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real estate (a valid business purpose48), we cannot attribute the
purpose for the formation of Old Cedilla Co. to IRA. Originally,
Keating owned the common stock of Old Cedilla Co., and Schott
owned the preferred class A preferred stock.
In 1975, the same year Weaver agreed to sell KWJ Corp. to
Kanter, Keating's 1,000 shares of common stock of Old Cedilla Co.
were exchanged for 500 shares of class B preferred stock,49 and
Weisgal as trustee of the Bea Ritch trusts acquired 1,000 shares
of the common stock. Schott continued to hold the class A
preferred stock in Old Cedilla Co. to enable Old Cedilla Co. to
qualify for a corporate broker's license.
In 1978, Old Cedilla Co.'s name was changed to IRA. When
Old Cedilla Co.'s name changed, IRA acquired 1,000 shares of Arba
and changed the name of Arba to Cedilla Co (New Cedilla Co.).
IRA's end of year balance sheet indicates that IRA's 1,000 shares
of Cedilla Co. were the only shares outstanding.
In 1983, IRA made a journal entry to show that IRA redeemed
Schott's 500 shares of IRA class B preferred stock in exchange
for IRA's 1,000 shares of its Cedilla Co. stock.
Schott thought that, when Cedilla Co.'s name was changed to
IRA, she acquired another company and the name of that
48
The Court, however, is not convinced that Cedilla Co. was
organized for any purpose other than to serve as a vehicle for
Kanter's various tax avoidance schemes.
49
Keating's preferred stock was redeemed in 1977.
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