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shareholders in the form of payments to respondent with respect
to the shareholders’ 1996 Federal income tax liability relating
to the reported income of petitioner for the months in 1996 for
which petitioner qualified as an S corporation.
In the fall of 1996, ATMI began negotiations with the
management of petitioner for the acquisition of petitioner and of
its affiliated corporations, limited liability companies, and
partnership. On January 10, 1997, a letter of intent was signed
between petitioner and ATMI. On April 7, 1997, a formal written
agreement and plan of merger was executed under which the
proposed merger between petitioner and ATMI was to be accounted
for as a “pooling of interests”. Under the written merger
agreement between petitioner and ATMI, and in accord with
accounting standards applicable to pooling of interest
transactions during the pendency of the transaction, petitioner
was prohibited from making distributions to its shareholders
other than for the shareholders’ projected tax obligations
relating to the income of petitioner. See also Accounting
Principles Board Opinion 16, par. 47(c) (1970) (providing that
for transactions accounted for as a pooling of interests, a
corporation can only make distributions to its shareholders
consistent with the corporation’s historic dividend policy).
In April of 1997, management of petitioner still considered
petitioner to be qualified as an S corporation.
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