Associated Wholesale Grocers, Inc., and Its Subsidiary, Super Market Developers, Inc. v. United States

Associated Wholesale Grocers, Inc. and its wholly-owned subsidiary, Super Market Developers, Inc. (collectively, “taxpayer”), appeal the district court’s order denying their motion for summary judgment and granting summary judgment in favor of the Internal Revenue Service (“IRS”). Taxpayer seeks to recognize a business loss and claim a refund of federal income taxes. See Associated Wholesale Grocers, Inc. v. United States, 720 P.Supp. 887 (D.Kan.1989).

Background

The material facts are not in dispute. In 1976, Super Market Developers, Inc. (“Super Market Developers”) made a tender offer for all of the outstanding stock of Weston Investment Co. (“Weston”), a publicly traded holding company which owned a number of corporate supermarkets. Super Market Developers acquired approximately 99.97 percent of the total outstanding shares of Weston by 1980. The management of Super Market Developer’s parent corporation, Associated Wholesale Grocers, Inc. (“Associated Grocers”), subsequently decided it was not in their best interests to own and operate grocery stores through subsidiary corporations. Grocers, 720 F.Supp. at 888.

One of Weston’s subsidiaries was Weston Market, Inc. (“Weston Market”), a grocery managed by Thomas Elder. In 1980, Mr. Elder expressed to taxpayer his interest in buying Weston Market. Taxpayer advised Mr. Elder that it was not interested in a transaction solely involving the stock or operating assets of Weston Market, but that it would be willing to continue discussions.

The parties eventually structured a disposition of Weston’s stock which, taxpayer hoped, would enable it both to cash out Weston’s minority shareholders without paying a premium and to recognize a substantial loss in the value of Weston’s assets 1 when it sold Weston Market. The transaction took the form of two agreements between Super Market Developers and Elder Food Mart, Inc. (“Elder, Inc.”), a corporation organized by Mr. Elder to facilitate the purchase of Weston Market. Both agreements were signed on December 11, 1980, and consummated on December 23, 1980.

Under the “Agreement and Plan of Merger," Weston was merged into Elder, Inc., with Elder, Inc. as the surviving corporation. Elder, Inc. exchanged $300,000 in cash and a non-interest bearing demand promissory note, with a face value of $9,049,703, for the Weston stock. The minority shareholders were entitled to receive $28.50 per share, or more, depending on their pro rata share of the cash and note exchanged for Weston stock.

Under the “Agreement and Plan of Reorganization,” which took effect “immediately following the time of effectiveness of *1519 the merger”, Super Market Developers bought back all the assets acquired by Elder, Inc. under the merger agreement except for the stock of Weston Market. In exchange for those assets, Super Market Developers paid “an amount equal to the principal amount of the promissory note ... plus an amount equal to the cash received by the [minority] shareholders.”

Taxpayer treated the transaction as a taxable sale of Weston’s assets and declared a tax loss under I.R.C. § 1001(a) 2 Because the transaction brought Super Market Developers $2,353,258 less than its cost basis in the stock of Weston, the taxpayer reported that amount as a long-term capital loss in its 1980 consolidated federal income tax return and sought to carry back portions of the loss to each of the three prior years. The IRS denied the loss, concluding the transaction was not a sale but rather a complete liquidation of taxpayer’s subsidiary, Weston. As such, the IRS concluded, recognition of the loss was barred by I.R.C. § 332. 3 The IRS assessed a deficiency which the taxpayer paid.

Upon the IRS’s denial of taxpayer’s claim for refund, taxpayer filed suit in the United States District Court for the District of Kansas. The district court applied the step transaction doctrine in holding that § 332 bars the recognition of taxpayer’s loss. Grocers, 720 F.Supp. at 890. The court granted summary judgment in favor of the government. Id. This appeal followed.

Our review of the district court’s grant of summary judgment is de novo. Anderson v. HHS, 907 F.2d 936, 946 (10th Cir.1990). The government and taxpayer agree the pertinent facts are undisputed. As this case involves “no genuine issue as to any material fact” (Fed.R.Civ.P. 56(c)), summary judgment is appropriate. Our task is to determine which party — the taxpayer or the government — “is entitled to a judgment as a matter of law.” Fed.R. Civ.P. 56(c). ■

*1520 Arguments on Appeal

The issue presented is whether, as a matter of law, the transaction of December 23, 1980 constitutes a taxable sale or other disposition of Weston’s assets under I.R.C. § 1001(a) or a non-taxable complete liquidation of Weston under I.R.C. § 332.

Taxpayer argues the district court erred in accepting the government’s characterization of the transaction as a non-taxable liquidation under § 332, and in applying the step transaction doctrine to reach that conclusion. Taxpayer advances five reasons in support of its argument: (1) the transaction does not meet the enumerated requirements of § 332; (2) ease law rejects application of the step transaction doctrine in the § 332 context; (3) this transaction was supported by business purposes which bar application of the step transaction doctrine; (4) even if it is applicable, the step transaction doctrine was improperly applied by the district court; and (5) application of the step transaction doctrine in this case will produce the harsh result of forever depriving taxpayer of the recognition of its tax loss. We now address those contentions.

I. Internal Revenue Code § 332

Section 332 states an exception to the general rule of recognition which is applicable to gains or losses realized in corporate liquidations. “Generally, distributions in complete liquidation of a corporation, other than the liquidation of a subsidiary qualifying under Section 332, are taxable to the shareholder under Section 331 to the extent the fair market value of the distributions exceed[s] the basis of the shareholder’s stock.” 11 J. Mertens, The Law of Federal Income Taxation § 42.01 at 3 (1990). “Section 332 excepts from the general rule property received, under certain specifically described circumstances, by one corporation as a distribution in complete liquidation of the stock of another corporation and provides for the nonrecognition of gain or loss in those cases which meet the statutory requirements.” Treas.Reg. § 1.332-1 (1955). The purpose of the exception is to facilitate simplification of corporate structures. Cherry-Burrell Corp. v. United States, 367 F.2d 669, 674 (8th Cir.1966).

The nonrecognition exception of § 332 applies or, in other words, a distribution is considered to be in complete liquidation of a subsidiary, only if:

(1) the asset-receiving or “parent” corporation owns, on the date of the adoption of the plan of liquidation and continuously until the receipt of the assets upon liquidation, at least 80 percent of the total voting power and value of the subsidiary (§ 332(b)(1)); and

(2) the subsidiary distributes its property in complete cancellation or redemption of its stock (§ 332(b)(2), (3)); and

(3) the subsidiary transfers all of its property to the parent either:

(a) within the taxable year (in which case the shareholders’ adoption of the resolution authorizing the distribution of assets in complete cancellation or redemption of stock is considered an adoption of a plan of liquidation) (§ 332(b)(2)), or

(b) in a series of distributions in accordance with a plan of liquidation under which all property is distributed within three years from the close of the year in which the first distribution is made. (§ 332(b)(3).)

See I.R.C. § 332(b)(l)-(b)(3); 11 J. Mertens, The Law of Federal Income Taxation, § 42.42 at 113-14 (1990); cf. Matter of Chrome Plate, Inc., 614 F.2d 990, 994 (5th Cir.) cert. denied, 449 U.S. 842, 101 S.Ct. 123, 66 L.Ed.2d 50 (1980).

The significance of the statute in this dispute is apparent: if § 332 applies, taxpayer cannot recognize its loss. If § 332 is inapplicable, however, taxpayer is entitled to a substantial tax refund.

Taxpayer argues § 332 is inapplicable for three reasons: the 80 percent ownership requirement was not continuously met; all of the assets of the subsidiary were not transferred to the parent; and taxpayer did not adopt a plan of liquidation. We will consider these arguments in turn.

*1521 II. 80% Stock Ownership Requirement

The stock ownership requirement is found in § 332(b)(1), which specifies an 80 percent voting and value requirement. 4 That requirement is not specifically at issue here, as parties agree that taxpayer owned 99.97 percent of Weston’s stock until the transactions occurred on December 23, 1980.

At issue is the continuity requirement of § 332(b)(1) — whether taxpayer “has continued to be at all times until the receipt of the property” qualified under the 80 percent voting and value test. As explained by Treasury Regulation:

The recipient corporation must have been the owner of the specified amount of such stock on the date of the adoption of the plan of liquidation and have continued so to be at all times until the receipt of the property. If the recipient corporation does not continue qualified with respect to the ownership of stock of the liquidating corporation and if the failure to continue qualified occurs at any time prior to the completion of the transfer of all the property, the provisions for the nonrecognition of gain or loss do not apply to any distribution received under the plan.

Treas.Reg. § 1.332-2(a) (1955). The question, then, is whether taxpayer continued qualified with respect to the ownership of Weston stock until taxpayer received Weston’s assets.

Section 332(b)(1) and Treas.Reg. § 1.332-2(a) each direct our inquiry to two time periods: “the date of the adoption of the plan of liquidation[;]” and “all times until the receipt of the property.” We assume 5 for the purposes of the first inquiry that the adoption of the “Agreement and Plan of Merger” by Weston shareholders on December 20, 1980 was an adoption of a plan of liquidation. Taxpayer undisputedly owned 99.97 percent of Weston’s stock at that time.

The key dispute concerns the effect of the merger and reorganization transactions on December 23, 1980 — the date on which taxpayer received the property of its subsidiary. Taxpayer argues that because all of Weston’s assets were transferred to Elder, Inc. and all of Weston’s stock was can-celled under the merger, taxpayer’s ownership of Weston stock was cut off before it received Weston’s property. Therefore, taxpayer argues, because taxpayer owned no Weston stock when it subsequently received the property of its subsidiary under the reorganization, it did not continue qualified with respect to stock ownership under § 332(b)(1).

The government urges this court to disregard Elder, Inc.’s transitory ownership of Weston by applying the step transaction doctrine in holding that the merger and reorganization “should be collapsed and viewed as a single transaction for tax purposes.” The district court agreed and “view[ed] the execution of the two integrated agreements as one transaction which did not effect a bonafide sale of stock and conclude[d], as a matter of law, that Super Market Developers, at all relevant times, owned more than 80 percent of the outstanding shares of Weston....” 720 F.Supp. at 890.

A. The Step Transaction Doctrine

“The step-transaction doctrine developed as part of the broader tax concept that substance should prevail over form.” American Potash & Chem. Corp. v. United States, 399 F.2d 194, 207, 185 Ct.Cl. 161 (1968); see also Security Indus. Ins. Co. v. United States, 702 F.2d 1234, 1244 (5th Cir.1983); Rosenberg, Tax Avoidance and Income Measurement, 87 Mich.L.Rev. 365, 400 (1988) [hereinafter Rosenberg ]. Under the step transaction doctrine:

interrelated yet formally distinct steps in an integrated transaction may not be considered independently of the overall transaction. By thus “linking together *1522 all interdependent steps with legal or business significance, rather than taking them in isolation,” federal tax liability may be based “on a realistic view of the entire transaction.”

Commissioner v. Clark, 489 U.S. 726, 738, 109 S.Ct. 1455, 1462, 103 L.Ed.2d 753 (1989) (quoting 1 B. Bittker, Federal Taxation of Income, Estates and Gifts If 4.3.5, p. 4-52 (1981)).

The step transaction principle derives from the classic tax case Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935), and its progeny. In Gregory, the Supreme Court’s analysis of the tax effect of a transaction involved “[pjutting aside ... the question of motive in respect of taxation altogether, and fixing the character of the proceeding by what actually occurred_” Id. at 469, 55 S.Ct. at 267. The analysis revealed a transactional step which the Court characterized as “an operation having no business or corporate purpose — a mere device which put on the form of a corporate reorganization as a disguise for concealing its real character,” id., and as “an elaborate and devious form of conveyance masquerading as a corporate reorganization, and nothing else.” Id. at 470, 55 S.Ct. at 268. The Court declined to “exalt artifice above reality” and affirmed the appellate court’s holding that there had been no reorganization in the meaning of the statute. Id.

The Supreme Court has affirmed the step transaction principle at least thrice since Gregory. In Minnesota Tea Co. v. Helvering, 302 U.S. 609, 613, 58 S.Ct. 393, 395, 82 L.Ed. 474 (1938), the Court stated “[a] given result at the end of a straight path is not made a different result because reached by following a devious path.” It thus refused to accord tax effect to a “transparently artificial” and unnecessary step taken by the taxpayer in an attempt to avoid the tax result at the end of a debt payment transaction. Id. In Commissioner v. Court Holding Co., the Court declared:

The incidence of taxation depends upon the substance of a transaction. The tax consequences which arise from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step, from the commencement of negotiations to the consummation of the sale, is relevant.... To permit the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress.

Commissioner v. Court Holding Co., 324 U.S. 331, 334, 65 S.Ct. 707, 708, 89 L.Ed. 981 (1945). See also Clark, 489 U.S. at 738, 109 S.Ct. at 1462 (noting the step transaction doctrine is “well-established” and is “expressly sanctioned” by the Court).

Courts and commentators have identified several tests which are used with varying frequency in determining whether to apply the step transaction doctrine. Most sources identify three tests: see, e.g., Security Indus., 702 F.2d at 1244-45 (identifying the “end result,” “interdependence,” and “binding commitment” tests); McDonald’s Restaurants of Illinois, Inc. v. Commissioner, 688 F.2d 520, 524-25 (7th Cir.1982) (same); 11 J. Mertens, The Law of Federal Income Taxation, §§ 43.-254-43.256 (1990) (same); Comments, Step Transactions, 24 U.Miami L.Rev. 60, 62-66 (1969) (identifying the “time,” “intention,” and “interdependency” tests). Others differ: see, e.g., King Enters., Inc. v. United States, 418 F.2d 511, 516, 189 Ct.Cl. 466 (1969) (identifying “end result” and “interdependence” as the “two basic tests”); Schwartz, Liquidation-Reincorporation: A Sensible Approach Consistent with Congressional Policy, 38 U.Miami L.Rev. 231, 240 n. 33 (1984) (same). The “end result” and “interdependence” tests are the most frequently applied. 6 See Security In *1523 dus., 702 F.2d at 1244, and Rosenberg, at 409, respectively.

Under the “end result” test, “purportedly separate transactions will be amalgamated into a single transaction when it appears that they were really component parts of a single transaction intended from the outset to be taken for the purpose of reaching the ultimate result.” King Enters., 418 F.2d at 516 (quoting Herwitz, Business Planning, 804 (1966)). The “end result” test, like the substance over form principle,

is particularly pertinent to cases involving a series of transactions designed and executed as parts of a unitary plan to achieve an intended result. Such plans will be viewed as a whole regardless of whether the effect of so doing is imposition of or relief from taxation. The series of closely related steps in such a plan are merely the means by which to carry out the plan and will not be separated.

Kanawha Gas & Utils. Co. v. Commissioner, 214 F.2d 685, 691 (5th Cir.1954). As this court once stated in affirming a judgment of relief from taxation, “the end result of the series of interrelated steps controls the tax consequences of the whole.” Atchison, Topeka & Santa Fe R.R. Co. v. United States, 443 F.2d 147, 151 (10th Cir.1971).

The “interdependence test” requires an inquiry as to “whether on a reasonable interpretation of objective facts the steps were so interdependent that the legal relations created by one transaction would have been fruitless without a completion of the series.” Paul & Zimet, “Step Transactions,” Selected Studies in Federal Taxation 200, 254 (2d Series 1938), quoted in King Enters., 418 F.2d at 516, and Security Indus., 702 F.2d at 1244. The “interdependence test” focuses on the relationship between the steps, rather than on the “end result.” McDonald’s Restaurants, 688 F.2d at 524. Disregarding the tax effects of individual steps under this test is, therefore, “especially proper where ... it is unlikely that any one step would have been undertaken except in contemplation of the other integrating acts.... ” Kuper v. Commissioner, 533 F.2d 152, 156 (5th Cir.1976).

We now consider taxpayer’s claim that relevant case law bars the use of step transaction analysis in the context of § 332. Taxpayer most heavily relies on Granite Trust Co. v. United States, 238 F.2d 670 (1st Cir.1956), a taxpayer refund suit involving the liquidation of a corporate subsidiary. In Granite Trust, the First Circuit considered whether to allow the taxpayer to avoid the nonrecognition provisions of I.R.C. § 112(b)(6) (1939), the predecessor to modern code section 332. Granite Trust, 238 F.2d at 673.

Taxpayer Granite Trust Company (Granite) expected to realize losses upon the liquidation of its wholly owned subsidiary, Building Corp. Granite therefore took two steps to avoid the nonrecognition provisions of § 112(b)(6). First, Granite sold 20.5 percent of Building Corp.’s stock in order to circumvent the 80 percent ownership requirement of § 112(b)(6). Id. at 672. Second, after adopting a liquidation plan, Granite sold twenty shares of stock and donated two shares to charity. Id. at 673. The dispositions were intended to circumvent the “second condition” of § 112(b)(6), one which was not included in modern code section 332. See id. at 672 n. 1, 675. That condition allowed recognition of gains or losses where the parent corporation, within a specified time period, disposed of stock in the subsidiary without making countervailing acquisitions. Id. at 675. The Granite Trust court ruled on the merits only as to the second step, and allowed taxpayer to recognize its loss. See id. at 675.

Because Granite Trust’s decision in favor of the taxpayer hinged on a provision *1524 which is no longer present in the Code, Granite Trust is not dispositive in this ease. However, to the extent the Granite Trust court discussed provisions of § 112(b)(6) which are still contained in modern § 332, some of its reasoning is persuasive.

Granite prevailed over the government’s arguments against its recognition of losses. First, the government advanced the “end-result” test in urging the court to ignore the intermediate steps in Granite Trust’s liquidation of Building Corp. Id. at 674. The court rejected that argument, stating “the very terms of § 112(b)(6) make it evident that it is not an ‘end-result’ provision, but rather one which prescribes specific conditions for the nonrecognition of realized gains or losses, conditions which, if not strictly met, make the section inapplicable.” Id. at 675. The court found support in the legislative history of both § 112(b)(6) (1939) and § 332 (1954), and concluded “that taxpayers can, by taking appropriate steps, render the subsection applicable or inapplicable as they choose, rather than be at the mercy of the Commissioner on an ‘end-result’theory.” Id. at 676. The “interdependence test” was neither argued nor discussed.

Second, the government argued that there were in fact no valid sales made by the taxpayer, “that the sales of stock by [Granite Trust] should be ignored on the ground that they were not bona fide, and that the taxpayer therefore retained ‘beneficial ownership.’ ” Id. at 677. The court adopted this view of the issue, stating:

In the present case the question is whether or not there actually were sales. Why the parties may wish to enter into a sale is one thing, but that is irrelevant under the Gregory [v. Helvering ] case so long as the consummated agreement was no different from what it purported to be.

Id. Thus, the court agreed the substance-over-form principle would control whether the intermediate step in taxpayer’s transaction should be given tax effect. If the purported sales were in fact sales, the government could not ignore their tax effect. The court analyzed the substance of the transaction and rejected the government’s contention, stating:

We find no basis on which to vitiate the purported sales, for the record is absolutely devoid of any evidence indicating an understanding by the parties to the transfers that any interest in the stock transferred was to be retained by the taxpayer. If Johnson or Richmond had gone bankrupt, or the assets of both had been attached by the creditors, on the day after the sales to them, we do not see how the conclusion could be escaped that their Building Corporation stock would have been included in their respective assets; and if Johnson or Richmond had died, surely the holdings of stock of each would have passed to his executors or administrators, or legatees.

Id. (emphasis added). The court ultimately concluded that because the facts “show[ed] legal transactions not fictitious or so lacking in substance as to be anything different from what they purported to be,” the sales must be given effect in the administration of § 112(b)(6). Id. at 678. Therefore, the taxpayer was able to recognize the loss and claim a substantial tax refund.

In the present case, taxpayer asserts that Granite Trust and the legislative history discussed therein stand as a complete bar to any application of step transaction analysis in the context of § 332. We disagree. As an initial matter, the First Circuit considered only the “end result” formulation of the step transaction doctrine. 238 F.2d at 675. As noted, the “interdependence test” was neither argued nor considered in Granite Trust. 7 The legislative history discussed in Granite Trust is equally silent as to the “interdependence test.” Id. at 675-77. Taxpayer fails to appreciate the differences between, and the *1525 different functions performed by, the “interdependence” and “end result” tests. As the “interdependence” test addresses the relationship between, and therefore the integrity of intermediate steps in a complex transaction, its application is not precluded by Granite Trust's conclusion that a narrow focus on a transaction’s “end result” is inappropriate in the context of § 112(b)(6).

Furthermore, although the First Circuit concluded from the legislative history that “taxpayers can, by taking appropriate steps, render the subsection applicable or inapplicable as they choose,” id. at 676, we think taxpayer misinterprets that conclusion. The nonrecognition mandated by § 332 is not optional at the election of taxpayers within the reach of that section. “Section 332 is not elective. Nonetheless, a number of planning possibilities are evident which may allow a corporation to avoid the application of Section 332.” 11 J. Mertens, The Law of Federal Income Taxation § 42.55 at 142 (1990). Steps taken by the taxpayer, however, are not immunized from “[t]he question ... whether the transaction under scrutiny is in fact what it appears to be in form.” Chisholm v. Commissioner, 79 F.2d 14, 15 (2d Cir.), cert. denied, 296 U.S. 641, 56 S.Ct. 174, 80 L.Ed. 456 (1935). We find support for our conclusion in Granite Trust’s application of Gregory’s substance-over-form analysis. 238 F.2d at 677.

Appellant also relies on Commissioner v. Day & Zimmermann, Inc., 151 F.2d 517 (3rd Cir.1945), another case where a taxpayer was able to recognize a loss despite § 112(b)(6). Yet the Third Circuit did not address the step transaction doctrine in Day & Zimmermann. The court took pains to verify the bona fides of the questioned transaction, and emphasized “there was no understanding of any kind between [the stock purchaser] and Day & Zimmerman by which the latter retained any sort of interest in the securities or proceeds therefrom_” 151 F.2d at 519. After a detailed analysis of the motivations of the actors, the court concluded, “the facts before us so manifestly point to the legitimacy of the ... purchase of stock that they offer no alternative but to accept that view of the transaction.” Id.

Granite Trust discussed the significance of Day & Zimmermann in terms which indicate the preferred mode of analysis:

The significant thing in the case is its ultimate rationale that the purported sales of stock to the treasurer were in fact sales, notwithstanding the tax motive which prompted the corporation to enter into the transaction; from which it would seem to be irrelevant how the transfer was arranged, or whether or not it occurred at a public auction or exchange, so long as the beneficial as well as legal title was intended to pass and did pass.

238 F.2d at 676 (emphasis added). Thus Day & Zimmermann reaffirms the necessity of determining whether the substance of a transaction matches its form.

Taxpayer also advances George L. Riggs, Inc. v. Commissioner, 64 T.C. 474 (1975), as support for the assertion that the step transaction doctrine is inapplicable in the § 332 context. Riggs, however, simply established the date on which petitioner adopted a plan of liquidation within the meaning of § 332. Id. at 482. Riggs does not address the applicability of step transaction analysis to transactions which are arguably within § 332. See id. at 482 n. 2 (“[The government] specifically does not rely on the ‘end-result’ or ‘step-transaction’ theory in this case.”) Riggs followed Granite Trust, 238 F.2d at 676, in stating, “[b]ased on legislative history of this section and prior judicial decisions, we conclude that section 332 is elective in the sense that with advance planning and properly structured transactions, a corporation should be able to render section 332 applicable or inapplicable.” 64 T.C. at 489. As noted above, however, such an ability precludes neither substance-over-form nor step transaction analysis.

Finally, taxpayer attempts to wield Avco Mfg. v. Commissioner, 25 T.C. 975 (1956) as support. The Tax Court enforced substance over form in Avco, stating, “if, upon [close] scrutiny, the sale appears to have been a bona fide transaction in that it was *1526 in substance what it purported to be in form, then the tax motive therefor will be disregarded.” Id. at 980 (emphasis added). Like the other cases offered by taxpayer, Avco applies the substance-over-form analysis of Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935), without precluding the applicability of step transaction analysis. Avco, 25 T.C. at 981. Taxpayer’s contention that “all of the cases involving Section 332 expressly reject application of the step transaction doctrine” is simply unsupportable.

B. Business Purpose

We now consider taxpayer’s claim that “the step transaction doctrine is inapplicable where, as in the present case, there are valid business reasons for the intermediate steps.” Taxpayer cites no authority for that contention other than Rev.Rul. 79-250. 8 The government’s brief ignores taxpayer’s discussion of Rev.Rul. 79-250, arguing on other grounds that “whether or not taxpayers had a valid business purpose for structuring the transaction as a merger is irrelevant.”

Although the Rev.Rul. 79-250 at first appears to be applicable to the present case, taxpayer’s use takes the ruling out of context. Rev.Rul. 79-250 applies not to § 332 liquidations, but rather by its own terms to § 368 and related regulations dealing with specific forms of corporate reorganizations which are not at issue here. 9 We do not think the ruling’s discussion of business purpose and the step transaction doctrine in the context of corporate reorganizations was meant to restrict the application of step transaction analysis in different contexts. 10

The law is unclear as to the relationship between the step transaction doctrine and the business purpose requirement. Our survey of the relevant cases suggests that no firm line delineates the boundary between the two. 11 Most eases applying the step transaction doctrine, far from identifying business purpose as an element whose absence is prerequisite to that application, do not even include discussion of business purpose as a related issue. 12 In some cases, the existence of a business purpose is considered one factor in determining whether form and substance coincide. 13 In others, the lack of business purpose is ac *1527 cepted as reason to apply the step transaction doctrine. 14 We have found no case holding that the existence of a business purpose precludes the application of the step transaction doctrine. 15

We therefore reject the contention that a valid business purpose bars application of step transaction analysis in this context. “A legitimate business goal does not grant [a] taxpayer carte blanche to subvert Congressionally mandated tax patterns.” Kuper, 533 F.2d at 158. Moreover, we share the government’s skepticism as to the alleged significance of taxpayer’s claimed business purpose—that of cashing-out certain minority shareholders who collectively owned no more than 0.03 percent of Super Market Developer’s stock. 16 Having thus rejected taxpayer’s arguments against the applicability of step transaction analysis, we now apply it to the disputed transaction.

C. Step Transaction Analysis Applied

The district court declined to apply the “end result” test. The court assumed that “section 332 is not an end result provision” and cited Granite Trust for that proposition. Grocers, 720 F.Supp. at 889, In light of our earlier discussion of that case and the legislative history cited therein, we concur, and move on to consider the disputed transaction under the “interdependence” test.

We are mindful of “the central purpose of the step transaction doctrine: ensuring that the tax consequences of a particular transaction turn on substance rather than form.” Security Indus., 702 F.2d at 1245. Under the “interdependence test” we focus primarily on the relationship betwee