- 26 -
that petitioners have not proven that WAI ceased to be a
small business corporation, as defined by section 1361(b),
and they have not proven that WAI's S corporation election
terminated in 1987.
We note that petitioners' post-trial brief correctly
asserts that the subject advances do not satisfy the
straight debt safe harbor requirements of section
1361(c)(5). Unlike respondent, however, we do not construe
petitioners' assertion as an argument that any transaction
which does not satisfy these requirements necessarily
constitutes a second class of stock. If petitioners had
made such an argument, we would reject it for the reasons
advanced by respondent. However, as we read their brief,
petitioners' point is simply that the subject advances do
not fit within the safe harbor provision, and we must
review the "governing provisions" of the S corporation to
determine whether all outstanding shares of WAI's stock
confer identical rights to distribution and liquidation
proceeds. Sec. 1.1361-1(l)(2)(i), Income Tax Regs. As
discussed above, the "governing provisions" on which
petitioners base their argument that WAI issued more than
one class of stock are documents that relate to CPI, not
WAI, and are documents that were never executed. Thus, we
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011