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year of the distribution. Sec. 1.355-2(d)(5)(ii), Income Tax
Regs. Petitioner claims that the distribution at issue here
satisfies these requirements.
In its opening brief, petitioner concedes, “that the balance
sheet for * * * [petitioner] as of June 30, 1993, reflected
current and accumulated earnings and profits of $252,928.64, for
both the anatomic and clinical pathology portions of * * *
[petitioner’s] business.”7 Petitioner argues, however, that:
While petitioner concedes that it and Clinpath had
some earnings and profits during the periods in
question, these amounts were not meaningful and
certainly do not provide a basis for a “bailout” of
these earnings and profits amounts in order to avoid
dividend treatment to Petitioner’s shareholders.
Respondent disagrees, contending that the presence of any
earnings and profits precludes petitioner from utilizing section
1.355-2(d)(5)(ii), Income Tax Regs., and that there is no
credible evidence that petitioner lacked accumulated or current
earnings and profits on the distribution date.
We agree with respondent for several reasons. First,
petitioner reported it had over $230,000 of accumulated earnings
and profits as of July 1, 1993, and petitioner did not introduce
any evidence to prove that it had no current earnings and profits
as of October 30, 1993. Section 1.355-2(d)(5)(ii)(A) and (B),
7Petitioner also reported on its Federal income tax return
for the taxable year beginning July 1, 1993, that it had
accumulated earnings and profits of $236,347 as of July 1, 1993.
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