“Under” Means “Authorized By”: Third Circuit Holds § 483 Imputes Interest to Settlement Payments That Satisfy Obligations Created by a Short‑Form Merger Agreement—Minority Assent Not Required

Case: Russell Shappy, Jr. v. Commissioner of Internal Revenue (consolidated with related appeals) — United States Court of Appeals for the Third Circuit (Oct. 30, 2025)

Introduction

This precedential Third Circuit decision resolves a longstanding dispute over whether a large settlement payment to a dissenting shareholder trust, following a short‑form merger and years of litigation, triggers imputed interest under Internal Revenue Code § 483. The court affirms the Tax Court’s conclusion that a 2002, $191 million settlement payment to the Charles G. Berwind Trust for David M. Berwind (the “DB Trust”) must be partially treated as ordinary interest, not pure capital gain.

The opinion squarely addresses two recurring issues at the intersection of federal tax and corporate law:

What constitutes a “contract for the sale or exchange of any property” for purposes of § 483 when the minority stockholder never assented to the transaction?
When is a later settlement payment made “under” an earlier contract so that the imputed interest rules apply?

The court holds that the 1999 short‑form merger agreement between BPSI Acquisition and BPSI was a “contract” that effected the sale of the DB Trust’s shares under Pennsylvania law and authorized payment for those shares. The 2002 settlement payment was thus made “under” that merger contract—even though the settlement later fixed the amount and timing—and § 483 therefore imputes interest (approximately $31 million) taxable as ordinary income. The court also rejects attempts to invalidate the merger under Pennsylvania corporate law and declines to treat the settlement agreement, rather than the merger agreement, as the operative “contract” for § 483 purposes.

Summary of the Opinion

Holding: Section 483 applies to the 2002 settlement payment because it was a payment “under [a] contract for the sale or exchange of property”—namely, the 1999 short‑form merger agreement that extinguished the DB Trust’s BPSI shares and created an obligation to pay.
Definition of “under”: Adopting the Supreme Court’s legal-usage construction in Harrow v. Department of Defense, “under” identifies the legal instrument that served as the basis for or authorized the action (here, the obligation to pay for extinguished shares). See also In re Hechinger Inv. Co. of Del., Inc. (3d Cir.).
Contract status of short‑form merger: The plan/merger agreement between BPSI Acquisition and BPSI was a “contract” for § 483, even though the minority shareholder (DB Trust) did not assent. Minority consent is not required; forced sales and voluntary sales are alike for tax characterization (Helvering v. Hammel).
Timing of “sale”: Under Pennsylvania’s BCL § 1928, the merger was effective upon filing on December 16, 1999. The sale occurred then; the 2002 settlement only supplied the payment terms (price) after dissenters’ rights were pursued.
State-law challenges rejected: Alleged violations of Pennsylvania law and BPSI’s articles of incorporation did not render the merger void; at most such issues would make the transaction voidable upon proper showing, which did not occur.
Origin-of-the-claim doctrine: Not determinative here. The parties agreed the $191 million was paid “for stock.” The only question is timing and whether § 483 imputes interest; origin analysis does not displace § 483’s application.
Outcome: Tax Court affirmed. The DB Trust owes tax on the portion of the settlement imputed as interest (about $31 million), treated as ordinary income under § 483.

Analysis

I. The Statutory Framework of § 483

Section 483 prevents taxpayers from converting what is economically interest into capital gain by omitting stated interest in deferred-payment property sales. The provision imputes interest to “any payment (1) under any contract for the sale or exchange of any property, and (2) to which this section applies.” § 483(a). It applies where:

The payment is “on account of” a sale or exchange, is part or all of the sales price, and is due more than six months after the sale (§ 483(c)(1));
Some or all payments are due more than one year after the sale (§ 483(c)(1)(A)); and
There is “total unstated interest” under the contract compared to statutory rates (§ 483(b)), with amounts and allocations computed under § 1274 and applicable regulations.

Congress enacted § 483 to thwart capital-gain treatment of what is, in substance, deferred interest. See Vorbleski v. C.I.R. (3d Cir.); Schusterman v. United States (10th Cir.).

II. The Factual Chronology the Court Deemed Dispositive

By December 1999, BPSI Acquisition owned over 80% of BPSI, enabling a short‑form merger under Pennsylvania BCL § 1924(b)(1)(ii).
The merger plan provided that the DB Trust’s minority common shares would be converted into the right to receive a subordinated note for $82.82 million due in two years at 10%—but the Trust exercised dissenters’ rights, so no note issued.
The articles of merger were filed December 16, 1999; under BCL § 1928, the merger—and thus the extinguishment of the Trust’s shares—was effective upon filing.
Protracted litigation followed (Warden litigation and related proceedings). In 2002, the parties settled. The DB Trust received $191 million on December 31, 2002. The settlement disclaimed resolving whether the sale occurred in 1999 or 2002.

The IRS determined a portion of the $191 million was unstated interest under § 483; the Tax Court agreed and the Third Circuit affirmed.

III. A Short‑Form Merger Plan Is a “Contract for the Sale or Exchange of Property” Even Without Minority Assent

The taxpayer argued the 1999 plan/merger agreement was not a “contract” because the DB Trust never signed it. The court disagreed. The merger agreement was negotiated and executed between BPSI Acquisition and BPSI, approved by corporate boards, and became legally effective upon filing. It had legal effect on all BPSI shares, including the minority shares, by operation of law under the BCL. That is enough to be a “contract” under § 483.

Crucially, minority consent is not required. Corporate law empowers the majority, via corporate governance, to bind the corporation and its shareholders to merger transactions, with dissenters protected by appraisal and related rights. For federal tax characterization, forced and voluntary sales are treated alike (Helvering v. Hammel), and multiple courts have applied similar principles in tax contexts (Vorbleski; Solomon; Katkin; Jeffers). Thus, the short‑form merger plan qualifies as a “contract for the sale or exchange of” the DB Trust’s shares.

IV. “Under” Means the Instrument that Authorized the Payment Obligation

The key textual dispute was whether the 2002 settlement payment was made “under” the 1999 merger agreement or instead “under” the 2002 settlement agreement. The Third Circuit adopted the legal-usage meaning of “under” as identifying the provision that served as the basis for or authorized the action, relying on:

Harrow v. Department of Defense (U.S. 2025): in legal contexts, “under” identifies the provision that “served as the basis for” the conduct;
In re Hechinger Inv. Co. of Del., Inc. (3d Cir. 2003): “under [a] plan confirmed” means “authorized by” the plan.

Applying that construction, the court held that the 1999 merger plan authorized and imposed the obligation to pay for the extinguished DB Trust shares; therefore, the 2002 settlement payment was made “under” that merger contract. The later settlement merely specified price and payment mechanics after appraisal disputes; it did not supply the legal basis for the obligation to pay for the 1999 sale. Reading “under” narrowly to mean only the later instrument that literally directs disbursement would invite easy evasion (use one contract to effect the sale and a separate contract to state price) and undermine § 483’s anti‑avoidance purpose.

V. State-Law Challenges to the Merger Failed

The DB Trust argued the short‑form merger was void ab initio because the plan failed to set out the conversion terms for preferred classes (BCL § 1922(a)(3)) and violated BPSI’s articles by not holding a required preferred-stock vote. The court rejected both:

BCL § 1922(a)(3): The plan set out that the preferential shares would be redeemed for $1 per share; although the plan inaccurately stated the redemption had already occurred, it nonetheless “set forth” the “manner and basis” of conversion as the statute requires. The misstatement did not invalidate the plan.
Articles vote: The record did not establish that the preferred-stock vote failed to occur; the taxpayer bore the burden of proof. In any event, even if a defect existed, Pennsylvania authorities suggest such issues render transactions voidable upon a proper showing of fraud or fundamental unfairness—not void ab initio (Fishkin; In re Jones & Laughlin; Barter). Corporate board consent functionally mirrored shareholder approval, and no showing of material unfairness was made.

Because the merger was effective upon filing (BCL § 1928), the sale occurred in 1999 as a matter of state law.

VI. Addressing Tribune Publishing and the “Voluntariness” Argument

The taxpayer relied on Tribune Publishing Co. v. United States (9th Cir. 1988) for the notion that § 483 applies only to voluntary sale contracts. The Third Circuit declined to import any voluntariness requirement; the statutory text contains none, and Helvering v. Hammel forecloses tax distinctions between forced and voluntary sales. More importantly, the court read Tribune as turning on whether the 1977 settlement payment there was made “under” the 1969 merger agreement—which it was not—because the later payment did not flow from the earlier merger’s terms. Here, by contrast, the original merger plan contemplated monetary payment for the DB Trust’s shares (even specifying a two‑year note), and the settlement simply set the price after dissenters’ rights were pursued.

VII. The Origin‑of‑the‑Claim Doctrine Was Irrelevant

Courts often use the origin‑of‑the‑claim doctrine to determine the character of settlement payments (e.g., capital vs. ordinary). But the parties here agreed the $191 million was paid “for stock”; the only question was timing and whether § 483 imputes interest because the payment was deferred beyond statutory thresholds. The doctrine therefore did not bear on § 483’s application.

VIII. Application of § 483’s Four Conditions

Payment under a contract for sale: Yes—the merger agreement was a “contract” that effected a sale and authorized payment.
Payment “on account of” the sale, constituting sales price, due more than six months after sale: Yes—the payment discharged the obligation to pay for the 1999 sale; it issued in 2002.
Some or all payments due more than one year after the sale: Yes—payment occurred more than three years after the 1999 sale, and the original plan contemplated a two‑year note.
Total unstated interest: Yes—no interest was stated in the 2002 settlement; statutory benchmarks thus impute interest (allocation mechanics via § 1274 and regulations). The taxpayer forfeited a late‑raised “stated interest” argument.

Precedents Cited and How They Shaped the Decision

Vorbleski v. C.I.R., 589 F.2d 123 (3d Cir. 1978): Emphasized § 483’s anti‑conversion purpose—prevent transforming interest into capital gain. Informed a construction that resists formalistic drafting to evade imputation.
Schusterman v. United States, 63 F.3d 986 (10th Cir. 1995): Similar anti‑avoidance reading of § 483; cited to show the section’s core function.
Harrow v. Department of Defense, 601 U.S. 480 (2025): Supreme Court’s definition of “under” in legal context (“served as the basis for” the action). Provided the textual anchor for the Third Circuit’s “authorized-by” test.
In re Hechinger Inv. Co. of Del., Inc., 335 F.3d 243 (3d Cir. 2003): Construed “under [a] plan confirmed” to mean “authorized by,” supporting the same reading here.
Helvering v. Hammel, 311 U.S. 504 (1941): Forced vs. voluntary sales receive equivalent tax treatment; rebutted the taxpayer’s voluntariness theory.
Tribune Publishing Co. v. United States, 836 F.2d 1176 (9th Cir. 1988): Distinguished: the settlement there was not “under” the earlier merger; used to show that the “under” determination depends on whether the earlier instrument authorized the later payment.
Seven Springs Farm, Inc. v. Croker, 748 A.2d 740 (Pa. Super. Ct. 2000): Under Pennsylvania law, merger extinguishes constituent stock by operation of law; supported the 1999 sale date.
Fishkin v. Hi‑Acres, Inc., 341 A.2d 95 (Pa. 1975); In re Jones & Laughlin Steel Corp., 412 A.2d 1099 (Pa. 1980); Barter v. Diodoardo, 771 A.2d 835 (Pa. Super. Ct. 2001): Support that corporate-law defects generally yield voidable, not void, transactions absent fraud or fundamental unfairness—undermining arguments that the merger was a nullity.
Greene v. Oliver Realty, Inc., 526 A.2d 1192 (Pa. 1987): Courts can supply reasonable price terms when contracts leave price open; here used by analogy to explain why later pricing does not negate earlier contract formation and sale.
Lattera v. C.I.R., 437 F.3d 399 (3d Cir. 2006): Background on capital vs. ordinary income distinctions.
Gerardo v. C.I.R., 552 F.2d 549 (3d Cir. 1977): Commissioner may take inconsistent positions in deficiency notices; explains the parallel IRS positions against different parties.
DIRECTV, Inc. v. Imburgia, 577 U.S. 47 (2015); Zuber v. Boscov’s, 871 F.3d 255 (3d Cir. 2017); Lesko v. Frankford Hosp., 15 A.3d 337 (Pa. 2011): Contract interpretation principles and the characterization of settlement agreements as contracts; Pennsylvania law governed both the merger and settlement.
26 C.F.R. § 1.483-4: Contingent payment regulation, noted in passing to show § 483 can apply to contingent consideration (“ride‑up”) structures.

Legal Reasoning: Why the Court Reached This Result

Sale timing as a factual finding under state law: The Tax Court found, and the Third Circuit affirmed under clear‑error review, that the sale occurred upon filing of the articles of merger in 1999 (BCL § 1928). The stock was extinguished then; what remained was to determine price.
Merger plan as a contract for sale: A binding instrument between BPSI and BPSI Acquisition effected the conversion of the Trust’s shares into a right to receive payment. That suffices for “contract” under § 483, regardless of minority assent.
“Under” means “authorized by” the instrument that created the payment obligation: The payment obligation derived from the merger plan; the settlement only set the price and method of satisfying an existing obligation to pay for the 1999 sale.
Anti‑avoidance coherence: Reading “under” to include such payments prevents taxpayers from structuring around § 483 by using one agreement to transfer property and another to state price, thereby omitting stated interest.
State‑law objections lack traction: The alleged plan defects did not void the merger; thus, the federal tax characterization proceeded from the valid 1999 sale.
Origin‑of‑claim inapposite: Because both sides agreed the payment was “for stock,” the only question was whether the timing triggered imputation; origin analysis did not alter the § 483 outcome.

Impact

This opinion has significant implications for corporate transactions, shareholder litigation settlements, and tax planning:

Short‑form mergers and squeeze‑outs: In the Third Circuit, a short‑form merger plan that extinguishes minority shares and authorizes payment will be treated as a “contract for sale” for § 483. Dissenting shareholders cannot avoid imputed interest by deferring price determination to a later settlement.
Settlement structuring: Parties cannot sidestep § 483 by splitting the sale and payment into separate instruments. If the earlier instrument authorized the obligation to pay for disposed property, a later settlement that sets price will still be a payment “under” the earlier contract for § 483 purposes.
Express interest vs. unstated interest: Settlements that omit stated interest risk imputation at statutory rates under § 1274 and § 483. Parties who prefer certainty over imputation should consider stating interest explicitly (subject to the Code’s adequate‑interest rules).
Appraisal litigation and “ride‑ups”: Where price is later determined via appraisal, settlement, or contingent “ride‑up” provisions, § 483 may still apply. The regulations address contingent payments, and this case confirms that later‑set pricing does not undo the earlier sale date.
State-law challenges won’t easily defeat tax characterization: Without a ruling voiding the merger ab initio, alleged corporate‑law defects generally won’t move the tax sale date. Litigants must secure potent state‑law relief (e.g., annulment) to alter the federal tax analysis.
Inter-circuit dialogue: The court harmonizes the meaning of “under” with Supreme Court usage (Harrow) and Third Circuit bankruptcy precedent (Hechinger), and narrows the perceived reach of Tribune. The opinion may be influential in other circuits where similar settlement‑timing issues arise.
Practice pointers:
- Document the effective date of mergers and the instrument authorizing payment; those dates will anchor § 483 analysis.
- If settlement is intended to compensate for non‑sale claims, clearly allocate amounts and substantiate origins; otherwise, the entire amount may be treated as sales price subject to § 483.
- Raise all § 483 arguments timely; late “stated interest” defenses risk forfeiture.
- Expect the Commissioner to take inconsistent positions in parallel disputes; this is permissible (Gerardo v. C.I.R.).

Complex Concepts Simplified

Section 483 (Imputed Interest): If you sell property and get paid later but do not state interest, the law pretends (imputes) that part of what you received was interest, which is taxed as ordinary income.
“Under any contract for the sale or exchange of property”: The payment must be authorized by a legal instrument that effected the sale. Here, the merger plan did that.
“Under” in legal usage: As used in statutes, “under” identifies the provision that serves as the legal basis for an action—here, the merger plan that created the obligation to pay for extinguished shares.
Short‑form merger (Pennsylvania): When a parent owns 80%+ of a subsidiary, it can merge without a shareholder vote of the subsidiary. Filing the articles makes the merger effective and extinguishes minority stock.
Dissenters’/appraisal rights: A minority shareholder can challenge the price and seek the fair value of shares, but the sale still occurs at the merger’s effective date; only the price is later determined.
Void vs. voidable transactions: A void act has no legal effect; a voidable one stands unless a court sets it aside. Pennsylvania generally treats corporate‑law defects as making transactions voidable upon a showing, not automatically void.
Origin‑of‑the‑claim doctrine: Used to classify settlement payments (e.g., as capital or ordinary), based on the underlying right litigated. It does not govern timing or whether § 483 imputes interest to deferred sale payments.
Unstated interest: When no interest (or insufficient interest) is stated relative to statutory benchmarks, the Code imputes interest. Section 1274 and regulations provide calculation rules.

Conclusion

The Third Circuit articulates a clear and consequential rule for § 483: a payment is made “under” a contract when that instrument authorized the obligation to pay for the property, even if a later settlement sets the final price and timing. A short‑form merger agreement between corporate entities is a “contract for the sale or exchange” of minority shares; the minority’s lack of assent does not preclude § 483 from applying. Alleged state‑law defects did not void the merger, so the sale date remained anchored in 1999, making the 2002 payment deferred beyond the statute’s thresholds and thus subject to imputed interest.

Pragmatically, this opinion limits taxpayers’ ability to convert interest into capital gain by separating sale and payment into different documents or by relying on post‑merger settlements to “recharacterize” the transaction. Going forward, controllers, dissenting shareholders, and tax advisors should assume that when an earlier merger instrument extinguishes shares and authorizes payment, later settlements that satisfy that obligation will likely be treated as payments “under” that original contract for § 483 purposes—triggering ordinary‑income interest unless an adequate stated interest is included.