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In June 1983 VeloBind’s shareholders and directors approved
a sale of VeloBind Junior Common Stock--Series A to Beaton, and
to Steiner and the other directors of VeloBind. In 1983, Beaton
bought 15,000 shares and Steiner bought 7,500 shares of Junior
Common Stock--Series A. Beaton and Steiner filed timely
elections under section 83(b) with respect to these purchases.
Each share of Junior Common Stock--Series A carried one-
sixteenth of the dividend, liquidation, and voting rights of one
share of VeloBind common stock. Each share of Junior Common
Stock--Series A was to convert automatically into one share of
common stock if one of four specified events occurred. One of
these events did occur, and the stock converted.
On September 13, 1990, respondent issued notices of
deficiency for 1984 to petitioners. In these notices of
deficiency respondent determined that the conversion of Junior
Common Stock--Series A into common stock was a taxable event that
occurred in 1984. On December 12, 1990, petitioners filed
petitions for 1984.
On September 28, 1992, respondent issued notices of
deficiency for 1985 to petitioners. In these notices of
deficiency respondent determined that petitioners received
additional income in the form of common stock. On December 21,
1992, petitioners filed petitions for 1985. In their petitions
for 1985, petitioners assert that the period of limitations under
section 6501 for assessment of tax for 1985 had expired before
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