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Our holding in Frederick Weisman Co. v. Commissioner, supra,
is dispositive here. Because Chrysler redeemed its common stock
from the employees (through the ESOP) in their capacity as
shareholders, section 311(a) denies Chrysler the opportunity to
recognize either gain or loss on the transaction.
Petitioner contends that Chrysler’s redemption of its stock
falls within a specific exception to the application of section
311(a). We disagree. That exception, which was in effect for
the subject years, was set forth in section 1.311-1(e)(1), Income
Tax Regs., to read as follows:
(1) Section 311 is limited to distributions which
are made by reason of the corporation-stockholder
relationship. Section 311 does not apply to
transactions between a corporation and a shareholder in
his capacity as debtor, creditor, employee, or vendee,
where the fact that such debtor, creditor, employee, or
vendee is a shareholder is incidental to the
transaction. Thus, if the corporation receives its own
stock as consideration upon the sale of property by it,
or in satisfaction of indebtedness to it, the gain or
loss resulting is to be computed in the same manner as
though the payment had been made in any other
property.[8]
7(...continued)
Commissioner, 40 T.C. 379, 387 n.5 (1963), because the parties
there apparently agreed that the corporation acquired its stock
from its shareholder in his capacity as a debtor of the
corporation.
8 Former sec. 1.311-1, Income Tax Regs., was redesignated as
relating to prior law and was removed from the Code of Federal
Regulations pursuant to T.D. 8474, 1993-1 C.B. 242. See also
Notice 92-12, 1992-1 C.B. 500, 504.
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