Redstone v. Commissioner

Mickey Redstone founded a chain of drive-in movie theaters, which he sought to manage as a family business with his sons, Sumner Redstone (plaintiff) and Edward Redstone. The Redstones consolidated their existing interests in a new holding company, National Amusements, Inc. (NAI). Though each of the three contributed a different amount of stock, with Edward contributing the least, each received 100 shares of Class A voting stock in NAI. Later, Edward sought to leave the business. Edward, who had two sons of his own, demanded possession of the stock certificates for his 100 shares, which Mickey and Sumner refused to give him. Mickey in particular was concerned that Edward would sell his shares to someone outside the family. The dispute led to litigation and, eventually, a settlement under which Edward received 66 2/3 shares out of his original 100 and a trust was created to hold the remaining 33 1/3 for Edward’s sons. The terms of the settlement were incorporated by court decree. Sumner, who also had two children, then created trusts to give them 33 1/3 of his 100 NAI shares, though the settlement agreement imposed no such requirement on him. Much later, the Internal Revenue commissioner (defendant) assessed a gift-tax deficiency of $737,625 against Sumner for the transfer of stock to his children. Sumner challenged the assessment in United States Tax Court.