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terminated if ADDI&C (1) had earnings and profits at the close of
each of 3 consecutive taxable years that had been accumulated
prior to the S corporation election, see sec. 1362(d)(3)(A) and
(B), and (2) had more than 25 percent of its gross receipts for
each of those taxable years from passive investment income, which
includes dividend income, see sec. 1362(d)(3)(A), (D)(i).
Although we agree with Mr. Pratt that section 1362(d)(3)
could have caused an otherwise valid S corporation election by
ADDI&C to be terminated if ADDI&C were not to maintain its cattle
operations or engage in some other operating business, there are
no facts established by the record to indicate that as of the
valuation date ADDI&C intended to curtail or eliminate its cattle
operations. Nonetheless, we agree with the other two reasons
advanced by Mr. Pratt in support of his view that as of the
valuation date it was unlikely that ADDI&C would have converted to
an S corporation. Based on the record before us, we reject
respondent's unwarranted assumptions that ADDI&C could have
avoided all of ADDI&C's built-in capital gains tax by having it
elect S corporation status and by not permitting it to sell any of
its assets for 10 years thereafter, and the record does not
establish that there was any other way as of the valuation date by
which ADDI&C could have avoided all of such tax.
We turn now to respondent's position in respondent’s opening
brief, which, as discussed above, we believe was contradicted by
the position in respondent’s answering brief. The former position
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