- 2 - P owned 100 percent of the stock in two corporations, C and L. During 1995 and 1996, C made a series of remittances totaling $89,728.73 which were treated as loans from C to P, followed by subsequent loans from P to L. P also lent additional funds to L. Thereafter, in late 1996, promissory notes payable by L to P in the amount of $252,481.03 were converted into a single promissory note of $77,481.03 and additional paid-in capital of $175,000.00. Then, in December of 1996, P transferred his shares in L to C in exchange for release from the $174,133.20 liability he had previously incurred to C. Held: To the extent of $12,247.70, the transfer of L stock to C in exchange for debt release is excepted from redemption characterization pursuant to sec. 304(b)(3)(B), I.R.C., and, under secs. 351 and 357, I.R.C., generates no gain or loss. Held, further, to the extent of $161,885.50, the stock transfer is to be recast as a redemption, and taxed as a dividend distribution, in accordance with secs. 301, 302, and 304, I.R.C. Kerry R. Hawkins and Kenneth W. Klingenberg, for petitioners. Brian A. Smith and C. Glenn McLoughlin, for respondent. OPINION NIMS, Judge: Respondent determined a Federal income tax deficiency for petitioners’ 1996 taxable year in the amount of $56,449.00. The principal issue to be decided is the proper application of section 304, which could in turn require application of sections 301 and 302, to the facts of this case.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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