Don E. Kramer - Page 10




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          there is a continuing purpose to terminate corporate affairs and            
          dissolve the corporation; and (3) whether the corporation’s                 
          activities are directed and confined to that purpose.  See Estate           
          of Maguire v. Commissioner, 50 T.C. 130, 140 (1968).                        
               Although the term “complete liquidation” is not defined in             
          the Code or the regulations to section 331, we have noted in                
          Olmsted v. Commissioner, T.C. Memo. 1984-381, that the                      
          regulations under section 332 offer a definition of “complete               
          liquidation” that applies equally to section 331:                           
               A status of liquidation exists when the corporation                    
               ceases to be a going concern and its activities are                    
               merely for the purpose of winding up its affairs,                      
               paying its debts and distributing any remaining balance                
               to its shareholders.  A liquidation may be completed                   
               prior to the actual dissolution of the liquidating                     
               corporation.  However, legal dissolution of the                        
               corporation is not required.***  [Sec. 1.332-2(c),                     
               Income Tax Regs.]                                                      
               Under Illinois law, a corporation is prohibited from making            
          a distribution if, after giving it effect, the corporation would            
          be insolvent.  See 805 Ill. Comp. Stat. 5/9.10(c)(1) (West 1984).           
          A  corporation is insolvent when it is unable to pay its debts as           
          they become due in the usual course of its business.  See id.               
          5/1.80(m).                                                                  
               Petitioner relies on Rendina v. Commissioner, T.C. Memo.               
          1996-392, to support his contention that BERM had de facto                  
          liquidated during December 1994 for tax purposes.  However, after           
          reviewing Rendina, we find that it is distinguishable.  In                  






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