Douglas P. McLaulin, Jr. et al. - Page 1

                                          115 T.C. No. 18                                              

                                     UNITED STATES TAX COURT                                           

                      DOUGLAS P. MCLAULIN, JR., ET AL.,1 Petitioners v.                                
                        COMMISSIONER OF INTERNAL REVENUE, Respondent                                   

                  Docket Nos. 7832-98, 7833-98,  Filed September 20, 2000.                             

                        Ps’ "S corporation", A, owned 50 percent of the                                
                  stock of corporation B, a "C corporation".  B redeemed                               
                  individual H’s 50-percent stock interest in B for cash                               
                  and real property.  On the previous day, B had borrowed                              
                  from A an amount exceeding the cash consideration and                                
                  representing over 96 percent of the total consideration                              
                  paid to H for his stock.  On the same day as the                                     
                  redemption, A distributed its then 100-percent stock                                 
                  interest in B to Ps in a transaction intended to                                     
                  qualify as a tax-free spinoff under sec. 355(a)(1) and                               
                  (c)(1), I.R.C.                                                                       

                        Held:  Because A’s distribution of the stock of B                              
                  occurred less than 5 years after A acquired control of                               

                  1     Cases of the following petitioners are consolidated                            
            herewith:  Augustus H. King III, docket No. 7833-98, and                                   
            Alfred E. and Lynn B. Holland, docket No. 7834-98.                                         

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