TRUST UNDER THE TRUST OF CHARLES G. BERWIND TRUST, F/B/O David M. Berwind, Jr.,… v. Commissioner of Internal Revenue

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
Nos. 24-2360, 24-2361, 24-2362, 24-2363, 24-2364
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TRUST UNDER THE TRUST OF CHARLES G.
BERWIND TRUST, F/B/O David M. Berwind, Jr., Valerie L.
Pawson, D. Michael Berwind, Jr., David M. Berwind III and
Richard D.R. Berwind, Trustees; TRUST UNDER THE
TRUST OF CHARLES G. BERWIND TRUST, F/B/O Linda
Berwind Shappy, Linda Berwind Shappy, Russsell F. Shappy,
Jr., and Dennis R. Delaney, Trustees; TRUST UNDER THE
TRUST OF CHARLES G. BERWIND TRUST, F/B/O Gail
Berwind Warden, Gail Berwind Warden, Duncan C. Warden
and Dennis R. Delaney, Trustees, all as successor trusts to the
Charles G. Berwind Trust,
Appellants in 24-2360
DUNCAN WARDEN; GAIL WARDEN,
Appellants in 24-2361
RUSSELL SHAPPY, JR.; LINDA B. SHAPPY,
Appellants in 24-2362
ESTATE OF DAVID M. BERWIND, Deceased, David
McMichael Berwind, Jr., Linda Berwind Shappy & Gail
Berwind Warden, Personal Representatives; ESTATE OF
JEANNE BERWIND, Deceased, Linda Berwind Shappy &
Gail Berwind Warden, Co-Personal Representative,

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Appellants in 24-2363
D. MICHAEL BERWIND, JR.; CAROL R. BERWIND,
Appellants in 24-2364
v.
COMMISSIONER OF INTERNAL REVENUE
____________
On Appeal from the United States Tax Court
(Case Nos. 08-26218, 08-26219, 08-26220, 08-26221, 08-
26222)
Tax Court Judge: Richard T. Morrison
____________
Argued May 21, 2025
____________
Before: PHIPPS, CHUNG, and ROTH, Circuit Judges
(Filed October 30, 2025)
Gregory G. Garre [ARGUED]
Eric Konopka
Latham & Watkins
555 11th Street NW
Suite 1000
Washington, DC 20004
Nikita Kansra
Latham & Watkins
1271 Avenue of the Americas

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New York, NY 10020
John W. Schmehl
DILWORTH PAXSON LLP
1500 Market Street
Suite 3500E
Philadelphia, PA 19102
Counsel for Appellants
Julie C. Avetta [ARGUED]
Ivan C. Dale
Jennifer M. Rubin
United States Department of Justice
Tax Division
950 Pennsylvania Avenue NW
P.O. Box 502
Washington, DC 20044
Counsel for Appellee
____________
OPINION OF THE COURT
____________
CHUNG, Circuit Judge.
Federal tax law distinguishes between ordinary income
and capital gains, generally taxing the latter at lower levels.
Accordingly, it may be preferable for taxpayers to characterize
interest earnings as capital gains when possible. Section 483
of the Internal Revenue Code restricts which earnings
taxpayers can classify as capital gains. The Charles G.

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Berwind Trust for David M. Berwind (the “DB Trust”) appeals
the Tax Court’s decision that Section 483 required part of a
2002 settlement payment to be characterized as interest,
taxable at ordinary-income levels. We will affirm the Tax
Court’s decision.
I. BACKGROUND
A. Corporate History, Litigation, and Settlement
Founded in 1883, the Berwind Corporation was a
closely held coal mining business owned by Charles G.
Berwind, Sr. In 1963, Charles established trusts for each of his
four children, including Graham and David. Combined, these
trusts owned the full common stock of the Berwind
Corporation. Over time, Graham Berwind sought to
“consolidate the ownership of Berwind Corporation.” App. at
9. By 1976, only two of the trusts continued to hold interests
in the Berwind Corporation, the Graham Berwind Trust (“GB
Trust”) and the DB Trust.
In 1978, the Berwind Corporation acquired a separate
company, Colorcon, Inc., which specialized in pharmaceutical
coatings. The Berwind Corporation formed Berwind
Pharmaceutical Services, Inc. (“BPSI”) as a vehicle to own
Colorcon’s common stock. From that point forward, many
actions affecting corporate structure were taken, including
1) the elimination of the DB Trust’s ownership interest in the
Berwind Corporation; and 2) the transfer of part of the GB
Trust’s BPSI interests to trusts held by Graham Berwind’s
children.

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In 1990, the GB Trust and the trusts held by his children
contributed their interests in the Berwind Corporation and
BPSI to a separate corporate entity, Berwind Group Partners.
The DB Trust held no interest in Berwind Group Partners but
continued to have an ownership interest in BPSI.
Beginning in the 1990s, Berwind Group Partners sought
to acquire or redeem the DB Trust’s ownership interest in
BPSI. After the DB Trust rejected multiple offers, the effort to
eliminate the DB Trust’s shares escalated. In August 1999, the
President of the Berwind Corporation sent a letter to the DB
Trust stating that BPSI hoped to negotiate a mutually
satisfactory purchase but was “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.” App. at 22. It
continued: “If we don’t hear from you by September 7, 1999,
we will start down our path with the intention of completing a
transaction by year end.” Id. (brackets omitted).
Section 1924(b)(1)(ii) of the Pennsylvania Business
Corporation Law (“BCL”) provided a mechanism to execute
their intent, allowing for “short-form” mergers. Per that BCL
section, a parent corporation could merge with its 80%-owned
subsidiary without a vote by the subsidiary’s shareholders.
BCL § 1924(b)(1)(ii).1
In November 1999, concerned that the DB Trust would
be deprived of its stake in BPSI, four of its trustees filed a
1 Citations to the BCL are to the section numbers in effect
at the relevant time. The BCL was subsequently amended and
renumbered.

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lawsuit in the Eastern District of Pennsylvania against the
Berwind Corporation, Berwind Group Partners, BPSI’s
directors, Graham Berwind, and Bruce McKenney, an officer
of the Berwind Corporation. See Warden v. McLelland, No.
2:99-cv-05797 (E.D. Pa.) (the “Warden litigation”).
On December 15, 1999, despite the Warden lawsuit,
Berwind Group Partners and the Berwind Corporation took
three steps to effectuate a short-form merger between BPSI and
a newly created parent company, BPSI Acquisition. First,
Berwind Group Partners and the Berwind Corporation
contributed their BPSI stock to BPSI Acquisition Corporation,
giving it control of 83.6% of BPSI’s common stock (with
16.4% still owned by the DB Trust). Second, BPSI issued
notices to redeem all of the then-outstanding classes of BPSI
preferred, preference, and preferential stock2 (common stock
was unaffected by the redemption). Third, BPSI Acquisition’s
board of directors and BPSI’s board of directors approved a
short-form merger plan under which BPSI Acquisition would
merge into BPSI (the “Merger Agreement”), with BPSI as the
sole surviving corporation. The Merger Agreement provided
for the following treatment of any common stock of BPSI and
BPSI Acquisition outstanding at the time of merger:
2 The DB Trust owned 13.12% of preferential shares and
no preferred or preference shares. Berwind Group Partners
owned 66.88%, and Graham Berwind owned 2%, of the
preferential shares. The Berwind Corporation, wholly owned
by the Berwind Group Partners, owned 100% of the preferred
and preference shares.

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• Each share of BPSI Acquisition common stock
“shall be converted into one share of common
stock of [BPSI].” App. at 515.
• Shares of BPSI common stock owned by BPSI
Acquisition “shall be cancelled.” Id.
• Any remining shares of BPSI common stock,
i.e., those held by the DB Trust, “shall be
converted into the right to receive a subordinated
promissory note” valued at $82,820,000, due in
a single payment two years later, on December
15, 2001, with interest accruing at 10%. Id. at
515, 520.
The Merger Agreement also stated that the DB Trust’s
preferential shares were redeemed, were “no longer deemed
outstanding, and have no rights with respect to the [merger].”
App. at 513. It further noted in a later provision that the DB
Trust had dissenters’ rights under provisions of Pennsylvania
law and could “obtain payment of the fair value of their shares”
in BPSI.3 App. at 515. The Merger Agreement was executed
by one officer from BPSI Acquisition and one officer from
BPSI. As a minority shareholder of BPSI, the DB Trust was
not entitled to vote on the Merger Agreement per the BCL’s
short-form merger provision. The following chart from the
Tax Court opinion illustrates the corporate structure on
December 15, 1999, immediately prior to the execution of the
merger:
3 Because the DB Trust exercised its dissenters’ rights,
the $82.8 million promissory note ultimately did not issue.

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App. at 47.
On December 16, 1999, BPSI filed the articles of
merger and the Merger Agreement with the Pennsylvania
Secretary of State.

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On January 4, 2000, the plaintiffs in the Warden
litigation filed an amended complaint with thirteen counts.
Most of the claims challenged the validity of, or were related
to, the merger in some form or another, including a demand for
statutory appraisal under Pennsylvania’s dissenters’ rights
provision. But some of the claims asserted that Graham
Berwind and Bruce McKenny violated their fiduciary duties to
BPSI and the DB Trust by allowing BPSI to loan funds for, but
not take part in, the purchase of another company, Zymark.
As a “precautionary measure,” the DB Trust also
exercised its dissenters’ rights by bringing an action in
Orphans’ Court. App. at 55. As BPSI and the DB Trust did
not agree on the value of the shares, BPSI filed its own state
court appraisal action for a judicial determination of the shares.
The appraisal action was ultimately removed to the Eastern
District of Pennsylvania and consolidated with the Warden
litigation. The dissenters’ rights action remained in Orphans’
Court.
After several months of negotiation, the parties settled
the Warden litigation in November 2002 (the “Settlement
Agreement”). The preamble to the Settlement Agreement
acknowledged the parties’ ongoing dispute about the validity
of the merger and whether the Merger Agreement effected a
sale of the DB Trust’s BPSI shares in 1999. Despite these
differences, the Settlement Agreement set forth the terms upon
which the parties agreed to resolve the Warden litigation. The
Settlement Agreement required the DB Trust to deliver in
escrow, among other items, its BPSI stock certificates and a
stipulation of dismissal for the Warden litigation. In exchange,
BPSI agreed to pay the DB Trust $191,000,000 (the
“Settlement Amount”), also held in escrow. An escrow agent

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would effectuate these transfers if, among other things, the
Orphans’ Court approved the settlement.
The Orphans’ Court eventually approved the settlement
and, on December 31, 2002, the escrow agent released the $191
million Settlement Amount to the DB Trust. The consolidated
Warden action was dismissed shortly thereafter.
B. Tax Dispute
A tax dispute remained following settlement. Section
483 of the Tax Code imputes interest to a payment when,
among other things, the payment is “under [a] contract for the
sale or exchange of any property,”4 and when the contract
provides for deferred payments, as to which there is “unstated
interest.” 26 U.S.C. § 483(a), (c). In BPSI’s view (shared here
by the IRS), the Settlement Amount was a deferred payment
for the purchase of the DB Trust’s shares in BPSI “under” the
Merger Agreement in 1999 for purposes of Section 483(a)(1).
According to BPSI, the 2002 Settlement Agreement only had
the effect of determining the share price for purposes of that
agreement. This position meant that the DB Trust would be
stuck with characterizing part of the Settlement Amount as
interest, and thus, income to the DB Trust for tax purposes.
The DB Trust unsurprisingly took the position that the
Settlement Amount was payment “under” the 2002 Settlement
Agreement and that its shares were sold at that time. This
position meant that no portion of the Settlement Amount would
be characterized as interest, and hence, it would be wholly
taxed as capital gains earned by the DB Trust. This tax dispute
4 For ease, we shall refer to this as a “contract for the sale
of property.”

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was foreseen by the parties at the time of settlement and the
parties prepared their taxes for 2002 according to their
respective positions.
The IRS audited both returns and issued deficiency
notices to both BPSI and the DB Trust, spawning parallel
litigation between the IRS and the parties.5 The deficiency
notices sent to the DB Trust and its beneficiaries determined
that part of the Settlement Amount represented unstated
interest income and under Section 483 was taxable as ordinary
income. The DB Trust filed the instant Tax Court petition for
a redetermination of the deficiencies. The Tax Court continued
the case for several years, held a trial in 2016, and ruled for the
IRS in an opinion filed in December 2023. The Tax Court
concluded that the December 16, 1999, merger constituted a
sale of the DB Trust’s shares for purposes of Section 483. App.
at 101. The Tax Court rejected the DB Trust’s argument that
the merger agreement was void as having violated BPSI’s
articles of incorporation or Pennsylvania law. The Tax Court
accordingly concluded that BPSI made the $191 million
settlement payment “under” the 1999 Merger Agreement to
satisfy its obligation to pay for the DB Trust’s BPSI shares. Id.
at 135. The Tax Court also concluded that the Merger
Agreement was a “contract” for the sale or exchange of the DB
Trust’s BPSI shares, irrespective of whether the DB Trust itself
assented to the sale. Id. (quoting 26 U.S.C. § 483(a)(1), (c)(1)).
The Tax Court entered a final decision holding the DB
Trust liable for taxes owed on approximately $31 million of
5 The Commissioner is permitted to take inconsistent
positions in deficiency notices to ensure recovery. Gerardo v.
C.I.R., 552 F.2d 549, 555 (3d Cir. 1977).

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ordinary income that it deemed was the interest portion of the
$191 million Settlement Amount. The DB Trust and its
beneficiaries timely appealed to this Court.
II. DISCUSSION6
We “review the Tax Court’s legal conclusions,
including its interpretation of the Internal Revenue Code and
associated regulations, de novo.” Mylan Inc. v. C.I.R., 76 F.4th
230, 242 n.18 (3d Cir. 2023). The Tax Court’s factual findings
are reviewed for clear error. Id. A factual finding is clearly
erroneous if it is “unsupported by substantial evidence, lack[s]
adequate evidentiary support in the record,” or goes “against
the clear weight of the evidence.” Interfaith Cmty. Org. v.
Honeywell Int’l, Inc., 726 F.3d 403, 416 (3d Cir. 2013)
(quoting United States v. 6.45 Acres of Land, 409 F.3d 139,
145 n.10 (3d Cir. 2005)).
Tax law distinguishes between capital gains and
ordinary income, the latter of which includes income generated
by interest. See Lattera v. C.I.R., 437 F.3d 399, 402-03, 406
(3d Cir. 2006). Capital gains are often taxed at lower rates than
ordinary income. Id. at 403. Accordingly, taxpayers
sometimes prefer to characterize income as capital gains rather
than ordinary income.
Prior to the enactment of 26 U.S.C. § 483, taxpayers
could “convert what is in reality ordinary interest income into
capital gain” by agreeing to sell property in exchange for
6 The Tax Court had jurisdiction under 26 U.S.C.
§§ 6213, 6214, and 7442. We have jurisdiction to review final
decisions of the Tax Court under 26 U.S.C. § 7482(a)(1).

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payments made over time without “specifically provid[ing] for
interest payments[.]” S. Rep. No. 88-830, at *1771, *1775
(1964). Such payments would then be taxed as capital gains
without any portion attributed to ordinary-income interest. Id.
“[I]n enacting section 483, Congress intended primarily to
prevent taxpayers from converting ordinary income to capital
gain” where “the dollar amount of the deferred payments was
larger than it would have been had payment been made
immediately.” Vorbleski v. C.I.R., 589 F.2d 123, 134 (3d Cir.
1978); see also Schusterman v. United States, 63 F.3d 986, 990
(10th Cir. 1995) (“Section 483 [e]nsures that a taxpayer does
not avoid income taxes by structuring an installment contract
to provide only for the payment of principal (taxed as capital
gains) without interest (taxed as ordinary income).”).
Subsections (a) and (c) describe the circumstances in
which Section 483 applies. Section 483(a) provides that “in
the case of any payment (1) under any contract for the sale or
exchange of any property, and (2) to which this section
applies,” interest shall be imputed. Section 483(c)(1), in turn,
provides that Section 483 applies
to any payment on account of the sale or
exchange of property which constitutes part 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 one year after the date of such sale
or exchange, and
(B) under which there is total unstated interest.

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Following the parties, we break this statutory language
down into four conditions that must be met in order for Section
483 to apply:
• There is a payment “under any contract for the
sale or exchange of any property.” 26 U.S.C.
§ 483(a).
• That payment is made “on account of the sale or
exchange of property,” “constitutes part or all of
the sales price” of the property, and is “due more
than 6 months after the date of such sale or
exchange.” Id. § 483(c)(1).
• “[S]ome or all of the payments” under the
contract are “due more than 1 year after the date
of the sale or exchange.” Id. § 483(c)(1)(A).
• There is “total unstated interest” under the
contract as measured against rates determined by
the IRS. Id. § 483(b).
When these conditions are satisfied, Section 483
requires that the “unstated interest” that “is properly allocable
to such payment” “be treated as interest” for tax purposes. Id.
§ 483(a). Tax law provides a formula—not relevant here—for
determining the amount of “unstated interest” allocable to a
particular sale. See 26 U.S.C. § 1274.
The government contends that the $191 million
payment, made in 2002, satisfies all four requirements. Most
relevant here, the government argues that the payment was
made “under” the 1999 Merger Agreement because that

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instrument extinguished the DB Trust’s shares and obligated
BPSI to pay a redemption price for those shares.
The DB Trust disagrees with the government’s framing.
Broadly speaking, it makes two arguments in response. First,
it asserts that BPSI made the $191 million payment “under” the
2002 Settlement Agreement because that was the instrument
“that expressly provided for the payment[] in redemption of the
Trust’s BPSI stock.” Br. at 24. This is in essence an argument
that the sale took place in 2002. Second, it contends that even
if the Settlement Amount were a deferred payment made for a
1999 sale or exchange, the 1999 Merger Agreement is not a
“contract” capable of triggering Section 483. Id.
We agree with the government that the $191 million
payment was made “under” the 1999 Merger Agreement and
that the Merger Agreement was a “contract” for purposes of
triggering Section 483.
A. The Sale of the DB Trust’s Shares Occurred
in 1999
Our review of the Tax Court’s legal conclusions will
depend on a critical factual finding that we review for clear
error: when DB Trust’s 16.4% ownership interest in BPSI was
sold. We review any necessary legal conclusions de novo. The
Tax Court found that this sale occurred in 1999. We perceive
no legal errors and conclude that this finding was not clearly
erroneous.
BCL Section 1928 provided, in relevant part, that
“[u]pon the filing of the articles of merger … in the Department
of State … the merger or consolidation shall be effective.”

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Here, BPSI filed the articles of merger with the Secretary of
State of Pennsylvania on December 16, 1999. The articles of
merger stated that BPSI “had merged with BPSI Acquisition
and that the surviving corporation was BPSI.” App. at 50.
Accordingly, the Tax Court concluded that the merger was
completed, and the sale of the DB Trust’s shares was effected
on that date.
The DB Trust asserts that the 1999 merger was void ab
initio because the merger violated the BCL and violated BPSI’s
own articles of incorporation. We disagree.7
1. The Tax Court did not Err in Rejecting the
DB Trust’s Argument that the Merger did
not Violate the BCL
The DB Trust first argues that the 1999 Merger
Agreement is void because it failed to comply with BCL
7 It is not clear to us that such violations render a merger
void in the absence of a court order to that effect. Although the
Pennsylvania Supreme Court has not passed on this precise
issue, it has held that a corporate sale of property which
violated the BCL was voidable by court order, not void ab
initio. Fishkin v. Hi-Acres, Inc., 341 A.2d 95, 98 (Pa. 1975)
(noting “no public interest of substance [was] jeopardized by a
transfer not in compliance with the statute” and that “it is
sufficient to protect the rights of minority shareholders that a
non-conforming transfer be deemed voidable (under proper
circumstances) by an aggrieved stockholder, rather than void
Ab initio” (emphasis added)). We need not predict how the
Pennsylvania Supreme Court would resolve this question, as
we conclude that there was no violation of the BCL.

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§ 1922(a)(3), which requires a plan or merger to “set[] forth …
[t]he manner and basis of converting the shares of each
corporation into shares or other securities … of” BPSI (“terms
of conversion requirement”). That is, Section 1922(a)(3)
required the 1999 Merger Agreement to state what preferential
stockholders would “receive in exchange … for such shares.”
Id.
Prior to the merger, the DB Trust owned 13.12% of
preferential stock, a class of BPSI’s preferred stock. On
December 15, 1999, BPSI sent a redemption notice to holders
of preferential stock and also filed Articles of Merger with the
Pennsylvania Department of State. The notice informed
preferential shareholders that their shares were being redeemed
at a price of $1 per share and that BPSI had irrevocably
deposited funds sufficient for those redemptions. The Merger
Agreement, filed the following day on December 16, 1999,
provided that Berwind “previously issued notices of
redemption for the outstanding shares of … Series A
Preferential Stock and deposited a sum sufficient to pay the
redemption price.” App. at 513. The Merger Agreement
further specified that the “par value” of each share of
preferential stock was $1. Id. The Tax Court did not err in
concluding that this “set[s] forth … [t]he manner and basis of
converting the [preferential] shares of” BPSI as required by the
BCL. BCL § 1922(a)(3).
The DB Trust argues that this provision of the Merger
Agreement was inadequate because the Merger Agreement
erroneously stated the DB Trust’s preferential shares were “no
longer deemed outstanding, and have no rights with respect to
the [merger].” App. at 513. The DB Trust correctly notes that
these shares actually remained outstanding until January 15,

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2000. The DB Trust argues that the 1999 Merger Agreement
should thus have stated what preferential stockholders would
“receive in exchange … for such shares” in the future. BCL
§ 1922(a)(3).
We reject this argument. Even though the 1999 Merger
Agreement erroneously stated that the redemption had been
completed and that the DB Trust’s preferential shares were no
longer outstanding as of December 15, 1999, the plan of
merger nonetheless “set forth” that the preferential shares
would be redeemed for $1 per share. This accurately stated
“[t]he manner and basis of converting” the DB Trust’s
preferential shares. Therefore, the Tax Court did not err in
holding that the Agreement complied with BCL § 1922(a)(3).
2. The Tax Court did not Err in Rejecting the
DB Trust’s Argument that the Merger did
not Violate BPSI’s Articles of
Incorporation
The DB Trust’s second argument for voiding the merger
fares no better. It contends that the 1999 merger is void
because it “was not subject to a shareholder vote as required by
BPSI’s articles of incorporation.” Br. at 47. BPSI’s articles of
incorporation prohibited BPSI from merging with another
corporation without “consent [] given by vote … of the holders
of at least a majority of the total number of shares of the
Preferred Stock of all series then outstanding” unless that stock
“shall continue … to be authorized and outstanding after such
merger” or was converted into preferred stock with
“comparable rights and preferences.” App. at 414. This boils
down to an argument that BPSI Acquisition, as the only holder

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of BPSI Preferred Stock, was deprived of its opportunity to
vote on the merger as a shareholder of BPSI.8
The Tax Court rejected this argument. It concluded that
“the record [did] not establish whether BPSI Acquisition
submitted a vote as the sole holder of BPSI’s preferred stock.”
App. at 107. Because the DB Trust had the burden of proof in
this matter, the Tax Court “[r]esolv[ed] this factual issue
against” it. Id. at 108. We see no clear error in the Tax Court’s
conclusion. See Anderson v. C.I.R., 698 F.3d 160, 164 (3d Cir.
2012) (factual findings of the tax court are reviewed for clear
error). The DB Trust produced no evidence suggesting that
BPSI Acquisition did not vote as a shareholder for the merger.
At most, it asserts that because the “plan of merger provided
that the holders had ‘no rights’ with respect to the plan,” it
“follows that no such vote took place.” Br. at 48. That
syllogism does not surmount the clear-error hurdle. Even if we
concluded that the BPSI Acquisition failed to hold the required
vote and that such a failure violated BPSI’s articles of
incorporation, we are not persuaded that the merger would be
void ab initio.9
8 BPSI had three types of preferred stock, “Preferred
Stock,” “Preference Stock,” and “Preferential Stock.” The DB
Trust and others held Preferential Stock. Only BPSI
Acquisition held “Preferred Stock” as referenced by the BPSI
Articles of Incorporation.
9 Aside from the lack of clear error, this argument is
unpersuasive because BPSI Acquisition’s board of directors
unanimously consented to the merger. As a matter of common
sense, that consent would be functionally equivalent to a
“vote” by BPSI Acquisition’s board, acting as holders of

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In light of the foregoing, we find no clear error in the
Tax Court’s ultimate finding that the sale of the DB Trust’s
shares occurred in 1999 per the Merger Agreement.
B. The Merger Agreement was a Contract for
Sale of the DB Trust’s Shares
As set forth above, Section 483 applies when, among
other things, there is a payment “under any contract for the sale
or exchange of any property.” 26 U.S.C. § 483(a). The DB
Trust asserts that the Merger Agreement is not a contract. We
again disagree.
The Merger Agreement was executed by BPSI
Acquisition and BPSI and was approved by both of those
corporations’ boards of directors. Accordingly, there were two
assenting parties to the merger, which became effective when
filed with the Pennsylvania Department of State on December
16, 1999. See BCL § 1928. At that time and as fully set forth
above, the Merger Agreement effected the sale of the DB
Trust’s shares and mandated a payment in exchange for that
Preferred Stock, to approve the merger. See App. at 414-15.
Even if such a technical difference were a violation of BPSI’s
Articles of Corporation, we are skeptical that that meaningless
distinction would render the merger void. See In re Jones &
Laughlin Steel Corp., 412 A.2d 1099, 1103 (Pa. 1980) (no
injunctive remedies for merger unless petitioner shows “fraud
or fundamental unfairness”) (citing BCL § 1105); Barter v.
Diodoardo, 771 A.2d 835, 839-41 (Pa. Super. Ct. 2001)
(“fraud or fundamental unfairness” requires a showing of
materiality).

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redemption. That enforceable agreement—assented to by two
parties and recognized by law—constitutes a contract and the
DB Trust’s common shares were sold pursuant to that contract.
See App. at 515 (providing that the DB Trust’s shares “shall be
converted into the right to receive a subordinated promissory
note … of $82,820,000[]”).
We reject the DB Trust’s contention that, because it did
not assent to the merger, “[t]he contested plan of merger was
not a contract [for the sale of the DB Trust’s property].” Br. at
42 (internal quotations omitted); see 26 U.S.C. § 483(a)(1).
The DB Trust’s assent to the merger was not necessary for the
formation of a contract for the sale of its shares. As a minority,
dissenting shareholder, the DB Trust was bound to the
agreement made by BPSI and BPSI Acquisition. See Am. Jur.
Corporations § 635 (“The holders of the majority of the stock
of a corporation have the power, by the election of directors
and the vote of their stock, to do everything that the corporation
can do.”). Indeed, “[t]he majority stockholders have the right
to determine the policy to be pursued and to manage and direct
the corporation’s affairs, and the minority must submit to their
judgment.” Id.; see also Helvering v. Hammel, 311 U.S. 504,
510 (1941) (recognizing, under a different federal tax law, that
there is “no basis” to distinguish “forced sales [from] voluntary
sales”); Vorbleski, 589 F.2d at 126; Solomon v. C.I.R., 570 F.2d
28 (2d Cir. 1977); Katkin v. C.I.R., 570 F.2d 139 (6th Cir.
1978); Jeffers v. United States, 556 F.2d 986 (Ct. Cl. 1977).
Under the BCL, BPSI—as a separate legal entity from its
shareholders, including the DB Trust—had the statutory
authority to convert its common shares into the right to receive
payment and engage in the short-form merger used here. BCL
§ 1924(b)(1)(ii) (“[A] plan of merger or consolidation shall not
require the approval of the shareholders of a constituent

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domestic business corporation if … another corporation that is
a party to the plan owns … 80% or more of the outstanding
shares of each class of the constituent corporation.”); see Dole
Food Co. v. Patrickson, 538 U.S. 468, 474-75 (2003) (“A basic
tenet of American corporate law is that the corporation and its
shareholders are distinct entities.”).
The DB Trust primarily relies on Tribune Publishing
Co. v. United States, 836 F.2d 1176 (9th Cir. 1988), to assert
the proposition that a seller must have voluntarily entered into
a contract for Section 483 to apply. First, the plain text of
Section 483 does not impose such a requirement, 26 U.S.C.
§ 483, nor does the term “contract” (as we have explained
above). Second, Tribune is not binding here and, in any case,
does not support this argument. There, Tribune sued Boise
Cascade in relation to a 1969 merger and settled that suit in
1977. Tribune, 836 F.2d at 1177. The Ninth Circuit concluded
that Section 483 did not apply to the 1977 settlement payment,
stating, among other things, that “Tribune did not voluntarily
contract to exchange its Newsprint stock for Boise Cascade
stock plus [the settlement proceeds].” Id. at 1181. The DB
Trust argues that Tribune thus clarifies that Section 483 only
applies when a shareholder’s stock is sold voluntarily. In our
view, the Court in Tribune was simply communicating that the
parties “did not voluntarily contract [in 1969] to exchange its
Newsprint stock for Boise Cascade stock [in 1969] plus [the
settlement proceeds in 1977].” Id. Therefore, this was simply
a holding that the settlement payment there was not “under”
that original 1969 merger agreement that in no way turned
upon whether or not there was a voluntary sale. Id.10
10 In contrast, the Merger Agreement here did contemplate
monetary payment to the DB Trust for its shares. While the

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Accordingly, the Tax Court did not err in rejecting this
argument.
In sum, as an agreement between two parties which
effected the sale of the DB Trust’s shares, the Merger
Agreement is a “contract for the sale of property” per Section
483.
C. The $191 Million Settlement Amount was
Made “Under” the 1999 Merger Agreement
1. Section 483 Applies to Any Payment
“Under” Any Contract
Not only must there be a “contract for the sale of
property” in order to impute interest to a payment under
Section 483, but the payment must also be “under” that
contract. 26 U.S.C. § 483(a)(1). To determine whether this
condition is satisfied, we must first decide which agreement—
the Merger Agreement or the Settlement Agreement—the $191
million Settlement Amount was made “under.” Id.
The word “under” has many meanings. In considering
the analogous phrase “pursuant to” in a non-tax statute, the
Supreme Court noted that when used in the legal context,
“under” “identifies the provision that served as the basis for the
[conduct].” Harrow v. Dep’t of Def., 601 U.S. 480, 486 (2025).
Similarly, we contemplated the meaning of “under” in the
phrase “under a plan confirmed” in a bankruptcy statute and
noted that “[w]hen an action is said to be taken ‘under’ a
terms of that payment were negotiated later, see infra at 24, the
fact of monetary payment was part of the Merger Agreement.

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provision of law or a document having legal effect, what is
generally meant is that the action is ‘authorized’ by the
provision of law or legal document.” In re Hechinger Inv. Co.
of Del., Inc., 335 F.3d 243, 252 (3d Cir. 2003). We concluded
that the statutory phrase “under the plan confirmed” meant that
the transfers in question had to have been “authorized” by a
confirmed bankruptcy plan. Id. That interpretation was similar
to, and consistent with, Harrow’s definition of “under.”
Adopting a similar definition here makes sense for the
same reasons and also in reading Section 483 as a whole.
Specifically, Section 483(c) states, in part, that it applies “to
any payment on account of the sale or exchange of property.”
26 U.S.C. § 483(c)(1) (emphasis added). This language signals
that Section 483 applies when the payment is “on account of
the [contracted] sale.” Id. Thus, for purposes of Section 483,
a payment is “under” a contract when the contract serves as the
basis for, or authorizes, the sale of property.
2. The Settlement Amount was a Payment
Under the Merger Agreement
In our view, the Merger Agreement “served as the basis
for payment” of the DB Trust’s shares, and thus the Settlement
Amount payment was “under” that agreement. See Harrow,
601 U.S. at 486. We are led to this conclusion for two reasons.
First, as noted above, the Merger Agreement was the
instrument that effected the sale of the DB Trust’s shares and
mandated payment for those shares. BPSI incurred its
obligation to pay for those shares when the articles of merger
were filed with the Secretary of State on December 16, 1999,
extinguishing the DB Trust’s shares in BPSI. See Seven
Springs Farm, Inc. v. Croker, 748 A.2d 740, 748 (Pa. Super.

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Ct. 2000) (stating that “merger is a corporate act that, by
operation of law, results in extinction of the constituent
corporation’s stock”). It was therefore the 1999 sale that
created the payment obligation, i.e., “served as the basis for,”
and “authorized,” BPSI to pay the DB Trust. Harrow, 601 U.S.
at 486; In re Hechinger, 335 F.3d at 252. In contrast, the
Settlement Agreement took great pains to specify that it did not
constitute an agreement to sell the DB Trust shares. Rather,
the Settlement Agreement expressly stated that there was an
ongoing dispute as to when those shares were sold. And, as we
have discussed above, Pennsylvania state law settles that
question and gave the Merger Agreement full effect in 1999.
Second, the DB Trust does not dispute that the 2002
Settlement Amount paid “for” the DB Trust’s shares. See
Reply at 16 (“It is true … that the $191 million payment was
paid for the Trust’s BPSI stock.” (internal quotations omitted)).
The Settlement Agreement provided for the dismissal of all
claims in both the federal Warden litigation and Orphans’
Court suit. Although the DB Trust asserted claims in the
Warden litigation unrelated to the sale of its shares and
dismissed those claims per the Settlement Agreement, the DB
Trust concedes that the Settlement Amount was wholly paid to
fulfill BPSI’s obligation to compensate the DB Trust for its
shares. See id. This supports the conclusion that the payment
was made “under” the Merger Agreement, the instrument
which imposed the payment obligation.
3. The Merger Agreement Served as the
Basis for the Payment while the
Settlement Agreement Specified the
Terms of that Payment

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26
The DB Trust resists this conclusion by arguing that the
2002 Settlement Agreement “explicitly mandated” payment of
the Settlement Amount and accordingly, payment was made
“under” that later agreement. Br. at 26-28. This is an
attractive, common-sense interpretation of Section 483 and its
application. See 26 U.S.C. § 483(c). The Settlement
Agreement is a contract and sets forth the amount and timing
of the payment for the DB Trust’s shares. Thus, the Settlement
Amount is, at the very least, a payment under a contract, if not
a payment under a contract for the sale of property.
Adopting this narrow interpretation of the statutory
language and applying it to the facts here would mean that
taxpayers could evade the application of Section 483 simply by
creating two contracts, one for the sale of property with an
undefined term of payment and one defining the terms of
payment. In that situation, the “payment” is technically not
“under any contract for the sale of property,” it is “under a
contract for the payment for the sale of property.” We decline
to adopt this reading as contrary to the text of Section
483(a)(1). See Harrow, 601 U.S. at 486 (explaining that
“under” “identif[ies] the provision that served as the basis” for
the relevant action); In re Hechinger, 335 F.3d at 252 (“When
an action is said to be taken ‘under’ a provision of law or a
document having legal effect, what is generally meant is that
the action is ‘authorized’ by the provision of law or legal
document.”). And as noted above, that reading is also
inconsistent when reading Section 483 as a whole, which
specifies in subsection (c) that the section applies to “any
payment on account of the sale or exchange of property.” The

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Settlement Amount surely meets that condition.11
Pennsylvania state law governs our interpretation of
each contract, and by extension, whether the terms of either
contract indeed supply the basis for the payment.12 The DB
Trust’s shares were sold in 1999, per the Merger Agreement,
and the DB Trust rejected the price set forth in that agreement.
Having exercised its dissenters’ rights to seek a fair value for
its shares, the note authorizing the original $82.8 million
payment from BPSI never issued. And, while the sale was
effected, the price to be paid for the DB Trust’s shares
11 This reading is also inconsistent with the very reason for
the enactment of Section 483. See S. Rep. No. 88-830, at
*1771, *1775 (1964); Vorbleski, 589 F.2d at 134 (explaining
that, “in enacting section 483, Congress intended primarily to
prevent taxpayers from converting ordinary income to capital
gain” through the clever drafting of sale contracts);
Schusterman, 63 F.3d at 990 (“Section 483 [e]nsures that a
taxpayer does not avoid income taxes by structuring an
installment contract to provide only for the payment of
principal (taxed as capital gains) without interest (taxed as
ordinary income).”).
12 Pennsylvania law controls our interpretation of both the
Merger Agreement and the Settlement Agreement. See
DIRECTV, Inc. v. Imburgia, 577 U.S. 47, 54 (2015) (“[T]he
interpretation of a contract is ordinarily a matter of state law to
which we defer.”); see also Zuber v. Boscov’s, 871 F.3d 255,
258 (3d Cir. 2017) (noting that settlement agreements are a
form of contract); Lesko v. Frankford Hosp. Bucks Cnty., 15
A.3d 337, 341-42 (Pa. 2011) (“[W]e note [that] settlement
agreements are governed by contract law principles.”).

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remained to be determined. Under Pennsylvania law, the lack
of a definite price term does not invalidate an otherwise valid
contract. Cf. Greene v. Oliver Realty, Inc., 526 A.2d 1192,
1194 (Pa. 1987) (“If an essential term is left out of the
agreement, the law will not invalidate the contract but will
include a reasonable term. For instance, if the parties do not
specify price, a court will impose a reasonable price which will
usually be the item’s market value.”). We acknowledge that
this strand of Pennsylvania case law is not directly on point
because the Merger Agreement did specify a price for the DB
Trust’s shares and there was no missing term. The
complication here is that this definite term was later contested
by a non-party to the Merger Agreement. Moreover, the parties
who entered into the Merger Agreement (between BPSI and
BPSI Acquisition) are different than those who entered into the
Settlement Agreement (the various trusts and their
beneficiaries, the successor to Berwind Group Partners,
Berwind Corp, and BPSI). Nonetheless, under the BCL, the
sale occurred and the Merger Agreement is valid. Thus,
Pennsylvania law suggests that the missing or disputed price
term could be supplied later. The Settlement Agreement did
just that (although three years after the sale was completed). In
other words, although the Settlement Agreement supplied the
missing terms of payment, the Merger Agreement “provided
the basis” for the fact of that payment.
4. The Timing of the Valuation is Irrelevant
The DB Trust next argues that payment was not under
the Merger Agreement because the negotiators intended that
the Settlement Agreement set forth the DB Trust’s shares based
on a 2002 valuation—meaning the price of the shares in 2002
without any portion of the Settlement Amount to account for

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interest accrued from 1999. Br. at 28-29. This is just another
way for the DB Trust to argue that its shares were sold in 2002.
As noted above, however, the Settlement Agreement
affirmatively states that it does not resolve that issue and
Pennsylvania law resolves it against the DB Trust’s position.13
13 In 1996, Berwind Group Partners formed ZYAC
Holding Corporation to acquire Zymark Corporation. To
finance ZYAC Holding’s purchase of Zymark, BPSI loaned
$20 million to ZYAC Holding in exchange for an
interest-bearing note. In connection with ZYAC Holding’s
acquisition of Zymark, BPSI purchased 1,000 shares of ZYAC
Series A preferred stock for $10 million. The DB Trust asserts
that the $191 million settlement represented “the value of BPSI
and Zymark” to the DB Trust. Br. at 28. In its view, because
the 2002 Settlement Amount included a valuation of Zymark—
and because the Settlement Agreement included a “ride-up”
payment based on the future increases in the value of BPSI and
Zymark—the payment must have been made “under” that 2002
Agreement. We are not persuaded. In both 1999 and 2002,
BPSI owned ZYAC preferred stock and a valuation of BPSI at
any time would necessarily include the value of that stock to
BPSI. Nor does the existence of a ride-up payment affect the
outcome we reach. Whether or not additional payments might
be required in the future does not alter the fact that the
Settlement Amount was paid “on account of” the 1999 sale of
the DB Trust’s shares. 26 U.S.C. § 483(c)(1); see, e.g., 26
C.F.R. § 1.483-4 (addressing treatment of deferred contingent
payments when the “overall contract” is subject to Section
483).

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5. The Origin-of-the-Claim Doctrine is
Unavailing Here
Finally, the DB Trust argues that the origin-of-the-claim
doctrine and Lyeth v. Hoey, 305 U.S. 188 (1938), support the
conclusion that the payment was made under the 2002
Settlement Agreement.14 The origin-of-the-claim doctrine
functions to determine whether a settlement payment should be
characterized as capital gain or ordinary income. See
Francisco v. United States, 267 F.3d 303, 319 (3d Cir. 2001)
(“It is a tenet of federal tax law that income received in
settlement of a claim should be taxed in the same manner as if
it had been received on that claim in court.”). To correctly
identify that tax characterization, courts hypothesize that the
taxed person won the settled claim and consider the “‘nature’
of the ‘right compromised.’” Freda v. C.I.R., 656 F.3d 570,
574 (7th Cir. 2011) (quoting Nahey v. C.I.R., 196 F.3d 866,
868 (7th Cir. 1999)).
14 While the DB Trust does assert that Section 483’s other
requirements are not met, its challenge to those conditions is
based on the same unsuccessful argument that the sale of its
shares took place in 2002, not 1999. The only other argument
that the DB Trust asserted was not timely raised. In its Reply
Brief, the DB Trust argued that the Merger Agreement
adequately stated interest so that, even if payment of the
Settlement Amount were made under the Merger Agreement,
Section 483 does not apply. As it failed to raise that argument
in its opening brief, we decline to address it as forfeited. See
In re Wettach, 811 F.3d 99, 115 (3d Cir. 2016) (failure to
develop arguments in opening brief results in forfeiture of
those arguments).

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The DB Trust argues that, as viewed through the lens of
this doctrine, “the $191 million settlement payment was made
‘in lieu of’ all of” the claims for relief asserted in the Warden
litigation. Br. at 29-31. In other words, the DB Trust wants us
to indulge in the fantasy that the Settlement Amount was paid
to settle all of the Warden claims, despite the reality that the
$191 million payment was wholly made “for the Trust’s BPSI
stock.” Reply at 16. We decline to do so. The “nature” of the
payment is not in dispute – it is payment for stock. What is in
dispute is whether any portion of that payment should be
imputed to interest. The answer to that question turns not on
the nature of the payment, but on its timing; specifically,
whether it was made more than a year after the sale of the DB
Trust’s stock. See Br. at 31 (the DB Trust arguing that we must
assume the DB Trust retained its shares “until the [DB] Trust
voluntarily agreed to sell them [in 2002]”). As the origin-of-
the-claim doctrine does not answer that question, this argument
too fails.
III. CONCLUSION
In sum, the $191 million payment had no stated interest
and was (1) paid “under” the 1999 Merger Agreement, which
(2) was a “contract” (3) for the “sale or exchange” of the DB
Trust’s shares in 1999. BPSI made the payment when it was
due in 2002, “on account of [that] sale[.]” Accordingly,
Section 483 applies to that 2002 payment. For the reasons set
forth above, we will affirm the judgment of the Tax Court.

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