- 17 -
3. Employment of Mrs. Hurst
At the same time that HMI redeemed Mr. Hurst’s stock and
signed the lease, it also agreed to a ten-year employment con-
tract with Mrs. Hurst. Under its terms, she was to receive a
salary that rapidly declined to $1000/month and some fringe
benefits--including health insurance, use of an HMI-owned pickup
truck, and free tax preparation.
In deciding whether this was a prohibited interest, the
first thing to note is that Mrs. Hurst did not own any HMI stock.
Thus, she is not a “distributee” unable to have an “interest in
the corporation (including an interest as officer, director, or
employee), other than an interest as a creditor.” Sec.
302(c)(2)(A)(i). The Commissioner is thus forced to argue that
her employment was a “prohibited interest” for Mr. Hurst. And he
does, contending that through her employment Mr. Hurst kept an
ongoing influence in HMI’s corporate affairs. He also argues
that an employee unrelated to the former owner of the business
would not continue to be paid were she to work Mrs. Hurst’s
admittedly minimal schedule. And he asserts that her employment
was a mere ruse to provide Mr. Hurst with his company car and
health benefits, bolstering this argument with proof that the
truck used by Mrs. Hurst was the same one that her husband had
been using when he ran HMI.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011