- 17 -
infra p. 23); the exception, which amounted to 24 percent8 of the
total shares initially issued, was for more than book value.
In 1967, after having acquired all outstanding shares, the
Trues caused Belle Fourche to make an S corporation election.
Belle Fourche relied on shareholder loan, rather than equity, as
its main source of financing after electing S status. Between
March 31, 1971 (the company’s fiscal yearend), and June 15, 1971,
Dave and Jean True received earnings distributions of
approximately $2.8 million,9 thereby reducing reported book value
from $99.90 to $38.69 per share.
In August 1971, the True children each purchased a 1-percent
interest in Belle Fourche from the corporation. The True
family’s accountant, Cloyd Harris (Mr. Harris), advised the True
children also to lend money to Belle Fourche so that each
stockholder’s pro rata share of outstanding loans to the
corporation would reflect his or her percentage interest. This
was intended to preserve Belle Fourche’s S corporation status by
avoiding the appearance of a second class of stock. The True
children paid $38.69 per share to purchase the stock (476 shares
each) and lent the company $127.26 per share at 8-percent
829,244 shares (redeemed December 1962 at $17/share vs. book
value of $13.13/share) divided by 120,004 shares (issued at
formation) equals approximately 24 percent (rounded).
9$4,569,000 (book value at 3/31/71) less $1,769,500 (45,734
shares outstanding x $38.69 book value/share at 6/15/71) equals
$2,800,000 (rounded) decrease in book value due to distributions
made within 2-1/2 months after fiscal yearend.
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