-47-
that petitioner's debentures owed to Pete Gustafson did not
mature until the earlier of 2014 or when Pete Gustafson died.
Respondent argues that petitioner failed to show that it had a
definite purpose or plan to accumulate funds to retire debt
during the years at issue.
We disagree. Petitioner retired the debt held by Pete
Gustafson during fiscal year 1988, paying a total of $3,322,089.
Petitioner was obligated to repay the debt when he died. Pete
Gustafson was 83 years old and in poor health in 1987.
Petitioner reasonably believed that it would have had to retire
the debentures long before 2014. Petitioner redeemed the
debentures because it wanted to be debt-free. Petitioner paid
more than $700,000 in accrued interest on the debentures during
fiscal year 1988. Petitioner's tax attorney advised it to redeem
the debt because the interest on it was no longer deductible.
Redemption of debt is a valid justification for an accumulation.
Sec. 1.537-2(b)(3), Income Tax Regs. We do not think the fact
that petitioner did not earmark these amounts in the CEP shows
that it did not reasonably accumulate amounts for that purpose.
We find that petitioner reasonably accumulated $3,300,000 in
1987 to retire the debt held by Pete Gustafson.
Page: Previous 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 NextLast modified: May 25, 2011