COLORCON, INC., v. USA

Filing 74

PUBLISHED OPINION: The Plaintiff's motion for summary judgment is GRANTED and the government's cross-motion for summary judgment is DENIED. Accordingly, the clerk is directed to enter judgment in favor of the plaintiff in the amount of $18,524,225, plus interest as provided by statute. Each party to bear its own costs. Signed by Judge Nancy B. Firestone. (rh) Copy to parties.

In The United States Court of Federal Claims
No. 09-594T
(Filed: April 30, 2013)
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COLORCON, INC.,
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Plaintiff,
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v.
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THE UNITED STATES,
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Defendant.
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26 U.S.C. § 483; 26 U.S.C. § 163; Tax
Refund; Unstated Interest; Interest
Deduction; Deferred Payment; ShortForm Merger; In Lieu of Payment.

Herbert Odell, West Conshohocken, PA, for plaintiff. Dustin Covello, West
Conshohocken, PA, of counsel.
Robert Stoddart, Tax Division, U.S. Department of Justice, Washington, DC, with whom
were Kathryn Keneally, Assistant Attorney General, and David I. Pincus, Chief, Court of
Federal Claims Section, for defendant.
OPINION
FIRESTONE, Judge.
In this case, Colorcon, Inc. (“the plaintiff” or “Colorcon”), formerly known as
Berwind Pharmaceutical Services Incorporated ( “BPSI”),1 seeks a refund for federal

1

This opinion refers to the plaintiff by the name under which it was doing business at the
relevant period of time. From November 19, 1985 to December 5, 2005, the plaintiff was known
as BPSI. On December 5, 2005 the plaintiff changed its name to Colorcon, Inc (effective
January 1, 2006). Joint Statement of Uncontroverted Facts (“Joint Statement”) ¶ 1.

income taxes and the related penalty assessed and collected by the United States (“the
government” or “the defendant”) for the tax year ending December 31, 2002, plus
interest. The plaintiff had claimed an interest deduction in the amount of $31,096,7832 in
connection with a December 31, 2002 payment it made to BPSI’s minority shareholder,
the David Berwind Trust (“the DB Trust”), following the settlement of two consolidated
lawsuits related to a 1999 short-form merger of BPSI under Pennsylvania law. The DB
Trust received a payment of $191,000,000 on December 31, 2002 in connection with a
settlement agreement that resolved two consolidated lawsuits arising from the 1999 shortform merger. In the lawsuits, the DB Trust had sought, among other things, a statutory
appraisal for the fair value of the BPSI shares, as well as damages stemming from alleged
breaches of fiduciary duties by various BPSI directors. The DB Trust had also sought an
injunction against the short-form merger and a declaration that the short-form merger was
void.
The plaintiff asserts in its complaint that it was required to impute interest on the
settlement payment because the 1999 short-form merger constituted “a sale or exchange
under a contract” within the meaning of Section 483 of the Internal Revenue Code
(“IRC”). 26 U.S.C. § 483 (2000). The Internal Revenue Service (“IRS”) disallowed the
plaintiff’s interest deduction and asserted a deficiency in the amount of $10,883,874. It
also assessed a “substantial understatement penalty” in the amount of $2,176,775. The
plaintiff paid the assessed deficiency, penalty, and deficiency interest in the amount of
2

In its initial filing, Colorcon deducted $31,103,795 for interest on the settlement payment. In
its amended filing, Colorcon deducted $31,096,783.

2

$5,463,576, and timely filed a refund with the IRS. The IRS subsequently disallowed the
refund claim, and the plaintiff timely filed an action in this court. Pending before the
court are the parties’ cross-motions for summary judgment. For the reasons that follow,
the plaintiff’s motion for summary judgment is GRANTED and the government’s
motion is DENIED.
I.

BACKGROUND
A. The Statutory and Regulatory Background
1. Interest on Certain Deferred Payments under 26 U.S.C. § 483
Congress enacted Section 483 of the IRC in 1964 to require interest imputation on

certain contracts under which payments were to be spread out over time. This
requirement stemmed from congressional concern that taxpayers were distorting the tax
treatment of their transactions by using installment contracts to convert ordinary interest
income into capital gain. See S. Rept. No. 830, 88 Cong., 2d Sess. 102 (1964); Solomon
v. C. I. R., 570 F.2d 28, 33 (2d Cir. 1977) (describing history of Section 483). Section
483 requires taxpayers to impute interest according to a statutory formula for payments:
on account of the sale or exchange of property which constitutes part of or
all of the sales price and which is due more than 6 months after the date of
such sale or exchange under a contract (A) under which some or all of the
payments are due more than 1 year after the date of such sale or exchange,
and (B) under which there is total unstated interest.

3

26 U.S.C § 483.3 Section 483 has thus been described as applying “blindly,” requiring
interest imputation whenever a portion of a payment for the sale or exchange of property
is deferred4 under the contract for more than one year.
2. Short-Form Mergers Under Pennsylvania Law
The Business Corporation Law (“the BCL”)5 of Pennsylvania is the primary
source of law governing for-profit corporations in the state. See 12 Summ. Pa. Jur. 2d
Business Relationships § 1:4 (2d ed.). The BCL provides procedures and rules governing
changes to corporate form, including short-form mergers.6 Under the BCL, a short-form
merger does not require that the plan of merger or consolidation receive an affirmative
vote of a majority of the shareholders. Compare 15 Pa. C.S. § 1924(a) (mergers
generally require shareholder vote), with 15 Pa. C.S. § 1924(b)(1)(ii) (plan of merger
does not require shareholder approval if a party to the plan owns 80% or more of the

3

Section 483 defines “total unstated interest” as follows:
With respect to a contract for the sale or exchange of property, an amount equal to
the excess of—(1) the sum of the payments to [Section 483] applies which are due
under the contract, over (2) the sum of the present values of such payments and
the present values of any interest payments due under the contract.

4

26 C.F.R. § 1.483-1(b) defines “Deferred Payments” as “any payment that constitutes all or a
part of the sales price . . . that is due more than 6 months after the date of the sale or exchange.”
26 C.F.R. § 1.483-1(b) defines “Sales Price” as “the sum of the amount due under the contract
(other than stated interest) and the amount of any liability included in the amount realized from
the sale or exchange.”
5

15 Pa. C.S. §§ 1101-4162.

6

A short-form merger is a statutorily authorized procedure by which the parent corporation can
eliminate the minority shareholders’ interest in the enterprise. See Mitchell Partners, L.P. v. Irex
Corp., 53 A.3d 39, 46 n.6 (Pa. 2012); Franklin A. Gevurtz, Squeeze-Outs and Freeze-Outs in
Limited Liability Companies, 73 Wash. U. L.Q. 497, 537 n.137 (1995).

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outstanding shares of each class of constituent corporation). Rather, the short-form
merger “shall be deemed adopted by the subsidiary corporation when it has been adopted
by the board of the parent corporation.” See 15 Pa. C.S. § 1924(b) (“[N]either approval
of the plan by the board of directors of the subsidiary corporation nor execution of
articles of merger or consolidation by the subsidiary corporation shall be necessary.”); 15
Pa. C.S. § 1575, Committee Comment 1988 (1988 BCL intended to provide short-form
merger procedure similar to the Delaware certificate of ownership and merger).
Because Pennsylvania’s short-form merger statute enables the parent corporation
to eliminate the minority shareholders’ interests, disaffected minority shareholders
generally have no right to obtain an injunction against a merger without establishing
fraud or fundamental unfairness. See 15 Pa. C.S. § 1105; Mitchell Partners, L.P., 53
A.3d at 47. If shareholders object to the value offered for their shares, the BCL creates
statutory “dissenters rights,” 15 Pa. C.S. § 1930, which entitle qualifying shareholders “to
dissent from, and obtain payment of, the fair value of [their] shares in the event of, any
corporate action . . . .” 15 Pa. C.S. § 1571.7 The payment is designed as a measure of

7

The Pennsylvania BCL establishes procedures governing dissenters rights in short-form
mergers. First, the corporation must send notice of the plan or adoption of the short-form merger
to all shareholders who are entitled to dissent and demand payment of the value of their shares.
15 Pa. C.S. § 1575 (notice of demand payment). After the proposed corporate action has been
effected, the corporation must either provide the dissenting shareholders with the amount
estimated to be the fair value of their shares, or provide notice that no such provision will be
made. 15 Pa. C.S. § 1577. Upon a receipt of demand for payment from the shareholders, the
corporation then must either give written notice that no remittance under the section would be
made, or the corporation must remit the amount that the corporation estimates to be the fair value
of the shares to those dissenters who have made a demand and who have also deposited their
certificates. The dissenting shareholder may then send its own estimate of the fair value of the
shares, which is deemed a demand for payment of the amount. Failure of the shareholder to file
its own estimate within 30 days after the mailing by the corporation of its remittance notice

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“the fair value of shares immediately before the effectuation of the corporate action to
which the dissenter objects, taking into account all relevant factors, but excluding any
appreciation or depreciation in anticipation of the corporate action.” 15 Pa. C.S. § 1572.
Dissenting shareholders who comply with the procedures for dissenters rights “retain
other rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.” 15 Pa. C.S. § 1576(c).
B. Factual Background8
1. Origin of the DB Trust’s Interest in BPSI
This case arises from a family dispute over the control and ownership of BPSI, a
segment of the Berwind Corporation. In 1963 Charles Graham Berwind established four
trusts containing stock in the Berwind Corporation for the benefit of his children,
including his two sons, David Berwind and Charles Graham Berwind, Jr. (“Graham
Berwind”). Joint Statement ¶¶ 2-3. Each trust had three trustees, including the
beneficiary and Graham Berwind. Id. ¶ 4.
The Berwind Corporation purchased BPSI, a company specializing in
pharmaceutical coatings, in 1978. Id. ¶ 7. As a result of various transactions, the David
Berwind Trust (“the DB Trust”) came to own 16.4 % of BPSI’s common stock, and the

disqualifies the dissenter from receiving more than the amount stated in the corporation’s
demand notice. 15 Pa. C.S. § 1578 (estimate by dissenter). Thereafter, the corporation may file
in court an application for relief requesting that the fair value of the shares be determined by the
court. The court may appoint an appraiser to receive evidence and recommend a decision on the
issue of fair value. 15 Pa. C.S. § 1579 (valuation proceedings).
8

Except where otherwise noted, the facts described herein are taken from the parties’ Joint
Statement, and are not in dispute. See Joint Statement, ECF No. 54.

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trusts controlled by Graham Berwind—later organized under the control of the Berwind
Group Partners9—came to own 83.6% of BPSI’s common stock.10 Id. ¶¶ 10-11. In
addition, the Berwind Corporation received shares of BPSI Series A preferred stock and a
note. Id. ¶ 8.
The Berwind Group Partners made multiple attempts to consolidate control of the
various Berwind business groups. Between 1976 and 1985 the Berwind Corporation
redeemed all of the shares of its common stock that had been held by the DB Trust. Id.
¶¶ 6, 13. Although this left the Berwind Group Partners in control of the Berwind
Corporation, the DB Trust still retained its 16.4% interest in BPSI. Id. ¶ 13. In 1993 and
again in 1997, the Berwind Group Partners (through BPSI) tried to purchase the DB
Trust’s interest in BPSI, id. ¶ 14, but the DB Trust refused to sell. Id. ¶ 16.
2. BPSI’s Interest in ZYAC Holding Corporation
Sometime between 1993 and 1997, ZYAC Holding Corporation (“ZYAC”) was
formed under the control of the Berwind Group Partners to acquire all of the outstanding
shares of Zymark Corporation (“Zymark”). Id. ¶¶ 18, 23. Zymark, which specialized in
laboratory automation equipment used for drug discovery, continued as an operating
business after its acquisition by ZYAC. Pl. Reply App. Ex. G at 4. In September of
1996, apparently in connection with ZYAC’s acquisition of Zymark, BPSI acquired
9

On January 4, 1990, the Graham Berwind Family Trusts contributed their BPSI stock to the
Berwind Group Partners, which is owned by the Graham Berwind Family Trusts. Joint
Statement ¶ 11. As of December 1999, the Berwind Group Partners was a general partnership
that owned most, if not all, of the affiliated Berwind companies. Joint Statement ¶¶ 12, 69.

10

Both the DB Trust and the predecessor of the Berwind Group Partners contributed cash in
exchange for the common stock of BPSI. Joint Statement ¶ 9.

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1,000 shares of ZYAC Series A 8.75% noncumulative preferred stock. Joint Statement ¶
20. BPSI also advanced $20,000,000 to ZYAC under the terms of a note that bore
interest at the prime rate (“ZYAC Note”). Id. ¶ 21. BPSI never received any of the
common stock of ZYAC. Id.
3. Litigation between the DB Trust and BPSI
Ultimately, the repeated efforts to acquire the DB Trust’s interest in BPSI led to
litigation. In August 1999, the Berwind Corporation’s president (who also served on
BPSI’s Board of Directors) sent David Berwind a letter stating:
We are prepared to start a process that will result in our ownership of 100%
of BPSI at a price to be determined by us and our financial advisors. This
will be a costly, time-consuming and legalistic process that we would prefer
to avoid, but one that we are prepared to undertake, if necessary.
Id. ¶ 26. In response, the DB Trust hired attorneys and advisors to negotiate the sale of
its BPSI stock, id. ¶ 27, but those efforts proved unsuccessful.
On November 22, 1999, the DB Trust filed a complaint in the Federal District
Court for the Eastern District of Pennsylvania; the case was captioned Warden v.
McLelland, No. 99-5797 (“Warden Litigation”). Id. ¶ 28. The complaint, served on
December 9, listed the following defendants: (1) eight individuals, including Graham
Berwind (“the BPSI directors”), each “in his capacity as a Director of [BPSI]”; (2)
Graham Berwind “in his capacity . . . as Trustee” of the DB Trust;11 (3) Bruce McKenney
“in his capacity as Trustee” of the DB Trust; (4) the Berwind Group Partners; and (5)
11

The parties dispute whether Graham Berwind remained a trustee of the DB Trust after the DB
Trust rejected BPSI’s 1997 offer to buy back its shares. Joint Statement ¶ 17. This fact is not
material to resolution of the pending cross-motions for summary judgment.

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Berwind Corporation. Id. ¶¶ 29, 32. The complaint set forth ten claims for relief,
including a demand for a statutory appraisal under the dissenters rights provisions of
Pennsylvania’s BCL; civil conspiracy claims under the Racketeer Influenced and Corrupt
Organizations Act (“RICO”); and derivative claims on behalf of BPSI against its
directors for alleged breaches of their fiduciary duties. Id. ¶¶ 29-30; Pl. Mot. App. Ex. K.
4. Merger of BPSI Acquisition into BPSI and the DB Trust’s
Invocation of Dissenters Rights
Shortly after being served the DB Trust’s complaint, the Berwind Group Partners
and the Berwind Corporation took steps to consolidate BPSI under the ownership of the
Berwind Group Partners using the BCL short-form merger statute. Joint Statement ¶¶
35-36; Pl. Reply App. Ex. M at 4. The merger operated as follows: On December 15,
1999, the Berwind Group Partners formed BPSI Acquisition Corporation (“BPSI
Acquisition”), and both the Berwind Group Partners and Berwind Corporation transferred
their BPSI stock to the newly formed entity. Joint Statement ¶ 36. In exchange, the
Berwind Group Partners received all the shares of BPSI Acquisition, and Berwind
Corporation received debt issued by BPSI Acquisition. Id. ¶ 37. BPSI then called all of
its outstanding preferred stock for redemption and irrevocably deposited funds to pay for
the redemption with First Union National Bank. Id. ¶¶ 37-38.
As a result of the share exchange, BPSI Acquisition owned more than eighty
percent of the outstanding shares of each class of BPSI stock. Id. ¶ 34. On the same day,
BPSI Acquisition’s Board of Directors, BPSI Acquisition’s sole shareholder (i.e., the
Berwind Group Partners), and BPSI’s Board of Directors approved a merger agreement

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to merge BPSI Acquisition into BPSI, with BPSI as the surviving company. Id. ¶ 39.
Under the merger agreement, the Berwind Group Partners would receive all of the newly
issued common stock of BPSI in exchange for its stock of BPSI Acquisition. The
agreement further specified that, in exchange for the 16.4% of BPSI shares owned by the
DB Trust, the DB Trust would receive the right to an $82,000,000 promissory note (“the
Promissory Note”) or, alternatively, the fair market value of the stock as determined
under Pennsylvania’s dissenters rights. Id. ¶ 42. Articles of Merger were filed with the
Pennsylvania Department of State the following day, December 16, 1999. Id. ¶ 40.
The DB Trust disputed the value of the BPSI stock as determined by the other
parties to the merger, Compl. ¶ 8, and refused to accept the promissory note. Pl. Reply
App. Ex. M at 2. On January 4, 2000, the Trustees of the DB Trust filed an amended
thirteen count complaint (“Amended Complaint”) making substantially similar claims as
the complaint filed in 1999.12 See Def. Mot. App. Ex. 4. In addition, the Amended
Complaint sought a declaratory judgment that the Plan of Merger was null and void
(Count XII). Id. On January 13, 2000, the parties entered into a joint stipulation in
which the defendants agreed to maintain the capital structure of BPSI. See Pl. Reply
App. Ex. N at 2. This stipulation was subsequently extended through thirty days after the

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Among other things, the plaintiffs alleged that the defendants (1) caused BPSI to use
$30,000,000 of company assets to purchase an equity interest in Zymark for the benefit of
Berwind Group Partners, Berwind Corporation, and/or its affiliates; and (2) maintained
inordinate cash reserves in order to depress earnings and eliminate the DB Trust’s interest at less
than fair value. Def. Mot. App. Ex. 4, at 67, 73-74.

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date of the district court’s decision regarding the defendants’ motion to dismiss the DB
Trust’s complaint. Pl. Reply App. Ex. N at 2, n.1.
On January 25, 2000, the DB Trust exercised its dissenters rights under
Pennsylvania law to demand the fair value of its BPSI stock. Joint Statement ¶ 25. As a
result of that demand, and consistent with the Pennsylvania BCL, BPSI filed an action in
state court seeking an appraisal of the fair value as of the merger date. See Berwind
Pharm. Servs., Inc. v. Warden, No. 000301250 (Phila. Cnty. Ct. Com. Pl. filed March 14,
2000). On March 20, 2000, the appraisal action was removed to federal court and
consolidated with the Warden Litigation. In November 2000, the DB Trust hired an
appraiser who concluded that as of 1999, a 16.4% interest in BPSI and Zymark was
worth between $177,800,000 and $218,800,000 in the aggregate.13 Joint Statement ¶ 63;
Pl. Reply App. Ex. G, at 5.
5. The Third Circuit’s Decision in Warden v. McLelland
The district court twice dismissed the federal action filed by the DB Trust against
various individuals and the Berwind companies. Both dismissals were reversed by the
Third Circuit. See Warden v. McLelland (“Warden II”), 288 F.3d 105 (3d Cir. 2002)
(reversing district court’s second dismissal); Warden v. McLelland (“Warden I”), 250
F.3d 737 (3d Cir. 2001) (reversing district court’s first dismissal). In its April 30, 2002
opinion remanding the case for the second time, the Third Circuit reinstated all of the DB
13

The appraiser used three methods to develop a range of equity values of 100% of BPSI and,
separately, 100% of Zymark. See Pl. Reply App. Ex. G at 29, 50. Depending on the
methodology, the appraiser placed BPSI’s value at between $711,800,000 and $1,460,000,000.
Zymark was estimated as being worth between $66,500,000 and $414,500,000.

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Trust’s federal claims, including the DB Trust’s claim to set aside the merger and its
derivative claims against BPSI’s directors. Warden II, 288 F.3d at 115-16.
6. Settlement of the Warden Litigation
On November 25, 2002, the parties settled the consolidated dissenters rights
appraisal litigation and the Warden Litigation without any court having ruled on the
merits of the various disputes. Joint Statement ¶ 46. This agreement resulted in BPSI
paying $191,000,000 to the DB Trust on December 31, 2002. Id. ¶ 64. The settlement
agreement provided, in relevant part, that the parties were to deliver the following items
to an escrow agent: BPSI was to deliver the settlement amount of $191,000,000 in
immediately available funds for the benefit of the DB Trust; the DB Trust was to deliver
its BPSI stock certificates; the DB Trust was to deliver a general release in a form
specified by the agreement; and all of the Warden defendants were to deliver general
releases. The parties also agreed to have all current litigation dismissed with prejudice.
Id. ¶ 67; Def Mot. App. Ex. 10 at 139.
The DB Trust’s General Release provided, in part, as follows:
In exchange for good [and] valuable consideration . . . each of the
undersigned DB Trust Releasors . . . hereby release and forever discharge
the Releasees . . . from any and all obligations, claims, debts, demands . . .
of any nature whatsoever in law or in equity . . . whether based in tort,
contract, statute, regulation, equitable principles or any other theory of
recovery, direct or indirect, contingent or liquidated, or third party or
derivative, which they or any of them ever had . . . against the Releasees or
any of them . . . from the beginning of time to the date of this General
Release, including but not limited to, all claims . . . arising from, relating to,
or based upon any one or more of the following: A. The disputed December
16, 1999 merger of BPSI Acquisition Corporation with and into BPSI; B.
The fair value of the shares of common stock of BPSI owned by the DB

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Trust prior to the December 16, 1999 merger; and C. The matters asserted
or which could have been asserted in the [Warden Litigation].
Joint Statement ¶ 75.
The settlement agreement also required that the parties take certain actions prior to
the release by the escrow agent. Among these actions, the DB Trustees and the Charles
Graham Berwind Trustees (“CGB Trustees”) agreed to cooperate to obtain the approval
of the settlement agreement by the Orphans’ Court.14 Id. ¶ 68; Def. Mot. App. Ex. 10 at
141. Specifically, the settlement agreement provided that the DB Trust’s petition to the
Orphans’ Court was to “be supported by a valuation report of an investment bank or other
financial expert selected by the DB Trust regarding the value or range of values of the
interest and/or claim of the DB Trust in and to BPSI and ZYAC Holding Corporation . . .
and its wholly owned subsidiary, Zymark . . . .” Joint Statement ¶ 68. As noted above, at
the time of the merger BPSI held preferred stock and a note in ZYAC, which in turn
owned Zymark.
With regard to ZYAC and Zymark, Section 5 of the settlement agreement,
captioned “Ride-up Payment Obligations”, provided that the Berwind Company
(“TBC”), which was the successor entity to the Berwind Group Partners and the owner of
the ZYAC common stock, would give the DB Trust a right to a portion of any increase in
the value of ZYAC/Zymark computed from the date of the settlement if certain events

14

Pennsylvania’s Orphans’ Courts supervise the administration of trusts and estates. Pl. Reply
26 n.6. None of the pleadings before the Orphans’ Court are included in the record of this case.

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occurred within five years beginning on the date of the settlement. Id. ¶¶ 69-70. Section
5(a) provided, in pertinent part, as follows:
In the event that at any time after the date of this Agreement and prior to
November 25, 2007 (the “Ride-up Period”) there shall occur one or more of
the following events (each, a “Zymark Triggering Event”) . . . . and, as a
result of any such Zymark Triggering Event, the Berwind Affiliates shall
receive in the aggregate a Zymark Net Amount that exceeds the Zymark
Base Amount for such Zymark Triggering Event, The Berwind Corporation
will make an additional cash payment (a “Ride-up Payment”) to the DB
Trust in an amount determined in accordance with Annex I hereto, (the
“Ride-up Annex”), which shall be deemed incorporated in and made part of
this Agreement.
Id. ¶ 70.
The “Zymark Triggering Events” were, generally, sales by ZYAC or Zymark to a
third party of substantially all of their assets, sales of all or substantially all of ZYAC’s or
Zymark’s common stock to a third party, or other similar transactions resulting in a shift
of ownership of BPSI. Id. ¶ 71. Paragraph 2 of the Ride-up Annex defined “Zymark
Base Amount,” in part, as the sum of $182,926,829 plus 13.2 % per annum interest from
the date of the settlement agreement to the closing of any Zymark Triggering Event,
compounded on each anniversary of the settlement agreement. Id. ¶ 72.
In addition, the DB Trust received rights from TBC under Section 5(b) of the
settlement agreement to participate in any increase in the value of BPSI if certain
interests in BPSI were sold or transferred within five years of the settlement date. Id. ¶
73. In the event that such interests in BPSI were so sold or transferred, the DB Trust
would share in the excess of the “BPSI Net Amount” over the “BPSI Base Amount,”
which the settlement agreement defined, in part, as $838,181,191 plus 13.2 % per annum

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interest from the date of the settlement agreement to the closing of any BPSI Triggering
Event, compounded on each anniversary of the settlement agreement. Id. ¶ 74.
According to the settlement agreement, both the Zymark Base Amount and the
BPSI Base Amount were based on “(A) a capital contribution of $47,473,874 made by
TBC to ZYAC on or immediately prior to the date [of the settlement], the proceeds of
which have been paid to BPSI to repurchase the preferred stock of ZYAC held by BPSI
and to repay the note of ZYAC held by BPSI, and (B) the payment of the Settlement
Amount of $191,000,000 by BPSI to the Escrow Agent for the benefit of the DB Trust
concurrently with the execution of this agreement.” Pl. Mot. App. Ex. M, at 6, 11.
Finally, the settlement agreement called for the parties to coordinate as to whether
and how the settlement agreement would be reported for tax purposes. If the parties
could not agree, the agreement required “counsel to the DB Trust and counsel to BPSI
and the Defendants [to] select an independent tax counsel to render a final opinion . . .
which shall be governed by a ‘more likely than not’ standard, and the parties shall follow
such opinion.” Joint Statement ¶ 78; Def. Mot. App. Ex. 10 at 161-62. Although the
parties were ultimately unable to agree on the precise tax treatment, both parties treated
the 2002 payment as payment made entirely in exchange for the DB’s Trust’s BPSI
Stock. See Pl. Mot. App. Ex. 4 at ¶ 5(hh).15

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Despite agreeing that the settlement payment was in lieu of the DB Trust’s interest in BPSI,
the DB Trust has taken the position that BPSI was not obligated to pay the DB Trust until
consummation of the settlement agreement in 2002. As discussed above, if the payment
obligation stemmed from the 2002 settlement agreement—rather than the 1999 merger—then
payment would not have been made more than one year after the sale or exchange of property,

15

7. IRS Notice of Proposed Adjustment
In BPSI’s 2002 federal tax return, BPSI treated $31,103,795 of the 2002
settlement payment as interest by reducing the entire $191,000,000 to present value from
December 31, 2002, to December 16, 1999. Joint Statement ¶ 109. BPSI deducted this
interest component—along with other interest expenses—from its 2002 taxable income.
Id. ¶ 111. BPSI did not, however, itemize the interest expenses claimed on its 2002
return. Id. ¶ 112.
On January 18, 2006, the IRS issued a Notice of Proposed Adjustment (“NOPA”)
to Colorcon (having changed its name), setting forth its legal theory that Colorcon was
not entitled to deduct interest on the 2002 payment. Id. ¶ 113. The NOPA determined
that “[t]he principal dispute between [Colorcon] and its former shareholders [sic] arose
out of the redemption transactions.” Id. The NOPA concluded that “[Colorcon] did not
have unconditional and legally enforceable obligations to pay the former shareholders a
principal sum that could be considered ‘indebtedness’ under § 163.” Id. ¶ 114.
Moreover, the NOPA concluded that Colorcon “did not have a contract to purchase BPSI
stock from the DB Trust. Thus, IRC Section 483 [was] not applicable in this
transaction.” Pl. Reply App. Ex. C.16

Section 483 would therefore not apply, and the proceeds that the DB Trust received for its BPSI
stock would be taxed as capital gains (rather than income due to interest).
16

The parties do not presently dispute that the IRS’s legal conclusion as to the existence of a
contract was incorrect. On February 11, 2013, this court ordered the parties to file supplemental
briefs on the question of whether BPSI’s 1999 filing of Articles of Merger constituted a
“contract” for the purpose of applying 26 U.S.C. § 483. See Order, ECF. No. 65. In response,

16

On July 25, 2008, the IRS denied Colorcon’s claimed interest deduction, assessed
a tax deficiency of $10,883,874, deficiency interest in the amount of $5,463,576, and a
penalty of $2,176,775. Joint Statement ¶ 115. On December 19, 2008, Colorcon paid the
assessed deficiency, penalty, and deficiency interest. Id. ¶ 116. Colorcon filed a timely
claim for refund (an amended return for 2002) on January 29, 2009, seeking the return of
the $18,524,225 and statutory interest as provided by law. Id. ¶ 117. Colorcon claimed
that, by virtue of the operation of both Pennsylvania and federal tax law, Colorcon was
entitled to deduct the interest paid in 2002 to the DB Trust in the amount of $31,096,783,
under IRC Section 483, because Colorcon had the unconditional legal obligation to pay
interest to the DB Trust as part of the purchase price for the DB Trust’s stock it acquired
in 1999. Colorcon asserted that that interest was deductible under Section 163 of the
IRC. Id. ¶ 118.
The IRS issued a notice of claim disallowance denying Colorcon’s refund claims
on June 1, 2009.17 Id. ¶ 119. On September 10, 2009, Colorcon filed a timely complaint

counsel for the government conceded that a short-form merger can give rise to a payment
obligation that may trigger interest under Section 483. See Def. Supp. Brief, ECF. No. 67 at 4.
17

Like Colorcon, for tax purposes the DB Trust treated the 2002 payment has having been made
entirely in exchange for a redemption of the DB Trust’s stock in BPSI. Joint Statement ¶ 122.
In 2008 the IRS determined a tax deficiency of $5,363,331 against the DB Trust for its 2002
taxable year. This determination was premised on the same theory posited by Colorcon in the
case at bar: that the DB Trust should have reported $31,103,795 in interest income because
Colorcon became unconditionally indebted to the DB Trust for the fair market value of the DB
Trust’s stock as of the 1999 merger. The DB Trust challenged the proposed assessment in an
action filed in the United States Tax Court on October 28, 2008. That action has been stayed
pending final resolution of the plaintiff’s suit presently before this court. See Joint Statement
123-28.

17

in this court demanding a refund of $18,524,225 plus interest. Id. ¶ 120. Initial briefing
was completed on May 21, 2012, and supplemental briefing was completed on February
26, 2013. Argument was heard on April 3, 2013.
II.

DISCUSSION
A. Standard of Review
In considering a motion for summary judgment, the court’s role is to determine

whether there exists a genuine issue of material fact for trial, and not “to weigh the
evidence and determine the truth of the matter.” Anderson v. Liberty Lobby, 477 U.S.
242, 249 (1986). Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law.” Rules of the United States Court of Federal Claims (“RCFC”) 56(a). The mere
fact that the parties have cross-moved for summary judgment does not establish the
existence or absence of disputed material facts. See Massey v. Del Laboratories, Inc.,
118 F.3d 1568, 1573 (Fed. Cir. 1997) (noting parties may focus on different legal
principles that require analysis of different facts). The court instead evaluates “each
party’s motion on its own merits, taking care in each instance to draw all reasonable
inferences against the party whose motion is under consideration.” Mingus Constructors,
Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987).
A dispute of material fact is genuine “if the evidence is such that a reasonable
finder of fact could return a verdict for the nonmoving party.” Johnson v. United States,
79 Fed. Cl. 266, 270 (2007) (quoting Liberty Lobby, 477 U.S. at 248). A party asserting
that a fact is genuinely disputed cannot rest on the allegations or denials of its pleadings.
18

See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (discussing summary judgment
standard under Federal Rule of Civil Procedure 56(e)). Rather, the party must support its
assertions with actual evidence. See Harper/Nielsen-Dillingham, Builders, Inc. v. United
States, 81 Fed. Cl. 667, 674 (2008) (citing Long Island Sav. Bank v. United States, 503
F.3d 1234, 1244 (Fed. Cir. 2007)); Mingus, 812 F.2d at 1390 (finding that “mere denials
or conclusory statements are not sufficient”); Arthur Venneri Co. v. United States, 180
Ct. Cl. 920, 927 (1967) (granting summary judgment where government failed to submit
affidavits, documents or depositions to refute stipulated facts). Moreover, the nonmoving party does not automatically defeat a motion for summary judgment merely
because it introduces some evidence that contradicts the moving party’s claims. Instead,
the evidence submitted must be sufficiently probative to create a genuine issue of
material fact to be tried. See Liberty Lobby, 477 U.S. at 249-50 (summary judgment may
be granted where evidence is merely colorable or not significantly probative); Invitrogen
Corp. v. Clontech Laboratories, Inc., 429 F.3d 1052, 1080 (Fed. Cir. 2005).
In the context of this suit, the parties’ dispute is essentially two-fold. First, the
parties dispute whether a short-form merger that is subject to a suit for rescission should
be treated, for the purposes of Section 483, as having been consummated as of the date of
the merger, rather than as of the date when the suit for rescission is settled or a final
judgment is entered. Second, if Section 483 requires treating the settlement payment as
resolving BPSI’s obligation to pay the fair value of the DB Trust’s shares in BPSI
following the 1999 short-form merger, whether there is a genuine dispute as to how the
$191,000,000 settlement payment should be allocated across the various claims in the
19

consolidated Warden Litigation and dissenters rights action. In resolving these questions,
the court is also mindful that the taxpayer carries the burden to prove, by a preponderance
of the evidence, that the assessment was erroneous and the amount, if any, of the tax. See
Consol. Edison Co. v. United States, 703 F.3d 1367, 1377-78 (Fed. Cir. 2013) (citing
United States v. Janis, 428 U.S. 433, 440-41 (1976)); W. Mgmt., Inc. v. United States,
101 Fed. Cl. 105, 113 (2011), rev’d in part on other grounds, 498 F. App’x 10 (Fed. Cir.
2012).
B. The December 16, 1999 Short-Form Merger Was a Sale or Exchange of
Property for the Purposes of Section 483 and Was Not Superseded by the
2002 Settlement Agreement
The plaintiff relies on Jeffers v. United States, 556 F.2d 986, 997 (Ct. Cl. 1977), to
argue that the 1999 short-form merger meets the definition of the term “sale” within the
meaning of Section 483, thereby requiring interest imputation on any payments made a
year or more from that date. In Jeffers, the Court of Claims treated a short-form merger
as a contract for the sale of property. Id. at 993-94 (Section 483 applies “to any deferred
payment on account of a sale or exchange of capital or depreciable property . . . .
Congress intended the section to have far-reaching consequences on the entire Internal
Revenue Code”). The plaintiff further argues that under the Pennsylvania BCL, the
subject merger was effective upon the filing of the Articles of Merger because a different
date was not specified. Specifically, the Articles of Merger in the case at bar expressly
stated that they would be effective upon filing, which occurred on December 16, 1999.
The plaintiff concludes that in such circumstances, the DB Trust, as of December 16,
1999, had an unconditional right to be paid either the consideration offered by BPSI or
20

the amount determined by a court under the BCL’s dissenters rights provisions. Pl. Mot.
19-20. According to the plaintiff, because the undisputed evidence establishes that the
$191,000,000 payment was paid by Colorcon to satisfy the DB Trust’s dissenters rights
and because the payment was made more than one year after the redemption of the DB
Trust’s shares, Colorcon was required to impute interest on the settlement payment. Pl.
Mot. 13-14, 25.
While the government does not dispute that the 1999 merger effected a sale or
exchange of property,18 the government argues that Section 483 was not triggered in this
case because the 2002 settlement agreement superseded any payment obligation of
Colorcon for the DB Trust shares in BPSI under the 1999 merger. Def. Reply 1, 11-16.
According to the government, because the 1999 merger was challenged, and the parties
settled the litigation prior to a final judgment, the court must treat the DB Trust’s claim
for rescission in the Warden Litigation as if it had been granted. As such, the government
contends that the $191,000,000 payment could not have been made to satisfy a payment
obligation stemming from the merger in 1999, but rather was consideration as part of a
settlement agreement that was consummated in 2002. In support of its position the
government relies primarily on Lyeth v. Hoey, 305 U.S. 188 (1938).
In Lyeth, heirs challenged a will alleging a lack of testamentary capacity and
undue influence. Id. at 189. The case was settled for $200,000 prior to trial. Id. at 190.
Despite Lyeth’s contention that the $200,000 settlement was excludable from taxation as

18

See supra note 16.

21

an “inheritance,” the Commissioner of Internal Revenue assessed income tax on the
settlement payment. The Second Circuit agreed with the IRS that the settlement was
taxable because under Massachusetts law a settlement payment is considered to be a
contract, which would normally be subject to federal tax. See Lyeth v. Hoey, 96 F.2d
141, 143 (2d Cir. 1938). The Supreme Court reversed, holding that resort to state law
characterizations was unnecessary and impermissible absent a federal revenue statute that
expressly or impliedly depended on the operation of state law. Lyeth, 305 U.S. at 19395. The Supreme Court then determined that because Congress had broadly excluded
from federal taxes any property acquired by succession to a decedent’s estate, resort to
Massachusetts law was unnecessary to properly characterize the settlement of an
inheritance claim for federal revenue purposes. Id. at 194-97. In reaching this result, the
Supreme Court—in a passage heavily relied upon by the government—stated that:
It does not seem to be questioned that if the contest had been fought to a
finish and petitioner had succeeded, the property which he would have
received would have been exempt under the federal act. . . . We think that
the distinction sought to be made between acquisition through such a
judgment and acquisition by a compromise agreement in lieu of such a
judgment is too formal to be sound, as it disregards the substance of the
statutory exemption.
Id. at 196.
The government contends that Lyeth requires, when characterizing settlement
payments, the court to treat a plaintiff’s request for an equitable remedy as having been
granted. See Def. Reply 4-5. The government continues that, because the Warden
litigation included a request for rescission, the court should treat the 1999 short-form
merger as either void ab initio or voided, and therefore conclude that the entire
22

$191,000,000 settlement payment was pursuant to an agreement arising in 2002. Thus,
the government argues that the 1999 merger is irrelevant and the 2002 settlement is the
defining contract for purposes of applying Section 483.
For the reasons that follow, the court agrees with the plaintiff and finds that the
government’s reliance on dicta in Lyeth is misplaced. The court does not read Lyeth as
supporting the government’s contention that “a taxpayer may not treat [a] payment as
attributable to a transaction the validity of which was challenged in the settled lawsuit, as
if the suit had not been filed.” Def. Mot. 18. Lyeth merely held that where Congress had
broadly excluded from taxation any property acquired through the distribution of a
decedent’s estate, it was unnecessary and improper to resort to Massachusetts law to
characterize the settlement payment resolving a will contest. As the Court of Claims
explained in Parker v. United States, 573 F.2d 42, 47 (Ct. Cl. 1978):
Lyeth seems but a specialized application of the familiar concept that, in
determining the tax characteristics attributable to amounts received under a
court judgment, the crucial question to be resolved is ‘In lieu of what were
the damages awarded?’ . . . Lyeth established that the question is equally
important in determining the true nature of proceeds received in settlement
of estate litigation.
Id.
Moreover, because Section 483 does not define the terms “sale” or “exchange,” it
is necessary to look to Pennsylvania’s BCL to determine whether the 1999 short-form
merger effected a transfer of property by operation of law. See Lyeth, 305 U.S. at 194
(state law may control if federal taxing act implicates a dependence on operation of state
law). Accord Williams v. Comm’r, 1 F.3d 502, 505 (7th Cir. 1993) (“Section 483 simply

23

attaches federal tax consequences to a transaction defined by state law.”). As such, the
court rejects the government’s contention that the 1999 short-form merger must be
deemed “rescinded,” for Section 483 purposes, because the validity of the merger was
challenged.
The court finds, as a matter of law, that at least part of the $191,000,000
settlement was paid in lieu of DB Trust’s shares redeemed by BPSI through the 1999
short-form merger. The government is asking the court to ignore completely the
uncontroverted facts that (1) the DB Trust sought to receive the fair value of its shares by
invoking its dissenters rights under the BCL; (2) the DB Trust obtained an appraisal of
the 1999 value of its interest in BPSI; and (3) BPSI subsequently filed a statutory
appraisal action that was removed and consolidated with the Warden Litigation. In the
absence of any probative evidence supporting the government’s contrary assertions, the
defendant is not entitled to summary judgment.
C. The Government Has Not Raised a Genuine Dispute as to Whether the
Entire $191,000,000 Settlement Payment Was Attributable to the DB
Trust’s Dissenters Rights
As noted above, to determine the Federal tax character of a settlement payment,
courts must determine “in lieu of what were the damages awarded.” Parker, 573 F.2d at
47. The “in lieu of what” inquiry “focuses on the origin and characteristics of the claim
settled.” Green v. Comm’r, 507 F.3d 857, 867 (5th Cir. 2007). Relevant factors in
making this determination include the claims and the manner in which the agreement
calculates the payment. Grier v. United States, 207 F.3d 322, 330 (6th Cir. 2000).

24

The government argues that even if the settlement resolved the DB Trust’s claim
for dissenters rights, the 2002 settlement payment also included compensation for other
claims on which Colorcon could not impute interest and therefore the plaintiff’s motion
for summary judgment must be denied. In support of this argument, the government
points to the general release contained in the settlement agreement, which provides that
for valid consideration the parties resolved all “matters asserted or which could have been
asserted in the actions captioned Warden v. McLelland et al., Civil Action No. 99-CV5797 and Berwind Pharmaceutical Services, Inc. v. Warden et al., Civil Action No. 00CV-1445, pending in the U.S. District Court for the Eastern District of Pennsylvania.”
Def. Mot. 36.19 In addition, the government relies on the requirement for the DB Trust
and the CGB Trust to file with the Orphan’s Court a copy of the settlement agreement, as
well as valuation reports of the DB Trust’s interest in BPSI, ZYAC, and Zymark. Def.
Mot. 32. The government argues that the $191,000,000 payment must be attributed to
more than the dissenters rights appraisal action because these clauses of the settlement
agreement concerned matters other than the appraisal action that was consolidated with
the Warden Litigation.
The government similarly contends that the settlement agreement’s references to
the DB Trust’s rights in ZYAC and Zymark must mean that the settlement payment
included money for resolving claims other than the appraisal action, because the DB
19

The government similarly relies on the settlement agreement’s requirement that the DB Trust
and its beneficiaries execute and deliver to the Warden defendants, Colorcon’s counsel, and
ultimately the Orphan’s Court an additional release and indemnification agreement. Def. Mot.
36.

25

Trust only owned BPSI stock. In this connection, the government refers to the language
in the settlement agreement which provides a “Ride-up payment” to the DB Trust if the
value of ZYAC/Zymark increases based on certain events (such as sale) within 5 years.20
The plaintiff responds that the government’s suggestion that the $191,000,000
payment covers more than the value of the DB Trust’s stock redeemed through the 1999
short-form merger is not supported by any evidence. According to the plaintiff, the DB
Trust’s sole claim against BPSI was for the value of the dissenters rights obligation. The
derivative claims and RICO claims were against BPSI’s directors or other individuals.
The plaintiff contends that BPSI’s payment of $191,000,000 must, therefore, have been
made solely in lieu of the one claim—dissenters rights—for which BPSI faced liability.
Indeed, the plaintiff asserts that both BPSI (now Colorcon) and the DB Trust have always
treated the 2002 payment as compensation for the dissenters rights that arose when BPSI
redeemed the DB Trust’s stock in 1999. With regard to the Ride-up Agreement for
Zymark and ZYAC, the plaintiff contends that TBC—not BPSI—was the party liable to
the DB Trust with regard to those payments under the terms of the settlement agreement.
It is for this reason, Colorcon argues, that the Ride-Up agreement has no connection to
the $191,000,000 payment and is irrelevant to the plaintiff’s tax claim.

20

The government also suggests that the appraisals submitted to the Orphan’s Court in
connection with both BPSI and ZYAC and Zymark demonstrate that resolution of claims
involving ZYAC and Zymark must have been covered by the $191,000,000 payment. See Def.
Mot. 34, 36-37. As noted above, the court has not seen any of the filings before the Orphan’s
Court and the government’s speculation as to the makeup of the $191,000,000 payment, based
on undisclosed submissions to the Orphan’s Court, is not enough to establish a genuine issue of
material fact. See Long Island Sav. Bank, 503 F.3d at 1244.

26

The court agrees with the plaintiff. After carefully reviewing the record, the court
concludes that a trial is not necessary because there is no genuine dispute as to the
purpose of the $191,000,000 settlement payment. In order to establish an issue of fact for
trial, the government was required to support its reading of the settlement agreement with
actual evidence to show that BPSI’s $191,000,000 payment to the DB Trust included a
“payment” for more than the value of the DB Trust’s redeemed shares. See Liberty
Lobby, 477 U.S. at 503 F.3d at 1244 (summary judgment may be granted if evidence
merely colorable or not significantly probative). The government has failed to do so.
The undisputed facts demonstrate that (1) in November 2000 the DB Trust hired
an appraiser who valued a 16.4% interest in BPSI; (2) BPSI alone paid the $191,000,000
settlement based on the appraisal to the DB Trust; (3) under the settlement agreement,
TBC—not BPSI—was liable for making additional payments to the DB Trust in the
event that a Zymark/ZYAC triggering event occurred under the Ride-up provision; and
(4) the $191,000,000 settlement payment has been consistently characterized by both the
DB Trust and BPSI (now Colorcon) as representing only the value of the DB Trust’s
BPSI shares.21 See supra note 17. Accordingly, the government’s unsupported assertion
that there is a genuine dispute as to how the $191,000,000 payment should be
apportioned among the DB Trust’s various claims in the consolidated litigation must be

21

As noted above, the BPSI base amount was based on a $47,473,874 payment by TBC to
ZYAC in order to repurchase BPSI’s stock and debt interests in ZYAC. This payment, which
was to be made prior to the effectuation of the settlement agreement, was separate from the
$191,000,000 settlement payment. Pl. Mot. App. Ex. M, at 6, 11.

27

rejected.22 See RCFC 56(c)(1) (party asserting that a fact is genuinely disputed must
support the assertion by either citing to particular materials or by showing that the
materials do not establish the absence of a genuine dispute). The uncontroverted facts
establish that the subject payment was made by BPSI solely in lieu of the value of the
BPSI stock held by the DB Trust prior to the 1999 short-form merger’s effectuation. See
Greco v. Dep’t of the Army, 852 F.2d 558, 560 (Fed. Cir. 1988) (intent of parties to
settlement agreement controlling).
Having concluded that (1) BPSI merged with BPSI Acquisition in December 1999
pursuant to the short form merger statue of the Pennsylvania BCL; and (2) BPSI’s
$191,000,000 settlement payment was made solely “in lieu” of its obligation to
compensate the DB Trust for the shares redeemed under that 1999 merger; the court now
concludes that the plaintiff has established that it correctly imputed interest on the
deferred $191,000,000 payment.23 See 26 U.S.C. § 483; 26 C.F.R. §§ 1.483 et seq.
(Section 483 applies to sale or exchange of property if one or more payments is due more
than 1 year after date of the sale or exchange, and the contract does not provide for
22

The government’s focus on the number of claims lodged by the DB Trust suggests that its
argument is actually premised on the potential inadequacy of the consideration that the DB Trust
received in exchange for its general release (i.e., mutual releases from liability from the other
Warden defendants and the ride-up agreement). See Def. Mot. 30-31, 39-41. Yet even mutual
releases can constitute valid consideration, see Campbell v. Snap-On Tools Corp., 941 F.2d 677,
678 (8th Cir. 1991) (per curiam), and the government has not presented any evidence of fraud or
misrepresentation in the settlement that would allow the court to evaluate the sufficiency of the
consideration furnished. See Axion Corp. v. United States, 68 Fed. Cl. 468, 476 (2005) (citing
Silverman v. United States, 230 Ct. Cl. 701, 711 (1982)).
23

The parties do not dispute that the payment occurred more than one year after the merger’s
effectuation date, or that the merger did not provide for adequate stated interest. As such, all of
the requirements of Section 483 are satisfied.

28

adequate stated interest). Because the parties agree that the plaintiff computed its interest
in a manner consistent with the method of computing interest under Section 483, Joint
Statement ¶ 110 (current inclusion in income of original issue discount), the plaintiff has
carried its burden of showing that the IRS’s assessments and penalties were erroneous as
a matter of law.24
III.

CONCLUSION
For the foregoing reasons, Colorcon’s motion for summary judgment regarding its

entitlement to the disputed interest deduction, deficiency interest, and the inapplicability
of the substantial understatement penalty is GRANTED and the government’s crossmotion for summary judgment is DENIED. Accordingly, the clerk is directed to enter
judgment in favor of the plaintiff in the amount of $18,524,225, plus interest as provided
by statute. Each party to bear its own costs.
IT IS SO ORDERED.

s/Nancy B. Firestone
NANCY B. FIRESTONE
Judge

24

Having concluded that the entirety of the $191,000,000 settlement payment was made to
compensate the DB Trust for its interest in BPSI, the court does not reach the plaintiff’s
alternative contention that, to the extent the settlement included payment to settle the DB Trust’s
derivative claim, the amount attributable to that claim would simply be a valuation point in
determining the full value of the BPSI stock. Similarly, the court does not reach the plaintiff’s
alternative contention that any portion of the $191,000,000 payment that might have been
attributable to settling the RICO or other claims by the DB Trust against BPSI officers and paid
by BPSI on behalf of those officers would have been deductable in any event under other code
provisions.

29