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family lawsuit. Contrary to petitioner’s suggestion, the mere
fact that petitioner retained earnings contemporaneously with its
controlling shareholder’s defense of a lawsuit challenging her
right to ownership of ceratin shares constituting a minority
interest is not enough to establish the requisite plan under
section 1.537-1(b), Income Tax Regs. Such is especially true
here where petitioner’s board never formally exercised its
judgment to accumulate funds for a planned redemption and where
neither petitioner’s board nor its officers ever performed an
action signifying that petitioner had a specific plan to redeem
any of its shares.
As to the second prong, the presence of a reasonable
business need, the redemption of the stock of dissenting,
minority stockholders is a reasonable business need where the
redemption appears necessary to preserve the corporation’s
existence or to promote harmony in the conduct of the
corporation’s business. Wilcox Manufacturing Co. v.
Commissioner, T.C. Memo. 1979-92; Farmers & Merchants Inv. Co. v.
Commissioner, T.C. Memo. 1970-161. The dispositive factual
consideration in such a situation is whether competing demands
among shareholders imperil the very existence of the corporation
or the manner in which up to then it has been successfully
conducting its business. Mountain State Steel Foundries, Inc. v.
Commissioner, 284 F.2d 737 (4th Cir. 1960).
We decide this factual consideration adversely to
petitioner. Any redemption by petitioner of the family lawsuit
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