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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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