Richard E. and Mary Ann Hurst - Page 2

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               302(b)(3), I.R.C.  None of the cross-default and cross-                
               collateralization provisions made P-husband’s post-                    
               transaction interest one “other than an interest as a                  
                    2.  R’s contention that Ps’ sale of their R Corp.                 
               stock should be analyzed under sec. 304’s rules                        
               governing sales of stock between corporations under                    
               common control must be rejected for lack of evidence                   
               because it was raised only in posttrial briefing and is                
               a “new matter” rather than a “new argument.”                           
                    3.  P-wife is a “2-percent shareholder” under                     
               section 1372, I.R.C., because the rules of section 318,                
               I.R.C., attribute to her the ownership of the H Corp.                  
               stock of both her husband and son during 1997;                         
               accordingly, the H Corp. health insurance premiums are                 
               includible in her income, subject to a deduction of a                  
               percentage of their amount under section 162(l)(1)(B),                 

               Terry L. Zabel, for petitioners.                                       
               Bryan E. Sladek, for respondent.                                       

               HOLMES, Judge:  Richard Hurst founded and owned Hurst Mecha-           
          nical, Inc. (HMI), a thriving small business in Michigan that re-           
          pairs and maintains heating, ventilating, and air conditioning              
          (HVAC) systems.  He bought, with his wife Mary Ann, a much small-           
          er HVAC company called RHI; and together they also own the                  
          building where HMI has its headquarters.                                    
               When the Hursts decided to retire in 1997, they sold RHI to            
          HMI, sold HMI to a trio of new owners who included their son, and           
          remained HMI’s landlord.  Mary Ann Hurst stayed on as an HMI                
          employee at a modest salary and with such fringe benefits as                
          health insurance and a company car.                                         

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