Seagate Technology, Inc. - Page 1

                                 T.C. Memo. 2000-361                                  

                               UNITED STATES TAX COURT                                

          PERIPHERALS, INC., f.k.a. CONNER PERIPHERALS, INC., Petitioner v.           
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 15086-98.                Filed November 27, 2000.           

                    P’s controlled foreign corporation, S, sold its                   
               operating assets to an unrelated corporation, C, in                    
               exchange for stock of C.  The parties to the asset sale                
               executed a lockup agreement prohibiting S from selling                 
               the C stock during a restricted period because C was in                
               the process of making its initial public offering.                     
               During the restricted period, the price of the C stock                 
               increased.  When the sale restrictions lapsed, S sold                  
               the C stock and realized a gain.  Under secs. 951 and                  
               954, I.R.C., P must include in its U.S. income its pro                 
               rata portion of S’ foreign personal holding company                    
               income (FPHCI).  Under sec. 1.954-2T(e)(3)(iv),                        
               Temporary Income Tax Regs., 53 Fed. Reg. 27505 (July                   
               21, 1988), gain from the sale of operating assets used                 
               in S’ trade or business does not give rise to foreign                  
               personal holding company income (FPHCI).  Under sec.                   
               954(c)(1)(B)(i), I.R.C., gain from the sale of a                       
               passive investment in stock does give rise to FPHCI.                   

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