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those entities would no longer be tax-exempt entities available
to receive the assets.
The legislative history quoted above indicates that “the
term ‘correction’ means undoing the excess benefit to the extent
possible and taking any additional measures necessary to place
the organization in a financial position not worse than that in
which it would be if the disqualified person were dealing under
the highest fiduciary standards.” H. Rept. 104-506, supra at 59,
1996-3 C.B. at 107. Petitioners suggest that preserving the tax-
exempt status of the now-dormant tax-exempt Sta-Home entities may
leave petitioners with a means of correction by placing the
entities back into a “financial position not worse than it would
be” if the disqualified persons had observed the proper
standards. While, as noted above, we do not address the issue of
timely corrections, we believe that leaving the exemptions intact
is consistent with both the legislative history underlying
section 4958 and the provisions for abatement in sections 4961
through 4963.
V. Income Taxes
Michael Caracci, Vincent Caracci, and Christina McQuillen
(collectively, the Caracci children) had no ownership interest in
the Sta-Home tax-exempt entities. The Caracci children also did
not contribute any property to the Sta-Home for-profit entities
in exchange for the stock that they received in those entities
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