Gary D. and Lindy H. Combrink - Page 8




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          Combrink’s transfer of the LINKS stock to COST is not covered by            
          the section 304(b)(3)(B) exception.  In respondent’s view, the              
          evidence fails to establish that the liability released by COST             
          was incurred to acquire the transferred LINKS stock.  Respondent            
          therefore alleges that the transaction must be taxed as a                   
          dividend in accordance with sections 302(d) and 301.                        
               Thus, as framed by the parties’ contentions, resolution of             
          this matter requires determining the applicability of section 304           
          to the December 1996 transfer of LINKS stock.  In considering               
          this broad question, we address in turn, to the extent relevant,            
          each of three subissues.  The first is whether the subject                  
          transaction is, absent any exception, of a type intended to be              
          covered by section 304(a).  If yes, the second question is                  
          whether section 304(b)(3)(B) exempts the transfer from the                  
          redemption characterization that subsection (a) would otherwise             
          require.  Third, it will be necessary to analyze the appropriate            
          tax treatment in light of the answers given to the foregoing                
          inquiries.                                                                  
          I.  The General Rule--Section 304(a)                                        
               As previously indicated, section 304 mandates that certain             
          transactions involving shares in related corporations be recast             
          for tax purposes as redemptions.  The general rule is set forth             
          in section 304(a) and provides in relevant part as follows:                 








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