Evelyn M. Martin - Page 7
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for funds due from FSCA, Life would have been “statutorily
insolvent” and/or “impaired” under North Carolina law and thereby
prohibited from underwriting life insurance.
FSCA was not capable of repayment, and so Mr. Martin and
several advisers, including Mr. Hevey, designed a multistep
transaction to bolster Life’s assets. Although petitioner was
generally aware of Mr. Martin’s involvement in a transaction
involving Primera and that the Primera land was involved, she did
not discuss it with Mr. Martin and was not involved or consulted
concerning the structuring or execution of the transaction. No
cash or property inured to the benefit of or was received by the
Martins due to execution of this transaction.
Mr. Forness, a certified public accountant who served Mr.
Martin’s business and prepared corporate and individual income
tax returns, assisted in attempting to structure the transaction
to make it appear that Federal tax consequences would be deferred
under section 351. On December 15, 1986, Mr. Martin, Life, FSCA
and its parent entered into a three-step transaction where the
Primera stock would be contributed to Glen H. Martin and
Associates, Inc. (GHMA), in exchange for 2,400 shares of GHMA
stock. GHMA would then contribute the Primera stock to FSCA as
paid-in capital. FSCA, in turn, would sell the Primera shares to
Life in exchange for loan forgiveness and other consideration.
Primera was valued at $22,540,000 as of November 26, 1986, and
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