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Members of the C family wholly own three home
health care organizations (P1, P2, and P3) exempt from
Federal income taxes under sec. 501(c)(3), I.R.C. In
1995, the C family created three S corporations (S1,
S2, and S3) and collectively received all of the
resulting stock. P1, P2, and P3 then transferred all
of their assets to S1, S2, and S3, respectively, in
exchange for each transferee’s assumption of the
transferor’s liabilities. R determined that the fair
market value of the transferred assets substantially
exceeded the consideration received in exchange.
Accordingly, R determined S1, S2, S3, and members of
the C family were liable for excise taxes under sec.
4958, I.R.C., and members of the C family who received
stock in S1, S2, or S3 but did not have an ownership
interest in P1, P2, and P3 were liable for income taxes
on the value of the stock received. R also revoked the
tax exemptions of P1, P2, and P3. Held: The
transferred assets’ value at the time of transfer
decided. Held, further, the value of the transferred
assets exceeded the value of the consideration
received; thus, S1, S2, S3, and members of the C family
are “disqualified persons” subject to excise taxes
under sec. 4958, I.R.C., as beneficiaries of “excess
benefit transactions”. Held, further, although P1, P2,
and P3 engaged in “excess benefit transactions”, a
revocation of their tax-exempt status is inappropriate
given the “intermediate sanctions” under sec. 4958,
I.R.C. Held, further, the three members of the C
family are not liable for the income taxes determined
by R.
David D. Aughtry and Vivian D. Hoard, for petitioners.
Robin W. Denick and Mark A. Ericson, for respondent.
LARO, Judge: These cases are before the Court consolidated.
Petitioners seek review of respondent’s determinations for 1995
of income tax deficiencies, excise tax deficiencies under section
4958, accuracy-related penalties under section 6662(a), and
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