- 15 -
she did not know that petitioner Praegitzer would withdraw the
$103,000 from 303 Products.
The Praegitzer debt was recorded in the accounting books and
records of 303 Products as received on or about January 30, 1990.
On the 303 Products financial statements for the year ended June
30, 1991, the Praegitzer debt was removed from the balance sheet
of 303 Products by the corporation's C.P.A. on the ground that
the Praegitzer debt should have been taken off the books of
Ameritech as of December 12, 1989. At no time on or after
January 30, 1990, did 303 Products exercise any rights to collect
on any debt owed to it by petitioner Praegitzer.
OPINION
Although respondent's role in these two cases is that of a
stakeholder, she nonetheless concedes that the steps of the
reorganization, up to and including the exchange of stock, were
tax free under sections 355 and 368(a)(1)(D) and argues that
petitioner Praegitzer received a dividend from 303 Products when
it distributed cash to, and canceled indebtedness6 owed to it by,
Mr. Praegitzer. Petitioner Praegitzer argues that the cash and
cancellation of indebtedness were received incident to his
divorce from petitioner Dawes, and thus, are tax free pursuant to
section 1041. Section 1041(a) provides:
6 Cancellation of a shareholder's indebtedness owed to his
corporation generally is treated as a distribution of property
within the meaning of sec. 301. Sec. 1.301-1(m), Income Tax
Regs.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011