Richard E. and Mary Ann Hurst - Page 12

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          would be treated as if he still owned Todd’s HMI stock--making              
          his “termination redemption” less than “complete”.                          
               But this would be too harsh a result when there really is a            
          complete termination both of ownership and control.  Thus, Con-             
          gress provided that if the selling family member elects to keep             
          no interest in the corporation other than as a creditor for at              
          least ten years, the Commissioner will ignore the section 318 at-           
          tribution rules.  Sec. 302(c)(2); sec. 1.302-4, Income Tax Regs.4           
               By far the greatest part of the tax at issue in this case              
          turns on whether Richard Hurst proved that the sale of his HMI              
          stock was a termination redemption, specifically whether he kept            
          an interest “other than an interest as a creditor” in HMI.  There           
          are also two lesser questions--whether the Hursts can treat the             
          sale of their stock in RHI, the smaller HVAC company, as a sale             
          or must treat it as a section 301 distribution; and whether the             
          Hursts owe tax on the health insurance premiums that HMI paid for           
          Mrs. Hurst.                                                                 
               We examine each in turn.                                               

               4 There are other requirements for a termination redemption            
          to be effective, notably that a taxpayer has to file a timely               
          election.  Sec. 1.302-4, Income Tax Regs.  Mr. Hurst filed such             
          an election for his HMI stock, having received permission from              
          the District Director to file it late.                                      

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