- 21 -
interest rate as a fact without persuasive evidence. Although
the Stockholders' Agreement also allowed Griffin to collect
5 percent of LRFP's retained earnings, in the case of profitable
years, we find this fact unavailing seeing that Griffin
anticipated that retained earnings would be negative throughout
the relevant years.
It also is relevant that Griffin at all times considered
itself to be the owner of 5 percent of the common stock and 32.8
percent of the preferred stock. GNN recognized consistently that
it owned 95 percent of the voting common stock on its tax returns
and in its financial statements, and GNN never told Griffin that
it considered that it had purchased 100 percent of the voting
common stock and 100 percent of the preferred on December 31,
1981. Indeed, it was not until 1987, 5 years after the
agreements were executed, that LRFP first made an entry on its
books indicating a 1981 purchase of Griffin's stock.
This case is similar to that of Penn-Dixie Steel Corp. v.
Commissioner, 69 T.C. 837 (1978).5 In Penn-Dixie, the Court held
that reciprocal put and call options did not constitute a sale
4(...continued)
of years until payment (7.5).
5 GNN is mistaken in relying on Kwiat v. Commissioner, T.C.
Memo. 1992-433, to support its contention that the benefits and
burdens of ownership passed in 1981. In that case, the
"pertinent inquiry" was "whether the purported lessor maintained
the risk of economic depreciation and benefit of appreciation at
the end of the lease term." Id. That is not the case here.
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