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Petitioner also had a policy of not incurring debt and a
history of redeeming the stock of stockholders in full, upon
request, even though the bylaws provided for the option of paying
10 percent of the sales price and giving a 10-year note.
Petitioner added the option of paying 10 percent of the sales
price and giving a 10-year note as a precautionary measure to
ensure the survival of its business after several poor fiscal
years. Petitioner was also continually advised by its certified
public accountant to hold sufficient capital reserves to fund the
contingent stock repurchases from its nonparticipating
stockholders.
Respondent has not met his burden of proving that the
accumulation of earnings to redeem the stock of minority
stockholders was not a reasonable accumulation of earnings and
profits. Respondent provided evidence in an attempt to
demonstrate that the actual redemptions of stock were for reasons
unrelated to dissent. Such reasons, however, were not known to
petitioner’s officers at the time of the accumulations and,
therefore, are unpersuasive in analyzing the business judgment of
petitioner’s officers at the time they decided to accumulate
earnings and profits for the redemption of stock of stockholders.
Respondent argues, in the alternative, that it was
reasonable for petitioner to accumulate 10 percent of the total
amount needed to redeem the stock of stockholders as provided for
in petitioner’s bylaws, because petitioner could finance the
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