Richard E. and Mary Ann Hurst - Page 16

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               The Commissioner nevertheless points to the lease to bolster           
          his claim that Mr. Hurst kept too much control, noting that in              
          2003 he was able to persuade the buyers to surrender HMI’s option           
          to buy the property.  Exercising this option would have let HMI             
          end its rent expense at a time of low mortgage interest rates,              
          perhaps improving its cashflow--and so might well have been in              
          the new owners’ interest.  But the Hursts paid a price when the             
          new owners gave it up.  Not only did the deal cancel the option,            
          but it also cut the interest rate on the various promissory notes           
          owed to the Hursts from eight to six percent.  So we think the              
          Commissioner is wrong in implicitly asserting that the buyers               
          should have engaged in every behavior possible that would be                
          adverse to the elder Hursts’ interest, and focus on whether the             
          elder Hursts kept “a financial stake in the corporation or con-             
          tinued to control the corporation and benefit by its operations.”           
          Lynch, 83 T.C. at 604.  Ample and entirely credible testimony               
          showed that the discussions about HMI’s potential purchase of the           
          Safety Drive location were adversarial:  The Hursts as landlords            
          wanted to keep the rent flowing, and the new owners wanted to               
          reduce HMI’s cash outlays.  Though the Hursts kept their rents,             
          the new owners did not give up the option gratuitously--making              
          this a negotiation rather than a collusion.                                 

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