T.C. Memo. 2000-361
UNITED STATES TAX COURT
SEAGATE TECHNOLOGY, INC., SUCCESSOR IN INTEREST TO SEAGATE
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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