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100 percent of the stock of both LINKS (the issuing corporation)
and COST (the acquiring corporation) immediately prior to the
transfer. Furthermore, after the transfer he continued to own
100 percent of COST directly and thereby owned 100 percent of
LINKS constructively through application of section 318(a)(2)(C).
Consequently, Mr. Combrink at all times held and never
relinquished control of both LINKS and COST.
As regards the second element, the exchange of stock for
property, Mr. Combrink transferred the LINKS stock to COST and
received in return a release from liability. In this connection,
regulatory law indicates that a corporation’s cancellation of
shareholder indebtedness owed to the corporation constitutes
property within the meaning of the section 317(a) definition.
See sec. 1.301-1(m), Income Tax Regs. Regulations under section
301, which statute relies on the same section 317(a) definition
of property, expressly provide that “cancellation of indebtedness
of a shareholder by a corporation shall be treated as a
distribution of property.” Id.
Accordingly, we conclude that release by COST of Mr.
Combrink’s liability was a distribution of property within the
meaning of sections 317(a) and 304. We further observe that our
result is the same regardless of whether we characterize the
instant transaction as involving assumption, cancellation, or
forgiveness of debt. Although petitioners repeatedly emphasize
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