Timothy L. and Jane Williams - Page 18

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          reduce his aggregate stock basis, since the basis of the shares              
          he transferred is added to the basis of the shares he retained,              
          in accordance with the treatment of his transfer of the shares as            
          a contribution to the capital of SPS.6                                       
               We are satisfied that the business reincorporation                      
          transaction did not qualify as a reorganization for income tax               
          purposes.  Since WIS did not transfer substantially all of its               
          assets to SPS and distribute all of its remaining properties, the            
          transaction does not satisfy the requirements of a C                         
          reorganization or an acquisitive D or G reorganization.  Secs.               
          368(a)(1)(C), (D), (G), (2)(G), 354(b).   Since WIS ceased active            
          business following the formation of SPS, the requirements of a               
          divisive D or G reorganization are not satisfied.  Secs. 368(a)              
          (1)(D), (G), 355(b)(1).  As a result, petitioner did not receive             
          the stock of SPS in an exchange to which either section 354 or               


               6 If a shareholder of a corporation transfers stock to a                
          corporate employee in consideration of the performance of                    
          services for the corporation, the shareholder is treated as                  
          having contributed the stock to the capital of the corporation               
          and the corporation is treated as having transferred the stock to            
          the employee immediately thereafter.  Tilford v. Commissioner,               
          705 F.2d 828 (6th Cir. 1983), revg. 75 T.C. 134 (1980); Estate of            
          Foster v. Commissioner, 9 T.C. 930, 936 (1947); Webb v. United               
          States, 560 F. Supp. 150, 155, 157 (S.D. Miss. 1982); sec. 1.83-             
          6(d)(1), Income Tax Regs.; see Commissioner v. Fink, 483 U.S. 89,            
          98 n.14 (1987); Frantz v. Commissioner, 83 T.C. 162, 174-181                 
          (1984), affd. 784 F.2d 119 (2d Cir. 1986).  The shareholder’s                
          basis in the transferred shares is reallocated to the shares he              
          retains.  Estate of Foster v. Commissioner, supra; sec.                      
          1016(a)(1); sec. 1.263(a)-2(f), Income Tax Regs.  Cf. Rev. Rul.              
          80-76, 1980-1 C.B. 15.                                                       




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