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On December 31, 1983, petitioner made a distribution, which
it treated as a taxable dividend to its shareholders, of 1 share
of OPL stock for each share of petitioner's stock then
outstanding. Petitioner distributed 164,477,491 shares of OPL
stock with a net asset value of 25 cents per share. The total
dividend was $41,119,372.75. The fair market value of the OPL
capital stock received by each of petitioner's shareholders was
considered by petitioner to be ordinary income to each of
petitioner's shareholders.
In 1983, petitioner was owned by its active employees and
former employees, as well as the families, estates, and trusts of
former employees. In 1983, there were approximately 14,000
shareholders. On December 31, 1983, as of the moment of
distribution of the OPL stock, the shareholders of OPL were
essentially the same as petitioner's shareholders. The only
difference between the shareholders of OPL and petitioner's
shareholders was that petitioner's shareholders did not receive
the same proportionate interest in OPL that they owned in
petitioner because petitioner itself was a shareholder of OPL.
On December 31, 1984, there were 14,811 shareholders in OPL
holding an aggregate of 164,358,562 shares of common stock, not
including the 4,511,738 treasury shares of OPL owned by
petitioner. The total shares in OPL equaled 168,870,300. On
December 31, 1984, there were 16,297 shareholders in petitioner
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