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the 60,000 shares so that a like amount could be subsequently sold
by the corporation in order "to ease the cash flow problem caused
by buying back from old investor Mr. Chang $60,000 worth of common
stock."2 Petitioners claimed a $60,000 capital loss on Schedule D
of their 1989 return as a result of the surrender of the Cirtex
stock. Respondent determined that section 267 precluded the
deductibility of the claimed loss.
We agree with respondent's determination that petitioners are
not entitled to the claimed loss, but not for the reason stated by
respondent. It is settled law that a dominant (controlling)
shareholder who voluntarily surrenders a portion of his stock to
the corporation, and continues to retain control, does not sustain
an immediate loss deductible for income tax purposes as a result of
the surrender of stock. Rather, the surrendering shareholder must
reallocate his basis in the surrendered stock to the stock
retained. Commissioner v. Fink, 483 U.S. 89 (1987).
On the date that Mr. Yei surrendered his Cirtex stock, he and
members of his family owned more than 50 percent of the
corporation's stock. There is nothing in the record to indicate
2 Although the record is not clear with respect to this
matter, it appears that in 1988, Cirtex sold 62,500 shares of its
stock to a Mr. Albert Chang for $100,000 ($1.60 per share). The
$100,000 received from Mr. Chang was used by the corporation, in
part, to redeem its stock from other individuals, and in part, to
fund payment of a corporate dividend. Apparently, Mr. Chang
complained that the corporation improperly used his money and in
1989, Cirtex purchased the stock Mr. Chang owned for $110,000, as
follows: $60,000 in cash and a $50,000 interest-bearing
corporate note.
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