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C. Liquidating Dividend
1. Positions of the Parties
Respondent has determined that husband failed to report gain
of $2,299,920 realized by him in 1986 on account of the
distribution by Omni to him of a portion of the proceeds from the
sale by Omni of its shares of MagnaCard (the MagnaCard sale).
Petitioner does not dispute that, in 1986, husband was owed a
$2,299,920 liquidating dividend from Omni on account of the
MagnaCard sale. Petitioner argues as follows: In 1986, husband
owed to WLJ & Co. (the broker on the MagnaCard sale) $985,000,
plus interest (for a total of $1,006,163), which total WLJ & Co.
offset against its obligation to disburse to him his portion of
the proceeds of the MagnaCard sale. WLJ & Co. discharged the
remainder of its obligation to husband by issuing to him its
debentures in the amounts of $1,250,000 and $43,751 (the WLJ &
Co. debentures). No payments were made on the WLJ & Co.
debentures in 1986. WLJ & Co. eventually defaulted on the
debentures, and husband received only payments and property worth
$250,000. The cost to husband of his Omni stock was $1,388,125.3
3 On brief, petitioner describes RM & Sons as husband’s
“alter ego” and treats husband and RM & Sons “as one and the
same”. We accept that RM & Sons’ separate identity is to be
disregarded, and, therefore, we shall disregard husband’s
April 8, 1986 sale of 6,571,201 shares of Omni to RM & Sons for
$1,232,100. We shall treat husband as owning directly such
shares of Omni. Further references to RM & Sons are to be
understood as references to husband.
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