Advanced Delivery and Chemical Systems Nevada, Inc. - Page 29

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          and tax motivation of petitioner’s management and indicates that            
          petitioner’s management intended to avoid the shareholder level             
          Federal income tax with respect to petitioner’s corporate                   
          earnings.                                                                   
               We do not regard the State tax planning of petitioner’s                
          management on behalf of petitioner and its affiliated companies             
          as establishing an intent on the part of petitioner’s management            
          to avoid the shareholder level tax on petitioner’s retained                 
          earnings.  To the contrary, and as we have explained, petitioner            
          operated during the second half of 1996 and during the first half           
          of 1997 (during most of the short taxable years in issue) with              
          the understanding of petitioner’s management that petitioner                
          qualified as an S corporation, under which only a single level              
          tax would be imposed.  By the time petitioner’s management                  
          discovered in mid-1997 that petitioner’s subchapter S status had            
          been inadvertently terminated, petitioner’s management was                  
          restricted under the pending merger agreement with ATMI and under           
          generally accepted accounting principles from making any                    
          significant dividend distributions to its shareholders.  This               
          then extant and legitimate misunderstanding of petitioner’s                 
          management with regard to petitioner’s subchapter S status and              
          the single level tax applicable thereto runs counter to                     
          respondent’s argument that avoidance of the shareholder level tax           








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