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Kanter. After 1984, IRA continued to distribute the installment
payments to Carlco, TMT, and BWK, Inc. in the 45-45-10 ratio.
Respondent asserts that Schnitzer used the sale and
repurchase of the stock as a means of paying a kickback to
Ballard and Lisle for their influence in obtaining business with
Prudential. It is argued that the kickback is evidenced by a
bargain sale price and an excessive repurchase price.
Petitioners argue that the purchase price was not a bargain
purchase because at the time of the purchase, Schnitzer-PMS had
assets with net book value of approximately $200,000 and 47.5
percent of that amount would be $95,000.
We do not think, however, that net book value of the
corporation’s assets is an appropriate measure of the value of a
service corporation. We note that when the stock was repurchased
in 1979 for $3.1 million, the corporation had net assets of
$255,581. Additionally, Schnitzer's purchase price of $1.3
million for the Fletcher Emerson stock was based on five times
the pretax income of approximately $250,000. Schnitzer-PMS' 1977
pretax income was $451,347. Five times Schnitzer-PMS' 1977
pretax income of $451,347 is approximately $2.2 million.
Allowing for the value of the preferred stock liquidation
dividend preferences equal to the $1.1 million debt outstanding
on Century’s original purchase of Fletcher Emerson, the value of
Schnitzer-PMS common stock at the time IRA acquired the stock was
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