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payments amount to $4,890,000. In addition, petitioner was to
receive 40 percent of any amounts paid from Diesel Power's
pending claim in arbitration against Clark. Petitioner was to
also receive 40 percent of the claim by Diesel Power against
Ingersoll-Rand from the cancellation of the Ingersoll-Rand
franchise.
On his 1977 Federal income tax return petitioner reported a
long-term capital gain in the amount of $4,805,864 from the sale
of 200 shares of Diesel Power stock he had held since 1958. His
claimed basis in the Diesel Power stock was $3,525,000. The
gross sale price of $4,809,389 was approximately $80,000 less
than the contract sale price.
In the notice of deficiency for 1977 respondent determined,
pursuant to section 1248, that petitioner was required to treat
the gain from the sale of his Diesel Power Stock as ordinary
dividend income, rather than long-term capital gain. Respondent
also determined that the gain from the stock sale was $3,925,000,
rather than $4,805,864 as reported on petitioner's 1977 return.
Petitioner satisfies all requirements for section 1248 to
apply. Petitioner has been a U.S. citizen since 1953 and was a
citizen during the years at issue. He owned 100 percent of
Diesel Power stock until late 1974, which was within Diesel
Power's 1974 fiscal year ending March 20, 1975. Petitioner owned
over 40 percent thereafter until 1977. For the period March 22,
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