Archie L. and Louise B. Honbarrier - Page 20




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          by Colonial totaled $4,549,146 just before the merger on December           
          31, 1993.  Three days after the merger, Central distributed these           
          same tax-exempt bonds to Mr. Honbarrier.15  This distribution               
          occurred on January 3, 1994.16  The last tax-exempt bond acquired           
          by Central in the merger was worth $300,000 and held in the Alex            
          Brown and Sons account.  This bond was liquidated by Central 4              
          months after the merger.  Unlike Colonial, Central did not invest           
          in tax-exempt bonds.  Central placed its money in short-term                
          liquid investments, such as certificates of deposit because it              
          needed cash and cash equivalents to operate its business.  Thus,            
          we conclude that Central did not continue Colonial’s business of            
          holding tax-exempt bonds and municipal bond funds.                          
               2.  Significant Use of Acquired Corporation’s Business                 
               Assets                                                                 
               Continuity of business enterprise can also be satisfied if             
          the acquiring corporation uses a significant portion of the                 
          acquired corporation’s historic business assets in a business.              
          See sec. 1.368-1(d)(4)(i), Income Tax Regs.  A corporation’s                
          historic business assets are the assets used in its historic                

               15On Dec. 31, 1993, the date of the merger, Central made               
          $2,450,854 in cash distributions to Mr. Honbarrier and other                
          shareholders of Central.                                                    
               16The merger was effective on Dec. 31, 1993, at 1 second               
          before midnight.  Dec. 31, 1993, fell on a Friday, and the tax-             
          exempt bonds totaling $4,549,146 were distributed to Mr.                    
          Honbarrier on Jan. 3, 1994, which fell on a Monday.  Mr.                    
          Honbarrier testified that the bonds could not be signed over to             
          him until the bank opened on Monday, Jan. 3, 1994, even though              
          the merger was effective on Friday, Dec. 31, 1993.                          




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