Gustafson's Dairy, Inc. - Page 32

                                        -32-                                          
               In Gustafson's Dairy, Inc. v. Commissioner, T.C. Memo. 1995-           
          11, we held that the burden of proof is on respondent for ground            
          (d) for 1987 and 1988, and for the first $550,000 for 1989, and             
          for ground (e) to the extent of petitioner's purchase of the                
          Union Camp property for $2,249,625.  The burden of proof is on              
          petitioner as to whether it permitted its earnings and profits to           
          accumulate beyond the reasonable needs of its business for all              
          other grounds, and whether it was formed or availed of to avoid             
          shareholder level taxation.  Gustafson's Dairy, Inc. v.                     
          Commissioner, supra.                                                        
          B.   Whether Petitioner Was Formed or Availed of To Avoid                   
               Shareholder Level Taxation                                             
               1.   Whether Petitioner Intended To Avoid Shareholder Level            
                    Taxes                                                             
               E.S. Gustafson and Sherwood Gustafson thought that                     
          petitioner would have difficulty surviving in competition with              
          large corporate milk producers.  They knew that many dairy                  
          farmers in northern Florida had gone out of business before or              
          during the years at issue.  They were concerned that petitioner             
          might lose the Winn-Dixie account.  They wanted petitioner to be            
          able to redeem the stock of Pete Gustafson when he died.  They              
          wanted petitioner to be free of debt.                                       
               By the time of the years at issue, Sherwood Gustafson had              
          worked for petitioner for 25-27 years, his entire adult life.  He           
          felt responsible for the continued survival of the business.  His           
          lifelong commitment to running the dairy gave him a strong sense            




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