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the sale of the RD stock, the unrelated entity, however, would
have to be a securities dealer in whose hands the preferred stock
would be “inventory” rather than a capital asset.14
NSI paid a $2.5 million fee to petitioner in late January
1997 for services in helping to arrange the divestment. Melissa
Meder (Meder), NSI’s vice president for tax, was involved in
planning and effecting NSI’s divestment of the tax benefit lease.
On August 31, 1996, NSI, through a subsidiary, acquired the RD
stock15 in exchange for 7,302 shares of NSI Enterprises preferred
stock. The RD stock had a $100 per share liquidation preference
value, was entitled to a dividend of 6.878 percent per annum, and
had a “put” feature allowing the preferred stockholder to request
redemption and to have that stock redeemed on or after January 1,
1999. While the preferred stock remained outstanding, RD was
required to maintain investments in governmental instruments or
“A”-rated bonds having a value equal to the preferred stock’s
liquidation preference and accrued but unpaid dividends.
On August 31, 1996, NSI transferred to NSI Enterprises the
tax benefit lease and certain real estate in Decatur, Georgia
(the Decatur realty). On the same date, NSI Enterprises
transferred to Corisma, Inc. (Corisma), a wholly owned subsidiary
14See sec. 1221(1); see also sec. 1211(a), which prohibits a
corporate taxpayer’s deduction of a capital loss against its
ordinary income.
15RD was a second-tier subsidiary of Norwest Bank (Norwest).
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