelton, just as
Mickey and Sumner were the source of the consideration received by Ed-
ward. In neither case is it material that no consideration was furnished
directly by the transferees.
278         145 UNITED STATES TAX COURT REPORTS             (259)


  C. Conclusion
   We conclude that Edward’s transfer of 331⁄3 shares of NAI
stock to the Michael and Ruth Ann Trusts constituted a bona
fide, arm’s-length transaction that was free from donative
intent and was thus ‘‘made in the ordinary course of busi-
ness.’’ See sec. 25.2512–8, Gift Tax Regs. We find that
Edward made this transfer ‘‘for a full and adequate consider-
ation in money or money’s worth,’’ namely, the recognition by
Mickey and Sumner that Edward was the outright owner of
662⁄3 NAI shares and NAI’s payment of $5 million in
exchange for those shares. Because ‘‘[t]he gift tax is not
applicable to a transfer for a full and adequate consideration
in money or money’s worth, or to ordinary business trans-
actions,’’ sec. 25.2511–1(g)(1), Gift Tax Regs., we find no defi-
ciency in Federal gift tax for the period at issue. And because
we have ruled for the estate on the gift tax issue, it is not
liable for any addition to tax.
   To reflect the foregoing,
                         Decision will be entered for petitioner.

                         f