## Facts

- Frances Wood Wilson owned a 50/225 interest in Pine Forest Associates, a partnership whose other interests were held by Leon Blair and his wife.
- Blair sought to acquire Wilson’s partnership interest; Wilson preferred receiving income-producing property rather than cash.
- A prearranged series of transfers was executed:
  - Wilson withdrew from the partnership and received a 50/225 undivided interest in the partnership’s Pine Forest Apartments real estate.
  - Wilson (individually and as executrix of her late husband’s estate) exchanged that apartments interest for the Oglethorpe Shopping Center, an asset of her husband’s estate.
  - Wilson, acting as executrix, caused the estate’s apartments interest to be transferred to Blair’s closely held corporation for $200,000.
  - Blair’s corporation transferred the apartments interest to the partnership in exchange for the same 50/225 partnership interest Wilson had owned.
- Economically, Blair (through his corporation) obtained Wilson’s former partnership interest; Wilson obtained the shopping center; and the partnership effectively continued with the same apartments asset.
- The IRS treated the arrangement as a taxable sale or exchange of a partnership interest and assessed an income tax deficiency; Wilson paid and sued for a refund.
- The district court granted summary judgment to the taxpayer, treating the transaction as a non-taxable liquidating distribution under I.R.C. § 736(b).

## Issues

1. Whether the overall arrangement should be characterized for federal income tax purposes as a non-taxable partnership liquidating distribution under I.R.C. § 736(b) or as a taxable sale or exchange of a partnership interest under I.R.C. § 741.
2. Whether the step-transaction and substance-over-form doctrines require collapsing the formally separate steps into a single transaction reflecting the arrangement’s economic substance.

## Decision

- The Fifth Circuit reversed the summary judgment for the taxpayer and remanded with directions to enter judgment for the United States.
- The court held the integrated plan was, in substance, a taxable sale or exchange of Wilson’s partnership interest under I.R.C. § 741.
- The court rejected the taxpayer’s characterization of the withdrawal as an independent § 736(b) liquidating distribution followed by unrelated transfers.

## Legal Principles

- Tax consequences depend on the substance of what occurred, not the formal labels or sequencing of steps.
- Under the step-transaction doctrine, a prearranged series of interdependent steps designed to achieve a single end may be treated as one integrated transaction.
- When the economic result of an integrated plan is the transfer of a partnership interest to a purchaser for value, the transaction is treated as a sale or exchange under I.R.C. § 741, even if one step resembles a partnership liquidation.
- The absence of a substantial non-tax business purpose supports collapsing steps and taxing the transaction according to its economic reality.

## Conclusion

The Fifth Circuit treated a preplanned, multi-step partnership “withdrawal” and related property exchanges as a single integrated transaction whose economic substance was a sale of the taxpayer’s partnership interest, making the gain taxable under I.R.C. § 741 rather than excluded as a § 736(b) liquidating distribution.


Crenshaw v. United States, 450 F.2d 472 (5th Cir. 1971)