Advanced Delivery and Chemical Systems Nevada, Inc. - Page 12

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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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