Estate of H.A. True, Jr. - Page 87




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          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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