- 23 -
$7,245,05119 at the time Colonial was merged into Central.
Petitioners acknowledge that Mr. Honbarrier received full fair
market value for his stock in Colonial.20 Mr. Honbarrier must
therefore recognize capital gain of $6,953,545, which is equal to
the excess of the fair market value of assets he received for his
Colonial stock ($7,245,051) over his basis ($291,506).21
In the notice of deficiency to Colonial, respondent
determined that Colonial had a gain on the sale or exchange of
its assets in the merger transaction. However, respondent now
agrees that Colonial did not realize any gain because the fair
market value of its assets equaled its tax basis in those assets.
Decision will be entered under
Rule 155 in docket No. 9053-97.
Decision will be entered for
petitioner in docket No. 9054-97.
19$7,321,193 - $76,142 (tax liability) = $7,245,051
20Mr. Honbarrier was provided with 17,840 shares of Central
stock, which petitioners determined had a value equal to the net
asset value of Colonial. In their brief, petitioners state: “At
the time of the merger, Mr. Honbarrier’s 245 shares of Colonial
stock were converted into 17,840 shares of Central stock, which
were equivalent in value to his Colonial shares.”
21On brief, respondent proposes several substance-over-form
arguments. In light of our conclusion that the statutory merger
of Colonial into Central fails the continuity of business
enterprise requirement under sec. 1.368-1(b), Income Tax Regs.,
and therefore does not qualify as a tax-free reorganization
within the meaning of sec. 368(a)(1)(A), we need not decide or
address respondent’s various substance-over-form scenarios.
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