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of its liabilities which otherwise were due. These postponements
were done with the consent of the relevant creditor(s).
When the decedent died, the Trust held 1,533.482 shares of
Sterling preferred stock. On the decedent's Federal estate tax
return, the estate reported the applicable value of each share at
$10 and the total value at $15,335. Approximately 13 months
after the date of valuation, Sterling informed its shareholders
that it was proposing to refinance and redeem the Sterling
preferred stock in accordance with the purchase agreement. In
order to secure the refinancing, Sterling proposed to redeem each
share of the Sterling preferred stock at $1,000, plus, in lieu of
the accrued dividends, 5-percent interest from the time that each
share was issued until the time that it was redeemed. On
January 17, 1994, after Ms. Trompeter and the coexecutors had
agreed to Sterling's redemption proposal, Sterling paid the
Trust $1,947,845 in redemption of the 1,533.482 shares. Of the
$1,947,845 amount, $414,363 was for "interest".
At the time of the leveraged transaction, the California
Franchise Tax Board (CFTB) was auditing TEI's State tax
liability. In connection therewith, the decedent and Ms.
Trompeter agreed to indemnify Sterling equally for: (1) Any tax,
penalty, or interest arising from the audit, and (2) any other
tax liability of TEI that related to the period ending on or
before a stated date. Estimated amounts for these liabilities
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