Estate of James A. Beaton, Deceased, Shirley Beaton, Executrix, and Shirley Beaton - Page 4

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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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