John H. & Karolyn M. Hendrix; Donors, Petitioner

l T.C. Memo. 2011-133 UNITED STATES TAX COURT JOHN H. HENDRIX AND KAROLYN M. HENDRIX, DONORS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 10503-03.

Filed June- 15, 2011.

John W. Por-.er, Stephanie Loomis Price, and Keri D. Brown, for petitioners.

Wandar M. Cohen, for resp >ndent .

MEMORANDUM FINDINGS OF FACT AND OPINION

PARIS, Judge:

By separate notices of deficiency dated April 9, 2003, respondent determined a deficiency of $6,939,597.53 in the Federal ift tax of each petitioner for 1999. Petitione:ts petitioned the Court to redetermine those det erminations .

WD JUN 15 2011

The parties dispute whether the defined value formula clauses at hand (formula clauses) set the fair market value of the John H. Hendrix Corp.

(JHHC) stock that each petitioner transferred on December 31, 1999, to various family trusts and to a charitable foundation. Our resolution of their dispute turns on our deciding whether the formula clauses were reached at arm's length and whether the formula clauses are vóid as contrary -to public policy.

We decide that the formula clauses were reached at 'arm' s length and that they are not void as contrary to public policy. We accordingly hold that the formula clauses set the applicable value. Unless otherwise -indicated, section references are to the applicable versions of the Internal Revenue Code.

Rule references are to the Tax Court Rules of Practice and Procedure.

I.

Preface

FINDINGS OF FACT

The parties submitted to the Court stipulated facts and related exhibits. We find those stipulated fact-s accordingly and incorporate those facts and exhibits herein. Petitioners resided in Texas when their petition was filed.

II. Petitioners John H. Hendrix (Mr. Hendrix) and Karolyn M. Hendrix (Ms.

Hendrix) are husband and wife.

They have three adult daughters:

Anne Leslie Hendrix Wood (Mrs . Wood) , Kristen Lee Hendrix, and Karmen Marie Hendrix (collectively, daughters) .

On December 31, 1999, petitloners' principal àsset was JHHC stock.

III.

JHHC JHHC was incorporated on December 16 1976, under Texas law.

JHHC initially- had two olasses of stock,.i.e.,rnonvoting preferred stock and voting co mon stock, and its only shareholders were petitioners ande their daughters (directly and/or throught trusts) . Petit ioners owned all of the preferred stock and 51 percent of the c mmon-stock.

At the end of 1996 Stephén Dyer (Mr. Dyer) an attorneyn advised petitioners that they should operate JHHC as aneS corporation to e liminate any iax at the corpoi-ate ,level.

Petitioners: accepted this advice, . and they causede JHHC, to redeem its outstanding preferred stock to qualify for, status as aneS corporation. At the suggestion of Mr.. Dyer,i Mr. Hendrix aretained an appraisal firm, Howard Fra ier Barker .Elliot (Howard Frazier) , to value the JHHC preferred stock incident to the redemption.« JHHC redeemed its .outstanding preferredsstock at the end of 1997 . t Contemporaneously therewith,- JHHC also, exchanged its outstanding common stock for a combination of newly issued nonvoting commonastock and ne ly issued voting common stock.

In 1998 JHHC elected to be taxed as an S corporation for Federal income tax purposes.

IV'. Petitioners' Charitable Interests Petitioners lived in Midland, Texas, for several"years and were active members of that community.

They each contributed their time and money to several charitable organizations-in their community.

They also contributed money to charitable organizations outside of, their community.

In or about 1999 petitioners asked Mr. Dyer for estate planning advice. Petiitioners informed Mr. Dyer that they wanted to give some of their JHHC stock to their daughters (through trusts) and to a charitable entity.: Because"the stock was hard to value, Mr. Dyer suggested that petitioners use a formula clause to define the stock transfer at the time of the gift in terms of-dollars rather than in percentages, while fixing- for Federal gift tax purposes the value of the transfer of the stock.

In theslight of petitioners' -interest in making charitable , gifts, bür. Dyer advised them to establish a donorladvised fund at a nonprofit -community organization.

Petitioners followed this adiice and chose the Greater Houston Community Foundation (Foundation). to administer their contemplated donor-advised fund.

The Foundation is a tax-exempt organization that provides funds to support cultural, educational, health, and welfare programs A donor-advised fund is a charitable-giving account administered by a tax-exempt entity and enables donors such as petitioners to have authority over the ultimate recipient of donation.

the and that manages charitable-giving funds "for families, corporations, and tax-exempt organizations.

The Foundation currently manages nearly $270 million in assets in 639 funds- and is under the supervision of a board of di-re~ctdrs consisting of 34 regular board menbers and -8 lifetime directors Petitioners choose the Foundation, with w ich they Shad never previously been involved, because they wanted to assist other neédy parts of Texas while maintaining their local commitment. a i i Petitioners instructed M . Dyer to dommunicate with the Foundation on their behalf: During sthe summer of 1999, Mr. Dyer contacted Robert Paddock (Mr. Paddock), thel Foundation's vice president of development, and informed'him' that petition~ers waritéd to make "a -significant aharitable oontribution to the Foundation of (11 $20,000'to establish -a donor-ädvised fund and (2) JHHC nonvoting stocki Mr Paddock reported the contempláted gift "to the Foundation's execuñive director.

lvik. Paddock" also consulted the Foundation' s scoûnsel, Bill · Caudill- (Mr . Caudill') .

The Foùndation' s protocol on donation of a hard-to-value asset such^ast nonpublibly traded,istock required that Mr. Paddock consult -with Mr. Caudill - a e V.

The Creation of the Donor Advised Fund at the Foundation On August 10, 1999, Mr. Dyerasent a letted to-Mr..Paddock and to Mr. Caudi 1, submittiný didraft copy ,ôf an agreement establishing a donor-advised fund at the Foundation and I soliciting comments from them as to, the draft. Over approximately the next 3 months, the parties to the draft negotiated the terms of their agreement.

On November 9, 1999, petitioners signed an agreement establishing the donor-advised- fund.

The next day, Mr. Dyer (on behalf of petitioners) sent $20,000 to the,Foundation with thee signed agreement.

VI. Preliminary

Steps for Stock Contribution A. Proposal of Agreements On October 6, 1999, Mr. Dyer sent to the Foundation .a draft of an assignment agreement and enclosed; a dispute resolution and buy-sell agreement (dispute resolution and buy-sell agreement) executedsby JHHC and its shareholders approximately 2,months before. - The draft indicated, thatopetitioners would give JHHC stock to the Foundation and would transfer (part as a gift and part as a sale) JHHC stock to the trusts benefiting the daughters.

The draft indicated that a formula, clause would set the portion of JHHC stock transferred to the trusts and the remaining portion given to the Foundation.

On November 19, 1999, Mr. Caudill returned the assignment agreement with an attached rider that addressed JHHC' s responsibility, to distribute income timely.

a B. Howard Frazier Estimate Petitioners retained Howard Fraziers in the fall of 1999 to estimate the value of the JHHC -nonvoting stock.

Howard Frazier, did so on the basis of the 1997 redemption valuation of the JHHC preferred stock, and JHHC's a counts and tai records.

In accordance with che estimate, petitioners decided that~ each of them would give $503 000 of" JHHC nonvoting, stock to the Foundation and would transfer $10,519,13È.12 of JHHC nonvoting stock to a generation- skipp i.ng tax (GST) trust and $4 , 213 , 710 . 10 of JHHC nonvoting stock to an' issue t ust*.

The issue trust, in -turn, benefisted the daughters throuch other issue trusts.

C.' Creation of Trusts On or about December 29, 1999, each petitioner executed trust agreements forming a GS trust and an issue trust for the beriefit of 'thea daughterst.

The trustees: of the trusts were Mr Klein and Mrs. Wood -(col-lecti†ely, trustees) .

Each trust consisted of three separate and equal- shares fois the benefit of the daughters.

D. Partition of Communi y Property On December 30, 1999, pe itioners entered into an agreement that partitioned into separat property their community property interests in the JHHC nonvoti g coinmon -stock. Afterwards,- each petitioner owned 403, 241.85 sl ares of JHHC :nonvoting stocks.

VII. Execution of Assicoment

Agreements and Related: Agreements On December 31, 1999,' ea h petitioner, the trustees, and the Foundation executedtan asaigninent agreement that irrevocably assigned 287,619 64 shares of the assignor"s JHHC nonvoting stock - 8 to thet assignor' s GST trust and to the Foundation-.

Each i agreement effected the transfer pursuant to a formula under which:

(1) A portion of the assigned shares having a fair market value as-of the effective date equal to $10,519,136.12 was assigned. to the trustees to, be held in equal shares for the benefit of the daughters,- and (2) any remaining portion of the assigned shares was.assigned to the Foundation for the benefit of the donor-advised fund.

The assignment agreements defined, fair' market value as the price at which those shares would change hands as of the effective date between a hypothetical willing buyer and a hypothetical willing seller, neither under any , compulsion to buy or to sella and both having reasonable- knowledge of relevant facts.

The assignment agreements»required that ther trusts, pay proportionally any gift taxese imposed as a result of the transfer.

The assignment agreements required-that the trustees sign promissory notes obligating the trusteesa to pay $9,090,000 to each petitioner.⁴ on the same ,day, a second set of assignment agreements was executed containing the same terms as the first set of assignment agreements, except that each petitioner irrevocably transferred 115-,6223.21 of JHHC nonvoting stock to his or her corresponding issue trust and to the Foundation, and the fair market value of the stock for the .benefit of - the daughters was set at $4,213,710.10.

The second set of assignment agreements directed the trustees to deliver to each petitioner a note -in the'amount of $3, 641, 233 Under the assignment agreements, petitioners had no right or responsibility for allocating the shares- among the transferees, on a per-share basia.. The assig ment agreements left that allocation to the transferees The assignmentiagreements stated that the dispute resolution and.buy-sell agreement goyerned any dispute among the parties and any'transfer of JHHC stock.

The dispute resolution and buy-sell agreement required-that any dispute related to the fair market value betweencor among.JHHC, the 'shareholders assignees, ór any party be resolved by arbitration, sif t could not be resolved by agreement.

Also on December 31, 199 , the trustees delivered the promissory (demand) notes in xchange for the shares, and petitioners executed agreements stating-that the trusts and the Foundation as tenants-in:common would collectively own all of the assigned±shares.² Petitioners4alsorexecuted certificatessof stock transferring the assigndd shares to the trusts and to the Foundation as tenants in common as of December. 31, 1999.

Each petitioner-also executed an i revocable stock power document stating that he ersshe irrevó ably transferred the stock to the trusts and to the Foundation ass tenants in common.

4The- note ere'sëcured b the còrresponding shares transferred to the trusts.

VIII.

-Petitioners' Federal Gift Tax Returns On April 12, 2000, each petitioner filed a Form 709,.United States Gift (and Generation-Skipping Transfer) Tax Return, for 1999.

On each return, the corresponding petitioner claimed a charitable contribution deduction of $50,000 and a total taxable gift of $1,414,581.37.

IXs Evaluation and,Confirmation Agreements Mr. Dyer represented the trusts in negotiating proposed confirmation agreements as to thee transfers of the JHHC stock Mr. Dyer advised the trusts- to seek another appraisal,of the JHHC stock as of the date of the-gift.

The trustees retained Howard Frazier for this purpose. Howard Frazier ascertained that the fair market- value of the JHHC stock was $36.66 per share on December 31, 1999 (appraisal).

On April 12, 2000, Mr.-Dyer sent the appraisal to the Foundation and-to its counsel.

* Mr. Paddock respected Howard Frazier's qualifications»as an appraisal firm but- his attorney advised him, and the Foundation's practice on hard-to-value assets required, that he retain another independent appraisal firm to review the appraisal. Mr Paddock retained White Petrov for that purpose, and White Petrov concluded on or about May 8, 2000, that the appraisal" Was, reasonable and fair.' Approximately 1 month later, the Foundation and the trustees entered into confirmation agreements, effective as of December 31, 1999, that allocated amongst them the JHHC - 11. - nonvoting stock according to he'fairimarket value of $36.66-per- share leisted in he appraisal e Petitioners were not parties to I those confirmation agreements ,.

s X. Stipulat-ion Petitioners and responde$t have entered into the following stipulations:

the delined value formula clauses contained in the If upon a final decision in this-case it is.determined that Assignment agreements executed by i John «H . Hendrix and Karolyn M. Hendrix on De ember 31, 1999, do not control the valuation of the sha es of nonvoting commons stook in John H. Hendrix Corpo ation transferred by John H. Hendrix and Karolyn M. H ndrix òn December 31, 1999, then the fa r market value of each transferee shall be {based on a per share value of $48.60 times the number of shares agreed to by each transferee n the Confirdlation Agreements executedaby the transfe::ees.

the shares transferred to Except for this stipulation, t he only other evidence of the value of the JHHC nonvoting shares is the $36.66-per-share value ascertained by Howard Frazier and used by the trustees and the Foundation to al:.ocate the shares amongst themselves.

I . Overvi ew ÓPINION The parties dispute the validity of the formula clauses.

Petitioners contend that the Šormula clauses are valid because the clauses were used to fix he transferred amount :of JHHC' s hard-to-value stock and the part-ies, to those clauses conducted themselves at arn' s length.. Petitioners conclude that the.

applicable value of the stock is $36.66 per sha½e, as reþorted, and that they may deduct the $100, 000 claimed as charitable contributions. . Respondent argues that the formula clauses are invalid because they were not reached at arm' s length and are contrary to public policy. Respondent concludes that the value of the stock is $48.60 per share and that each petitioner may deduct charitable contributions totaling $66, 284 . 57 (i se .

, $48 . 60 multiplied by the number of shares transferred to the' Foundation) .3 We agree with petitioners that the applicable value of the stock is $36.66 per share and that each petitioner may deduct, the claimed $50,000 in charitable contributions.

II.

Burden of Proof Taxpayers normally bear the burden of proof in this Court.

See Rule 142 (a) (1) .

In certain cases, however, the burden of proof may shift to the Commissioner.

See sec. 7491(a); Rule 142(a) (2). Petitioners claim this is one of those cases.

Respondent does not dispute petitioners' claim that the burden has shifted to respondent with respect to the validity of the formula clauses. Respondent argues only that petitioners bear the burden if they aspire to deduct more than $66,284,.57 in charitable contributions.

Because petitioners aspire only to * 3Respondent states repeatedly that the parties agreed that the stock was $48.60 and points to the the per-share value of stipulation quoted above to support that statement. read that stipulation similarly. the agreed-upon $48.60 value) as inapplicable to this case because, as we hold, the JHHC stock. of the formula clauses "control" the valuation We read that stipulation (and We do not' 13 - deduct $50,000 in charitable contributions,tresýondent's argument is irrelevant . Therefore, on the only issue for decision that - remai-ns (validity of the form la clauses) , we conclude on the basis of the record that the urden of proofais on respondent .

III. Statutory and Regulatorý Law Sections 2501 and 2512 góvern the vàluation of the JHHC .

stock transferred to the trust s and to the Foundation. Section 2501 imposes a tax on an individual's transfer of property by- gift during the calendar year Section 2512 (a) provides that the amount of the gi: t is the valde of the property on the date of the gift. Section 2512(b) právides that where property is transferred for .ess than an àdeqùate and' full consideration in money or money's worth, 'the a ounts by which the value of the property exceeds the value of the consideration is a gift and is included in cotaputing'the amodnt of gifts made during the year:

IV.- Succession of McCord A. Discuss:.on This case - inappealable t o the Court~ of Appeals for the Fifth Circuit, and we follow- precedent of that court that is squarely on point .

See Golsen- v. Commissioner , a 54 T . C. 742 s (1970), affd. 445 F.2d 985 (120th Cit. 1971).- Petitioners argues that Succession of lvicCord v. Commissioner, 461 F.3d 614 (5th Cir.

2006), revg. 120 T.C. 358 (2003), is such precedent.

We agree.

As discussed below, Succession of McCord is dispositive of this case except to the extent that respondent argues that:

(1) . The formula clauses are not the result of an arm' s-length transaction or (2) .the formula clauses are void as contrary to public policy.

Succession of McCord is factually similar to this case.

There, Charles and Mary McCord ,(collectively, McCords) transferred their interest in McCord Interests, Ltd., L.L.P.

(MIL) , to nonexempt and exempt donees according to a formula clause nearly-identical to the one here. «MIL was a limited liability partnership formed by the. McCords, their sons, and the sons' limited liability partnership.

On January 12, 1996, the McCords executed an assignment agreement that used a formula clause to irrevocab Ly dispose, of their class B limited partnership interest to GST trusts, to their. sons, to -the Community -Foundation of Texas, -Inc.

(CFT) , and to the Shreveport Symphony, - Inc.

(Symphony) . 4 The formula" clause stated that:

(1) GST trusts would receive interest*s in MIL with a fair market value equal to the dollar amount of the McCords' net remaining generation-skipping tax .exemption, reduced by the dollar value of any transfer tax obligation aassumed- by the trusts; (2) the sons would receive interests in, MIL with a fair market value of $6, 910, 932.52, reduced by the dollar value of ,the interests given to the GST st-rusts and any transfer tax obligation 4The McCords had previously donated their entire class A limite'd partnership interest in MIL to another charitable foundation.

15 - assumed by the sons; (3)" the Symphony would receive an interest in MIL with a fair market value of $134, 000.; and (4) CFT would receive any rema i.ning. interest .

The assigninent agreement de f ined fair market value according tò the willincj buyer/wiling seller test specified ii the regulations, and recjuired the' donees to apply, that ,standard to ascertain the ifair market. value of the s class B limited Gartnership i terests.

The assignment agreements did not specify any method thàt the donees had to employ to equate their dol Lar amount of gifts to, percentages of interest in MIL and ,the par ies to the transaction lacked äny agreement, either oral -or e:<pressed,aon ány such method.

See ids at 619- Howai-d Frazler was hired to value a 1-percent, limited partnership inte est in MIL, ndron February 28, 1996, the sons and their- trusts presented CFT and "the Symphony with Howard 1 Frazier' appraisa stating tha the fair market value of ,a 1- percent limited partnership interest was $89,505 on the date ofa the gift.

CFT exercised its right to .retain outside counsel to review the appra:.sal independently.s Although CFT did not retain an indeplendent appraiser, the CFT officers and their outside counsel -expressed confidence n Howard Frazier' s methodology and service and accepted, its valuation.

In March 1996 all the donees executed a confirmation agreedent allocating the partnership interests to the.parties according to the value stated in them appraisal.

By separate notices of deficiency, the Commissioner determined a deficiency in the Federal gift tax of-each of the McCords on the basis of their understatement of the value of the.

limited partnership interests.» The McCords petitioned this Court, and we decided that they had inaccurately determined the fair market value of the 1-percent limited partnership interest.

See McCord v. Commissioner, 120 T.Ca 358 (2003)..

The Court of- Appeals for the Fifth Circuit disagreed, holding that the fair market value of the 1-percent limited partnership interest was'as determined by the Howard.Frazier report and used by the McCords to prepare their gift tax returns.

See Succession of McCord v.

Commissioner, supra at 628., Thescourt noted that= the Commissioner had relied in this Court on the doctrine of violation of public policy but had waived that doctrine on appeal.

See id. at 623.

* Ba.s Applicability- to This Case.

Respondent states that Succession of McCord v. Commissioner, supra,.as not controlling precedent because the Court of Appeals for the Fifth Circuit did not consider specific arguments that respondent makes here.

"We agree that Succession of McCord does not control this case to the extents that respondent s.current arguments implicate issues not decided by the Court of Appeals for the Fifth Circuit in Succ ssion of McCord. Respondent makes two such argumenL-s in this -ca e. First, respondent argues as a point of 'fact that the formul clauses are invalid because they were not reached at arm's len th. Second, respondent. argues« as a point of law tha: the formula clauses are void as contrary to- public policy. We-ptoceed to address those two arguments.

.Succession of McCord disposes of all other argumentà.

V.

Arm' s - Length Transaction Generally, a taxpayer may structure a transaction in a manner that minimizes or avoids taxes bys any means the lawse allow Gregory v. Helvering, 293 U.S. 465, 469 (1935) . Courts, however may dis:regard the fo m of a transaction in favor of its substance where there is scollusion an underständïng, a s.ides deal, or another indicium that the transaction was not 'at, arm' s lengtha The" dis::egard of a 'transaction for lack of súbstance, however,t cannot betbased on m re suspicion andr speculation < arising from the fact that a t axpayer engaged-in estate :planning.

See Stranqi v. Commissioner, 293. F.3d 279, 282 (5th Cir.- 2002) , affg.

in part and revg.

in pa t T..C. Memo. 20032145; Hall v.

Commissioner, 922 T . C.

:312,- *335 -(1989) . Nor do we strictly scrutinize a transaction, or resume that a transfer is a gift, where, as here, the transacti ri involves a third party without - familial or financial ties to the. transferee's family4group: Cf.

Kimbellur.: United States, 3371 F.3d 257., 263 (5th Cir. .2004) + (applying othe strict scrutiny standard and imposing a presumption that- the transferred property is a gift when a mother transferred a large portion of her estate to three entities herkson ówned) ; e Harwood v. Commissioner, . 82 T . C. 239, 258 (1984) (applying the strict> scrutiny standard and' raising the presumption that the property transferred among a family was a gift where a móther, transferred.her partnership interest to her sons), affd. without published opinion 786 F.2d 1174 (9th Cir. 1986) .

, Instead, we must find credible evidence,that the partiesa colluded orchad side deals or that the form óf the transactions otherwise . dif f ered fromethe substance.

We find no such crediblé evidence here.

Respondent argues that the f ormula ~ c1Jauses f ailed to be reached at arm's slength because petitioners and their daughters (or their trusts) were close and lacked adverse interests; the daughters.benefited from petitioners' estate plan,~.and the clauses were not thoroughly negotiated.

We disagree.

Thel mere facts that petitioners and their daughters were "close" and that petitioners' estate plan was beneficial to the daughters does, not necessarily mean that the formula clauses failed to, be reached at arm' s length. Nor is a finding of negotiation' or adverse interests an essential element.-of an- arm'ss-length transaction see Kimbell v. United States, supra at 263; Huber v.

Commissioner, T.C. Memo. 2006-96; Estate of Stone v.

Commissioner, T.C. Memo. 2003-309, although we find nothing iri the recoral to pecsuade us either that the formula- clauses were not subject to-negotiation or thatapetitioners and ther daughters' trusts lacked adrerse interes s.

We also note economic and business risk as -lumed by the daughters' trusts as buyers of the stock (i.e., the daughters' thusts could receive less stock for their payment if the JHHC stock was overvalued) aplaced them at odds with petitioners, and the Foundatiòn.

Respondent asks the Cour to find -collusion betweens petitioners - and :he JFoundation.

We decline .to do so.

Petitioners' creation of- sthe ålonor-advised fund at the Foundation did not diverge from theirausúal course of donation,- because they could still request the FoundÄtion to provide a.grant to any of their usual doneas.- - The Foundation, in turn, accepted various potential risks i.ncident' to its receipt of' petitioners' gift of the líHHC -stock, Lncluding a lbss of the Foundation's' tax-exempt status if it failed to exercise due diligence as :to the gift.

The Foundation, Y manager of nearly $270 million in 'assets, exercised its bacgaining powei- when its counsel insisted that' petïtioners pay Local taxes and penalties astwell as Federal and State taxes and genalties i-f HHC failed to distribute. sufficient income to pay those taxes.

The Foundation also was arepresenteds by counsel independent of pet tioners -or^ their counsel, and the Foundation conducted an indep ndent apþraisal.through White , Petrov.

We also note that the Foundation had aufiduciary .

} 20 - obligation under Federal and State law to ensure that itareceived the number of shares it was entitled to receive under the formula clauses.

-See sec. 501(c) (3); Tex.. Rev. Civ. Stat. Ann. art.

1396-2.28 -(West 1997) .

VI .

: Publie -Policy Respondent argues that*the formula clauses are voideas contrary to public policy. We disagree. While the Court can disallowra deduction on public policy grounds if allowing,such a deduction would severely and immediately frustrate sharply defined national or State. policies proscribing certain conduct see Tank Truck Rentals Inc: v. Commissioner, 356 4U.S. 30, 35 (1958) , the, formula clauses do not immediately and severely frustrate 'any national or State policy. ~~To the contrary, the fundamental public policy-here -is one of encouraging gifts to charity, and the formula clauses support that" policy.

• Respondent relies on Commissioner v. Procter; 142 F.2d 824 (4th Cir. 1944), and its progeny, for a contrary result.

There, a taxpayer .assigned his interest in-two trusts subject to ,the life estate of his mother.

t The taxpayer instructed the trustees that, upon his mother's death, .certain amounts of ithe corpora should be paid to him during his life, sand the remainings corpora should be delivered to his children or their'representatives at his death.

The amounts of- the corpora paid to the taxpayer were tied to the amounts due on loans' from hiss mother secured byshis interests in the two trusts.

The· trusteindenture stated as a I saving provision that if it wås ultimately determined, that any part of the transfer in trust was subject to gift tex then the property subject to the tax was. not to bec included in the :

conveyance - to the trust and would remain property ofethe ta.xpayer.

The Court of Appeals for the Fourth Circuit held that this saving clause was void as contrary to public policy.- Such was so, t:he court stated, for thrèe reasons. First, the provision discouraged the collection of the tax -because any attempt to collect "the tai would defeat the gift.

' See id. at 827.

Second, the effect of the condition wàs to obstruct the- administration of justice by requiging .a court o pass upon a mootacase.

See id.

Third, the provision would recuce as Federal court's fina-l:

judgment to a declaratory judcment.

See id. Since Commissioner v. Procter, supra, Federal coùrts-have relried upon that <case, to invalidate. other saving proviá ions .

- See , ,e . g .

, a Ward v .

Commissioner, 87 T.C. 78 (1986) (invalidating saving clause that provided for a retroactive adjustment of stock to escape any imposition of gi t ta ) .

The present case is dist nguishable from Procter and its progeny. Here, unlike there, the formula clauses . impose no condition subsequent that would defeat the transfer. Moreover, as stated above, the formula clauses further the fundamental public policy of .encouraging gifts to charity. Recently, in Estate of Christiansen v. Commissioner, 130 T.C.a 1, 16-18 (2008), affd. -586 F.3d 1061 (8th Cir. 2009), we held that an essentially similar dollar-value formula disclaimer was not contrary to public policy.

We know of no legitimate reason to distinguish the formula clauses from that disclaimer, and we decline to do so. Weshold that the formula clauses are not void as contrary to public policy.

VII. Conclusion.

We hold consistently with Succession of McCord v Commissioner, 461 F.3d 614 (5th Cir. 2006) , that the formula -clauses control the transfers of the JHHC -stock to the. trusts and ther Foundation on December 31, 1999. Given this holding, no additional value passed to the Foundation as- of December 31, 1999, and petitioners are entitled to deduct the .$100, 000 in charitable contributions claimed. All arguments ,for contrary holdings have been considered ,and, to the extent not discussed above, we find -those arguments' to be without merit. Accordingly, Decision will be entered for petitioners.