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June 1, 2003 full vesting period, KEEAP II members will
be eligible for payment as if they were fully vested.
In the event of an initial public offering, the KEEAP
II participant may elect to defer the entire payment
beyond the initial public offering date thereby
continuing to participate in the appreciation (or
depreciation as the case may be) of the Company’s
equity value or may elect to receive partial payment
and defer the remainder of the payment in which case
his KEEAP II percentage will be adjusted on a pro rata
basis for the partial payment received.
Mr. Lowe was awarded a .5 percent interest under KEEAP II.
In July of 2000, UCI merged with NewSouth Holdings, Inc. A
letter dated July 13, 2000, from R. Campbell Hutchinson, vice
president of NewSouth, informed petitioner that the merger had
closed on July 10, 2000, and enclosed both “a check in the amount
of $50,512 representing * * * [Mr.Lowe’s] share of the initial
purchase price for UCI” and “a summary of the calculation of the
initial payment by the shareholders for their KEEAP obligation to
you based on the initial purchase price.”
Petitioners filed a timely joint Form 1040, U.S. Individual
Income Tax Return, for 2000. Therein petitioners reported the
$50,512 as long-term capital gain and attached a corresponding
Schedule D, Capital Gains and Losses. The Schedule D described
the underlying property as “UCI KEY APP PRO” and reflected a date
acquired of June 5, 1998, a date sold of August 1, 2000, and a
basis of zero.
By a notice of deficiency dated November 18, 2002,
respondent determined that the $50,512 payment did not qualify
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