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DAWSON, Judge:1 Respondent determined a deficiency of
$245,732 in petitioners' Federal income tax for 1992, and an
accuracy-related penalty of $49,146 under section 6662(a)2 and
6662(b)(2) for a substantial understatement of income tax.
The principal issue for decision is whether the distribution
by Pulliam Funeral Homes, P.C. (Homes) to petitioner Clark D.
Pulliam of 1,000 shares of common stock in Pulliam Deckard
Funeral Chapel, P.C. (Chapel) on January 1, 1992, constituted a
distribution on which no gain or loss is recognized under the
provisions of section 355. The resolution of this issue depends
upon whether the spin-off of Chapel from Homes was used
principally as a device for the distribution of earnings and
profits of Homes in contravention of section 355(a)(1)(B). If
the spin-off of Chapel from Homes was not used principally as a
device for the distribution of earnings and profits, a new and
alternative issue, not determined in the notice of deficiency and
not pleaded in respondent's answer but first raised by respondent
at trial and on brief, is whether Homes distributed enough stock
1 With the consent of counsel for the parties, the Chief
Judge reassigned this case, after the death of Judge Irene F.
Scott, to Judge Howard A. Dawson, Jr., for disposition on the
existing record.
2 All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
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