RIVERTON INVESTMENT CORP., Plaintiff, v. UNITED STATES of America, Defendant., United States District Court, W.D. Virginia, Harrisonburg Division., 170 F.Supp.2d 608, No. CIV. A. 5:99CV00089., March 6, 2001

RIVERTON INVESTMENT CORP., Plaintiff, v. UNITED STATES of America, Defendant.

United States District Court, W.D. Virginia, Harrisonburg Division.

170 F.Supp.2d 608

No. CIV. A. 5:99CV00089.

March 6, 2001.

Michael Eugene Derdeyn, McGuire, Woods, Battle & Boothe, Charlottesville, VA, Warren Eugene Zirkle, McGuire, Woods, Battle & Boothe, Richmond, VA, for Plaintiff.

Thomas L. Eckert, U.S. Atty's Office, Roanoke, VA, Angelo Frattarelli, Washing╜ton, DC, for Defendant.

MEMORANDUM OPINION

MICHAEL, Senior District Judge.

This is a tax refund case. The plaintiff alleges that payments it made to its em╜ployees to buy back previously-issued stock were not non-deductible payments made to redeem stock, but deductible pay╜ments for compensation. On cross-mo╜tions for summary judgment, the presiding United States Magistrate Judge recom╜mended that the court enter judgment in favor of the United States. The plaintiff filed timely objections. ¹

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^1. The United States also filed an objection, but only to correct a factual statement in the Report and Recommendation. Because the court does not herein adopt the Magistrate Judge's factual findings, the United States's objection shall be denied as moot.

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Although buying back previously-issued stock intuitively appears to be a "redemp╜tion" of stock, a closer examination of the matter reveals that the employees never owned the stock to a sufficient degree in the first instance, and that, therefore, the plaintiff never redeemed it. Consequently, the court holds that the Internal Revenue Service wrongfully characterized the pay╜ments as non-deductible redemptions of stock. The plaintiff's objections shall be sustained, the Magistrate Judge's Report and Recommendation shall be rejected, and judgment shall be entered in favor of the plaintiff.

I. BACKGROUND

A. ═ FACTS AND PROCEDURAL HISTORY

Plaintiff Riverton Investment Corpora╜tion ("RIC") was formed in 1980 as a holding company for the purpose of pur╜chasing all of the outstanding stock of Riverton Corporation ("Riverton") from Riverton's then-parent company. To gain management support for the transaction, Riverton's president developed a plan to encourage Riverton's management to in╜vest in RIC, while insulating the invest╜ment from the risk of devaluation. The final version of this plan was the Manage╜ment Stockholder's Agreement of Decem╜ber 26, 1980 ("MSA"), which was entered into between RIC and several Riverton managers (the "management stockhold╜ers").

In the 1980s, RIC issued stock to the management stockholders pursuant to the MSA. In the 1990s, upon termination of the management stockholders' employ╜ment and pursuant to the MSA, RIC bought back the management stockhold╜ers' stock for 60% of the shares' book value. On their tax returns, both the man╜agement stockholders and RIC reported these buy-back payments in a manner con╜sistent with such payments being for "com╜pensation," and not as payments made in redemption of stock. RIC attempted to deduct the payments as ordinary business expenses. The Internal Revenue Service ("IRS") disallowed the deductions, reason╜ing that the 1990s payments were not com╜pensation, but non-deductible redemptions of stock. RIC paid the tax the IRS claimed was owed, and then instituted this action for a refund. See 26 U.S.C.A. ╖ 7422 (West 1989 & Supp.2000); 28 U.S.C.A. ╖ 1346(a)(1) (West 1993 & Supp. 2000).

The case was referred to the Magistrate Judge for findings of fact and a recom╜mended disposition of dispositive motions. See Fed.R.Civ.P. 72(b); 28 U.S.C.A. ╖ 636(b)(1)(B) (West 1993 & Supp.2000). The parties filed cross-motions for sum╜mary judgment, and the United States filed a motion to strike parol evidence that RIC offered to explain the meaning of the MSA. In his Report and Recommendation, the Magistrate Judge recommended that the court grant the United States's motion for summary judgment and its motion to strike, and enter judgment in the United States's favor. The plaintiff filed timely objections, see Fed.R.Civ.P. 72(b), which are now before the court and ripe for disposition.

The parties agree that the overarching issue presented in this case is whether RIC "transferred" stock to its manage╜ment employees in the 1980s. If RIC did not "transfer" the stock in the 1980s, then the 1990s payments were not "redemp╜tions" of the stock, and RIC should have been allowed to deduct the 1990s pay╜ments. If RIC did "transfer" the stock in the 1980s, then the 1990s payments were "redemptions" of the stock, and the IRS properly disallowed RIC's deductions for the 1990s payments.

B. MSA PROVISIONS

The question of whether RIC trans╜ferred the stock to its employees in the 1980s depends on the degree to which the M.S.A. ╖ restricted the employees' owner╜ship interest in the stock. The most perti╜nent article of the M.S.A. ╖ is Article II, the purpose of which was to "permit[ ] RIC to buy, and Management Stockhold╜ers to sell, Management Stock upon termination of employment." (Joint Stip. Ex. 4 (hereinafter "MSA") at 4.) To this end, Article II contained the following rights and restrictions, among others.

Paragraph 2 of Article II restricted the management shareholders' ability to transfer the stock. Each management stockholder was prohibited from transfer╜ring his stock except: (1) back to RIC, "upon the terms and conditions as herein╜after provided," and (2) "as permitted un╜der paragraph 10," (MSA at 5), which al╜lowed transfers to family members, as long as the transferee took the stock subject to the terms of the M.S.A. ╖ (i .e. the family member would have to sell the stock back to RIC).

Paragraph 4 of Article II prescribed that, "upon the termination of employ╜ment" of a management stockholder, the management stockholder was required to sell his stock back to RIC, and RIC was required to buy it.

Paragraph 5 of Article II restricted the price at which RIC would buy back the stock on termination of employment. The buy-back price was established as the greater of either the original price the management stockholders paid for the stock, or 60% of the stock's book value as of the termination of employment. By this arrangement, the management sharehold╜ers could benefit from an increase in the book value of the stock (by selling for 60% of the book value), but would be insulated from a decrease in the book value of the stock (by selling the stock back for no less than they paid for it).

Paragraph 9 of Article II is the genesis of the instant dispute. It reads, in toto:

9. Certain Corporate Transactions. The provisions hereof relating to Termi╜nation of Employment and the effects thereof shall not be effective with re╜spect to any liquidation, merger, acqui╜sition or other reorganization by or af╜fecting RIC. With respect to such transaction, the Management Stockhold╜ers then employed shall have the rights and obligations, and only the rights and obligations, of RIC common stockhold╜ers of RIC who are not Management Stockholders.

(MSA at 10.)

C. STATUTORY AND REGULATO╜RY BACKGROUND

The Internal Revenue Code pro╜vides that ordinary business expenses, such as expenses paid for salaries or for other compensation for services rendered, may be deducted by a business. See 26 U.S.C.A. ╖ 162(a) (West 1988 & Supp. 2000). However, "[i]f an expense is capi╜tal, it cannot be deducted as [an] ▒ordinary and necessary' . . . business expense under ╖ 162 . . . ." Woodward v. Comm'r of In╜ternal Revenue, 397 U.S. 572, 575, 90 S.Ct. 1302, 25 L.Ed.2d 577 (1970). As a general rule, stock redemptions "are characterized as capital transactions, and the purchase price of a stock redemption is not deduct╜ible." United States v. Houston Pipeline Co. , 37 F.3d 224, 226 (5th Cir.1994) (foot╜note omitted).

The parties agree that the question of whether the payments RIC made to the management stockholders in the 1990s were deductible payments for compensa╜tion, or non-deductible payments to re╜deem stock, depends on whether the stock was originally "transferred" to the man╜agement stockholders in the 1980s. Oth╜erwise said, if RIC did not "transfer" the stock to the management stockholders in the 1980s, then RIC did not "redeem" the stock in the 1990s.

The parties also agree that the regula╜tions accompanying 26 U.S.C.A. ╖ 83 (West 1988 & Supp. 2000) govern whether a "transfer" of stock occurred for tax pur╜poses in the 1980s. Treasury Regulation 1.83-3(a)(1) states that "a transfer of prop╜erty occurs when a person acquires a ben╜eficial ownership interest in such property (disregarding any lapse restriction, as de╜fined in ╖ 1.83-3(i))." 26 C.F.R. ╖ 1.83╜3(a)(1) (2000).

The question in this case is whether the restrictions contained in Paragraphs 2, 4, and 5 of the M.S.A. ╖ (restrictions on when and to whom the stock could be transferred, and maximum and minimum restrictions on the purchase price) (collec╜tively, the "MSA Restrictions"), restricted the management stockholders' ownership interest in the stocks they acquired in the 1980s to such a degree that their acquisi╜tion of the stock did not qualify as a "transfer" of the stock. Some indications that no transfer occurred are that the "property is transferred under conditions that require its return upon the happening of an event that is certain to occur, such as the termination of employment," id. ╖ 1.83-3(a)(3), that "the consideration to be paid the transferee upon surrendering the property does not approach the fair market value of the property at the time of surrender," id. ╖ 1.83-3(a)(5), or that "the transferee does not incur the risk of a beneficial owner that the value of the prop╜erty at the time of transfer will decline substantially," id. ╖ 1.83-3(a)(6).

Treasury Regulation 1.83-3(a)(1), quoted above, establishes a critical distinction be╜tween "non-lapse" restrictions, which are considered in determining whether some╜one acquires a sufficient ownership inter╜est in property for a "transfer" to have occurred, and "lapse" restrictions, which are not considered in making that determi╜nation. A "non-lapse" restriction is a re╜striction "which by its terms will never lapse." Id. ╖ 1.83-3(h). It is "a perma╜nent limitation on the transferability of property ... (1) Which will require the transferee of the property to sell, or offer to sell, such property at a price deter╜mined under a formula, and (2) Which will continue to apply to and be enforced against the transferee or any subsequent holder (other than the transferor)." Id. A "lapse" restriction "means a restriction other than a nonlapse restriction as defined in paragraph (h) of this section, and includes (but is not limited to) a restriction that carries a substantial risk of forfei╜ture." Id. ╖ 1.83-3(i).

The parties agree that if the M.S.A. ╖ Restrictions are "non-lapse" restrictions, i.e. permanent restrictions-and thus are taken into account in determining the man╜agement stockholders' ownership interests in the 1980s-then the M.S.A. ╖ sufficient╜ly restricted the management stockhold╜ers' ownership interest in the stock, the stock was not "transferred" to them in the 1980s, and RIC should prevail in this ac╜tion. The parties also agree that if the M.S.A. ╖ Restrictions are "lapse" restric╜tions, i.e. non-permanent restrictions-and thus are not taken into account in deter╜mining the management stockholders' ownership interests in the 1980s-then the M.S.A. ╖ did not sufficiently restrict the management stockholders' ownership in╜terest in the stock, the stock was "trans╜ferred" to them in the 1980s, and the United States should prevail in this action.

II. DISCUSSION

The Magistrate Judge found, and the United States argues, that under the plain and unambiguous language of Paragraph 9, the M.S.A. ╖ Restrictions would "lapse" in the event of a "liquidation, merger, ac╜quisition or other reorganization by or af╜fecting RIC." (MSA art. II ╤ 9.) RIC objects that Paragraph 9 is ambiguous, and that the uncontroverted parol evidence establishes that Paragraph 9 was not in╜tended to create a situation in which the M.S.A. ╖ Restrictions would lapse.

This entire case accordingly reduces to a single question: Do the M.S.A. ╖ Restric╜tions "lapse" in the event of a "liquidation, merger, acquisition or other reorganization by or affecting RIC," pursuant to Para╜graph 9 of Article II? ²

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^2. The United States concedes that if the M.S.A. ╖ Restrictions do not lapse under Paragraph 9, then the M.S.A. ╖ Restrictions otherwise qualify as "non-lapse" restrictions, and RIC should prevail.

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A. STANDARD OF REVIEW

The court reviews de novo those por╜tions of the Magistrate Judge's report or specified proposed findings or recommen╜dations to which objection was made. See 28 U.S.C.A. ╖ 636(b)(1) (West 1993 & Supp.2000). Summary judgment may be granted only if "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

B. INTERPRETATION OF MSA

The question of whether a writing is ambiguous is a question of law. See Tuo╜mata v. Regent Univ., 252 Va. 368, 477 S.E.2d 501, 505 (1996). "An ambiguity ex╜ists when language admits of being under╜stood in more than one way . . . or when language is of doubtful import." Westmoreland-LG&E Partners v. Virginia Elec. & Power Co., 254 Va. 1, 486 S.E.2d 289, 294 (1997). "When the meaning of language in a contract is clear and unam╜biguous ... the contract needs no inter╜pretation, and ▒[t]he intention of the par╜ties must be determined from what they actually say and not from what it may be supposed they intended to say.'" Sully Station II Cmty. Ass'n, Inc. v. Dye, 259 Va. 282, 525 S.E.2d 555, 556 (2000) (quot╜ing Carter v. Carter, 202 Va. 892, 121 S.E.2d 482, 485 (1961)). The court must bear in mind that "the meaning of a con╜tract ▒is to be gathered from all its associ╜ated parts assembled as the unitary ex╜pression of the agreement of the parties.'" ═ Id . (quoting Berry v. Klinger, 225 Va. 201, 300 S.E.2d 792, 796 (1983)). The court has conducted a careful review of the M.S.A. ╖ in accordance with these principles, and finds that Paragraph 9 is highly ambigu╜ous.

First, reading literally the first sentence of Paragraph 9 leads to an ab╜surd result. The first sentence renders ineffective "[t]he provisions hereof relating to Termination of Employment and the effects thereof," in the event of a liqui╜dation, merger, acquisition, or other reor╜ganization. The provisions relating to Termination of Employment are found in Paragraph 3. Rather than define what it means to be "terminated from employ╜ment," Paragraph 3 defines what it means to be "considered to be an employee of RIC," i.e. "not terminated": A manage╜ment stockholder is considered to be not terminated if he "remain[s] in the active employ of RIC, or of any corporation con╜trolled by RIC . . . . [or] any successor of RIC." (MSA art. II ╤ 3 at 5.) By render╜ing these provisions ineffective, the first sentence of Paragraph 9, when read liter╜ally, states that in the event of a liqui╜dation, merger, acquisition, or other reor╜ganization, a management stockholder is not "considered to be an employee of RIC" if he remains in the active employ of RIC or its successor. This first part of the first sentence is of doubtful import, because it would be absurd to read "remaining in the employ" of RIC as meaning "not being an employee" of RIC.

Second, another possible reading of the first part of the first sentence is that an employee is considered "terminated" upon liquidation, merger or other reorganiza╜tion. This reading is of doubtful import when considered in conjunction with the second sentence of Paragraph 9-which states that in the event of a liquidation, merger, acquisition, or other reorganiza╜tion, the management stockholder has all the rights of the other stockholders-be╜cause the other stockholders presumably have the right, in some circumstances, not to be terminated upon liquidation, merger, acquisition, or other reorganization.

Third, another possible but less literal reading of the first part of the first sen╜tence of Paragraph 9 is that, by rendering ineffective the provisions relating to "Ter╜mination of Employment" upon liquidation, merger, or other reorganization, Para╜graph 9 makes such an event "not a termi╜nation of employment." Given this and the other possible meanings of sentence one, sentence one is ambiguous because it "admits of being understood in more than one way."

Fourth, the second part of sentence one renders ineffective the provisions relating to the "effects" of termination of employ╜ment. The "effects" of termination of em╜ployment are that the management stock╜holder is required to sell to RIC under the pricing formula of Article II. The provi╜sions that restricted the management stockholders prior to termination, such as the restriction prohibiting transfer prior to termination, and the restriction prescrib╜ing who the shares could be sold to, do not relate to the ex post "effects" of termi╜nation, and would not appear to be ren╜dered ineffective by the second part of the first sentence. - Rather, the second part of the first sentence would only render inef╜fective the restriction that required the management stockholder to sell to RIC under the pricing formula of Article II. Therefore, the second part of the first sentence appears to render ineffective the requirement that the shares be sold for a certain price upon termination of employ╜ment, while leaving intact the prohibitions against transferring the shares prior to termination of employment. In other words, in the event of a liquidation, merg╜er, acquisition, or other reorganization, a management stockholder would not have to sell if he was terminated, but neverthe╜less he could not sell his shares until that time.

If the first part of the first sentence means that a liquidation, merger, or other reorganization does not constitute a "ter╜mination of employment," the whole of the first sentence would mean that upon a liquidation, merger, or other reorganiza╜tion, the management stockholder would not be terminated from employment, and would not be required to sell back his stock under the Article II pricing formula, but still could not sell his stock to anyone except RIC, and even then, could not do so until terminated. While reasonable, this reading is restrictive because it does not render ineffective all the M.S.A. ╖ Restric╜tions.

This restrictive reading of the first sen╜tence makes the language of the second sentence of doubtful import when the two are read together. Since sentence two cannot be read independently from sen╜tence one, it is clear that sentence two in some way attempts to modify sentence one. Sentence one appears to prescribe the scope of Paragraph 9. Given the re╜strictive meaning of the first sentence, it is doubtful that sentence two modifies sen╜tence one to the degree to which it appears to modify it when read in isolation, i.e. to the degree of rendering ineffective all of the M.S.A. ╖ Restrictions in the event of a liquidation, merger, acquisition, or other reorganization. Accordingly, when sen╜tence two is read in the context of sen╜tence one, the extent to which sentence two modifies sentence one is ambiguous.

Fifth, the apparently clear language of sentence two is of doubtful import when read in conjunction with the other provi╜sions of the MSA, which appear to contem╜plate that at least some of the M.S.A. ╖ Restrictions would survive mergers and reorganizations: Paragraph 1 of Article II states that "this Agreement shall apply to any and all stock acquired by the Manage╜ment Stockholder by reason of ... any other stock received by Management Stockholder with respect to his RIC stock," (MSA at 4-5), and Paragraph 3 states that a management stockholder would not be considered "terminated" as long as he "remain[s] in the active employ of RIC, or of any corporation controlled by RIC . . . [or] any successor of RIC." (MSA at 5.) The United States conceded at the hearing on this matter that in the event of a stock-for-stock merger, the M.S.A. ╖ Re╜strictions would not lapse. In other words, the United States reads Paragraph 9 as subjecting the M.S.A. ╖ Restrictions to lapse in the event of any type of reorga╜nization, merger, or liquidation, except a stock-for stock merger. Such a reading creates an ambiguity, because, when read in isolation, the second sentence of Para╜graph 9 appears to render the M.S.A. ╖ Restrictions ineffective in the event of any type of liquidation, merger, acquisi╜tion, or reorganization. Nothing in the language of Paragraph 9 justifies distin╜guishing between stock-for-stock mergers and any other type of merger. The inter╜nal inconsistency of the United States's position buttresses the court's resolve that Paragraph 9 is ambiguous.

Accordingly, the court holds that Para╜graph 9 is ambiguous, because the first sentence admits of being understood in more than one way, and because the isolat╜ed language of the second sentence is of doubtful import when read in conjunction with the first sentence and the other M.S.A. ╖ provisions.

C. PAROL EVIDENCE

"When the language of a contract is ambiguous, parol evidence is admissible, not to contradict or vary contract terms, but to establish the real contract between the parties." Tuomala v. Regent Univ., 252 Va. 368, 477 S.E.2d 501, 505 (1996). Because Paragraph 9 is ambiguous, parol evidence is admissible to explain what the contracting parties intended it to mean. For this reason, the court shall deny the United States's motion to strike.

The court typically would submit an am╜biguous contract to the trier of fact, "who must examine the extrinsic evidence to determine the intention of the parties." Id. In the instant case, the only parol evidence in the record was produced by RIC. Accordingly, RIC contends it is enti╜tled to summary judgment.

"In a tax refund action ... the IRS's assessment of taxes is presumed correct, and the taxpayer bears the burden of proving otherwise." Winstead v. Unit╜ed States, 109 F.3d 989, 993 (4th Cir.1997). When the movant bears the burden of persuasion at trial, as is the case when a plaintiff moves for summary judgment on its own claim, the movant not only must satisfy the initial burden of production on the summary judgment motion by identify╜ing the evidence "which it believes demon╜strates] the absence of a genuine issue of material fact," Cetotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), but also the ultimate burden of persuasion on the claim itself by "sup╜port[ing] its motion with credible evi╜dence-using any of the materials speci╜fied in Rule 56(c)-that would entitle it to a directed verdict if not controverted at trial." Id . at 331 (Brennan, J., dissenting).

The parol evidence produced by RIC includes affidavits and deposition tes╜timony of several contracting parties. The parol evidence makes clear that Paragraph 9 was intended to lift the timing restriction on when the management stockholders could sell their stock. According to the parol evidence, Paragraph 9 was intended to provide that the management stockhold╜ers were not restricted to selling only upon "termination of employment," but also could sell upon liquidation, merger, acqui╜sition, or other reorganization. (See Pl.'s Statement of Material Undisputed Facts Ex. A at 51 (stating that Paragraph 9 "was put in to try and explain that ... they would not have to quit . . . to get their 60 percent").) However, the contracting par╜ties apparently did not intend Paragraph 9 to lift the restriction on who they could sell their stock to, i.e. they still could sell back their stock only to RIC or to a family member (who in turn could sell only to RIC). ( See, e.g., Pl.'s Statement of Mate╜rial Undisputed Facts Ex. A at 55-56 ("[I]n effect the market was the company. It was not an outside market.").) Nor did the contracting parties intend to lift the restriction on the maximum and minimum buy-back prices of the stock, i.e. they still could only sell the stock for 60% of its book value, but would always be able to receive the original amount they paid for the stock. (See Pl.'s Statement of Material Undisputed Facts Ex. A at 51 (stating that "the other part of the reasoning was [that] ... if the company sold for something other than cash . . . they would get their 60 percent in the same form as the other stockholders got it"; id. at 55 (affirming that "there were no circumstances under which a management stockholder would realize 100 percent of his stock"); Ex. B ("[T]he parties intended that in the event of a `liquidation, merger, acquisition, or other reorganization . . .' the Management Stockholders would never receive less than [the price they originally paid] ... nor more than 60 percent of the Book Value per share for their stock."); Ex. C (same).)

In other words, the parol evidence indi╜cates that the contracting parties wanted to be sure the management stockholders could sell back their stock upon liquidation, merger, acquisition, or other reorganiza╜tion, and receive the same form of consid╜eration as the other stockholders. At the same time, the contracting parties intend╜ed that in the event of a liquidation, merg╜er, acquisition, or other reorganization, the management stockholders would remain bound by the other restrictions in the MSA, such as the restriction on the amount of consideration the management stockholders could receive upon sale-back.

The question now becomes whether this evidence, if not controverted at trial, would entitle RIC to a directed verdict. It is clear from the parol evidence that the restriction on the timing of the sale-back to "termination of employment" is a lapse restriction, because the stock could be transferred not only upon termination of employment, but upon liquidation, merger, acquisition, or other reorganization. Therefore, the court shall not consider the sale-back timing restriction in determining whether a "transfer" of the property oc╜curred in the 1980s. See 26 C.F.R. ╖ 1.83-3(i) (2000). However, it is equally clear from the parol evidence that the management stockholders were perma╜nently restricted from selling their shares to anyone but RIC or its successor for any more than 60% of the shares' book value. This indicates that no transfer occurred, because the "the consideration to be paid the [management stockholder] upon sur╜rendering the property [would] not ap╜proach the fair market value of the proper╜ty at the time of surrender." Id. ╖ 1.83╜3(a)(5). It is also clear. that the manage╜ment stockholders were permanently guar╜anteed a minimum sale-back price of no less than the price they paid for it. This too indicates that no transfer occurred, because the management stockholders "[did] not incur the risk of a beneficial owner that the value of the property at the time of transfer [would] decline substan╜tially." Id. ╖ 1.83-3(a)(6). Given these permanent restrictions on the management stockholders' ownership interest in the stock, the court finds the parol evidence sufficient to establish that the stocks were not actually "transferred" to the manage╜ment stockholders in the 1980s. See, e.g., id. ╖ 1.83-3(a)(7) (Example 5) (stating that no transfer would be deemed to have occurred if the stock was subject to the sole restriction that the employee must sell back the stock for no less than he paid for it). If not controverted at trial, this evi╜dence would entitle RIC to a directed ver╜dict.

As the nonmoving party, the United States may not simply rest on its pleadings or on conclusory allegations but must "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The United States produced no contrary evidence, and thus failed to cre╜ate a genuine issue for trial in this case. The United States having failed to satisfy its burden, RIC's motion for summary judgment shall be granted, and judgment shall be entered in favor of RIC.

III. CONCLUSION

The court concludes that Paragraph 9 is ambiguous, and that parol evidence is ad╜missible to explain its intended meaning. The only parol evidence in the record dem╜onstrates that several of the M.S.A. ╖ Re╜strictions are "non-lapse" restrictions that permanently restricted the management stockholders' ownership interest to such a degree that their acquisition of the stock in the 1980s did not qualify as a "transfer" of the stock. Accordingly, the payments RIC made to the management stockholders in the 1990s were not to "redeem" the stock. Because RIC should have been allowed to deduct those payments, RIC's objections shall be sustained, and summary-judgment shall be entered in favor of RIC. ³

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^3. The court does not consider RIC's alterna╜tive arguments, concerning the weight to be given IRS Private Letter Rulings, and the equitable nature, if any, of tax refund actions.

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An appropriate Order this day shall is╜sue.

ORDER

By order dated January 5, 2000, the above-captioned case was referred to the presiding United States Magistrate Judge, for findings of fact and a recommended disposition. The parties filed cross-mo╜tions for summary judgment, and the United States filed a motion to strike. On October 26, 2000, the Magistrate Judge issued his Report and Recommen╜dation. He recommended denying the plaintiff's motion for summary judgment, granting the United States's motion for summary judgment, and granting the United States's motion to strike. Both parties filed timely objections. Upon con╜sideration of the objections and the re╜sponses thereto, the applicable law, and the documented record, having heard oral argument on the objections, and for the reasons stated in the accompanying Mem╜orandum Opinion, it is accordingly this day

ADJUDGED, ORDERED, AND DECREED

as follows:

1. The United States's objections, filed November 6, 2000, shall be, and they here╜by are, DENIED AS MOOT;

2. The plaintiff's objections, filed No╜vember 9, 2000, shall be, and they hereby are, SUSTAINED;

3. The Magistrate Judge's Report and Recommendation, filed October 26, 2000, shall be, and it hereby is, REJECTED;

4. The United States's Motion for Summary Judgment, filed July 10, 2000, shall be, and it hereby is, DENIED;

5. The United States's Motion to Strike, filed July 24, 2000, shall be, and it hereby is, DENIED;

6. The plaintiff's Motion for Summary Judgment, filed July 10, 2000, shall be, and it hereby is, GRANTED;

7. Judgment shall be, and it hereby is, entered in favor of the PLAINTIFF.

8. The parties shall file a joint stipula╜tion on what damages and/or interest are appropriate, or a report of their failure to agree, within thirty (30) days from the entry of this Order.

The Clerk of the Court hereby is direct╜ed to send a certified copy of this Order and the accompanying Memorandum Opin╜ion to Magistrate Judge Crigler and to all counsel of record.

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