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.
7834-98.
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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