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and additions to tax with respect to the years at issue,
petitioners requested and received the revenue agent's report in
their case. As demonstrated by the revenue agent's report,
respondent identified, as alternative positions, two "prohibited
transactions" which resulted in the loss of IRA #1's status as a
trust under section 408. First, respondent concluded that:
Mr. Swanson is a disqualified person within the meaning
of section 4975(e)(2)(A) of the Code as a fiduciary
because he has the express authority to control the
investments of * * * [IRA #1].
Mr. Swanson is also an Officer and Director of
Swansons' Worldwide. Therefore, direct or indirect
transactions described by section 4975(c)(1) between
Swansons' Worldwide and * * * [IRA #1] constitute
prohibited transactions.
Mr. Swanson, as an Officer and Director of Worldwide
directed the payment of dividends from Worldwide to
* * * [IRA #1] * * * * The payment of dividends is a
prohibited transaction within the meaning of section
4975(c)(1)(E) of the Code as an act of self-dealing
where a disqualified person who is a fiduciary deals
with the assets of the plan in his own interest. The
dividend paid to * * * [IRA #1] December 30, 1988 will
cause the IRA to cease to be an IRA effective January
1, 1988 by reason of section 408(e)(1). Therefore, by
operation of section 408(d)(1), the fair market value
of the IRA is deemed distributed January 1, 1988.
[Emphasis added.]
As further demonstrated by the revenue agent's report,
respondent's second basis for disqualifying IRA #1 under section
408 was that:
In his capacity as fiduciary of * * * [IRA #1], Mr.
Swanson directed the bank custodian, Florida National
Bank, to purchase all of the stock of Swansons'
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