Estate of John W. Clause, Deceased, Thomas Y. Clause, Personal Respresentative - Page 5

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          from the stock sale to the ESOP attributable to the proceeds that           
          had not been reinvested in qualified replacement property; i.e.,            
          $121,807.                                                                   
               On July 20, 2001, respondent mailed petitioner a notice of             
          deficiency for 1996.  Respondent determined that petitioner                 
          realized a long-term capital gain of $1,406,017 as a result of              
          the stock sale to the ESOP.  Further, respondent determined that            
          the gain must be included in taxable income for 1996 because                
          petitioner did not make a timely election under section 1042 in             
          order to defer the gain.  On October 17, 2001, petitioner filed a           
          petition with the Court with respect to the notice of deficiency.           
               Also on October 17, 2001, respondent received a second                 
          Federal tax return for 1996 (second tax return) from petitioner,            
          which included the undated signature of petitioner and the                  
          signature of Mr. Midcap dated March 4, 1997.  The second tax                
          return had attached a statement of election pursuant to section             
          1042 predated to March 4, 1997, a statement of consent from the             
          company consenting to the application of sections 4978 and 4979A            
          predated to March 4, 1997, and a statement of petitioner’s                  
          purchase of qualified replacement property predated to March 2,             
          1998.                                                                       
               On October 29, 2001, respondent received a second amended              
          Federal tax return for 1996 (second amended tax return), signed             
          by petitioner and dated October 27, 2000, and by Mr. Midcap and             






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