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election, petitioners argue that they are not subject to
tax on WAI's income because WAI would be treated as a C
corporation and "petitioners would only be taxed on
distributions received [from WAI] in the form of dividends
in 1987 of which there were none."
Section 1361 defines a small business corporation in
relevant part as follows:
SEC. 1361(b). Small Business Corporation--
(1) In General.--For purposes of this
subchapter, the term "small business corpora-
tion" means a domestic corporation which is not
an ineligible corporation and which does not--
* * * * * * *
(B) have as a shareholder a person
(other than an estate and other than a trust
described in subsection (c)(2)) who is not
an individual, [and]
* * * * * * *
(D) have more than 1 class of stock.
Petitioners contend that WAI ceased to be a small
business corporation for two reasons. First, they contend
that Weeden obtained an equity interest in WAI and is not
an eligible shareholder for purposes of the definition of
small business corporation because it is not an individual,
as required by section 1361(b)(1)(B). Alternatively,
petitioners contend that the interest in WAI that Weeden
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