Harry D. Bledsoe and Annie L. Bledsoe - Page 16

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                  Diamond was incorporated on May 7, 1987.  On June 1, 1988,                            
            Diamond held its first shareholders' meeting.  The minutes of                               
            this meeting specified that, on June 1, 1987, Diamond was                                   
            authorized to issue 10,000 shares of section 1244 common stock.                             
            The section 1244 plan stated that the maximum amount of                                     
            consideration that could be received by Diamond for the issuance                            
            of this stock would be $1 million.  Accordingly, even though                                
            $1 million was authorized, only $10,000 was paid for the 10,000                             
            shares issued.  In that regard, the minutes of Diamond's first                              
            meeting on June 1, 1988, reflect that petitioner, as one of the                             
            incorporators, contributed $7,500 of the initial $10,000.  Of the                           
            10,000 shares of stock that Diamond had issued on June 1, 1987,                             
            petitioner received 75 percent or 7,500 shares.  Although                                   
            additional amounts over $10,000 were later paid to the                                      
            corporation, those payments were not designated as payment for                              
            the 10,000 shares issued on June 1, 1988.                                                   
                  Petitioner relies heavily on Miller v. Commissioner, T.C.                             
            Memo. 1991-126.  In that case, the taxpayer formed a corporation                            
            with another individual for the purpose of constructing a water                             
            amusement park.  The articles of incorporation provided for the                             
            issuance of 100,000 shares of common stock at $1 par value per                              
            share.  The taxpayer and another individual were the directors,                             
            and each paid one-half of the fees for incorporation or $210.  A                            







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