CMA Consolidated, Inc. & Subsidiaries, Inc. - Page 77

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          in exchange for CKH preferred stock.  Petitioner contended that             
          the value of the CKH preferred stock would not have exceeded                
          $207,000 at the time of the exchange.                                       
          1.  The $2 Million Consulting Fee                                           
               Before the creation of CKH in October 1996, petitioner was             
          negotiating with National Service Industries, Inc. (NSI), to                
          provide certain services.  The services involved assisting NSI to           
          dispose of a safe harbor lease under former section 168(f)(8)               
          without adverse tax consequences.  The safe harbor lease was on             
          the verge of producing approximately $87 million of ordinary                
          income (the tax benefit lease).  Although NSI, if it remained the           
          holder of the tax benefit lease, would not receive or be enriched           
          by $87 million from an economic standpoint, NSI, for tax                    
          purposes, would be obligated to report $87 million of ordinary              
          income with respect to the tax benefit lease.  A consulting                 
          agreement was executed between NSI Enterprises (an NSI                      
          subsidiary) and petitioner on December 1, 1996, 1 day before Cap            
          Corp.’s, CKH’s, and petitioner’s execution of the stock purchase            
          and debt conversion agreements, discussed in II. C. above, under            
          which among other things, CKH acquired a 100-percent stock                  
          ownership in CKS.                                                           











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