- 6 -
Subsequently, on October 15, 1996, Mr. Combrink and LINKS
agreed to convert the above-referenced promissory notes payable
by LINKS to Mr. Combrink into one promissory note in the amount
of $77,481.03 and additional paid-in capital of $175,000.00. No
further shares were issued at this time. Then, on December 1,
1996, Mr. Combrink transferred all of his stock in LINKS to COST
in exchange for COST’s releasing Mr. Combrink from a liability to
COST in the amount of $174,133.20, apparently consisting of the
$56,404.47 promissory note, the $17,000.00 promissory note, the
$11,000 accounts receivable balance as of May 25, 1995, and the
$89,728.73 added to the accounts receivable balance in 1995 and
1996 as detailed above.
On their timely filed joint 1996 U.S. Individual Income Tax
Return, Form 1040, petitioners did not report any income or loss
as a result of the release transaction. Respondent determined
that $174,133.20 must be included in income as a dividend
pursuant to sections 301, 302, and 304.
Discussion
Section 304 mandates that certain transactions involving
shares in related corporations be recast for tax purposes as
redemptions, the tax treatment of which is then governed by
section 302 and potentially section 301. The parties here
disagree with respect to whether section 304 is applicable to the
December 1, 1996, transaction between Mr. Combrink and COST.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011