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obtained in exchange for the subject cash advances
constitutes a second class of stock in violation of section
1361(b)(1)(D). Petitioners argue that Weeden's interest in
WAI constitutes a second class of stock because the
"governing provisions" of CPI give WAI and Weeden different
rights to distribution and liquidation proceeds, contrary
to the requirements of section 1.1361-1(l)(1), Income Tax
Regs. Specifically, petitioners point to the fact that
under the stock purchase agreement prepared for CPI, Weeden
was to receive both common and preferred stock in CPI while
WAI was to receive only common stock.
We have already considered and rejected petitioners'
argument that Weeden obtained an equity interest in WAI
in exchange for the subject payments. Similarly, we find
no support in the record for petitioners' argument that WAI
issued a second class of stock in connection with the
subject payments. Petitioners' argument fails to explain
what the stock purchase agreement or the other documents
prepared for CPI have to do with the "governing provisions"
of WAI, and it fails to take into account the fact that
those documents were never executed. Therefore, we find
that petitioners have not proven that Weeden obtained an
equity interest in WAI in 1987, or that WAI issued more
than one class of stock in that year. Accordingly, we find
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