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Niedermeyer Foundation, a tax-exempt organization. The taxpayers
alleged that the distribution by Lents to them was in exchange
for their AT&T stock. The Commissioner alleged that the sale was
a section 304 transaction between related corporations and that
the distribution was a taxable dividend under sections 301 and
302.
This Court first considered whether the sale was a deemed
redemption under section 304(a)(1). After applying the
constructive ownership rules of section 318(a) as required by
section 304(c), this Court concluded that the taxpayers were in
control of both AT&T and Lents immediately prior to the sale and
that the transaction in which Lents acquired the taxpayers’ AT&T
common stock must be treated as a redemption under section
304(a)(1).
This Court then addressed the taxpayers’ contention that,
even if the sale were treated as a deemed redemption under
section 304(a)(1), the taxpayers nevertheless were entitled to
treat the distribution from Lents as full payment in exchange for
their AT&T stock under section 302(a) by meeting one of the
conditions of section 302(b). After rejecting the taxpayers’
argument under section 302(b)(1), the Court turned to their
arguments under section 302(b)(3). Among other things, the
taxpayers argued that the distribution was in complete
termination of their ownership interest in AT&T, contending that
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