- 25 -
avoiding any tax on receiving a dividend, all without relinquish-
ing effective ownership. Congress squelches this opportunity
with section 304. It addresses both parent/child situations--the
acquisition by a subsidiary of stock in the parent corporation
that owns it, sec. 304(a)(2); and brother/sister situations-–the
acquisition of one corporation’s stock by another when both are
under common control, sec. 304(a)(1). The Commissioner contends
that the RHI sale to HMI is one of the latter.
What makes this contention look more like a new theory, and
less like a new matter, is the truth that sections 302 and 304
are linked--if section 304 applies to a stock sale, the conse-
quence is that it is treated as a redemption under section 302
and its regulations. And so we begin with the text of section
304(a)(1):
SEC. 304(a). Treatment of Certain Stock Purchases.--
(1) Acquisition by Related Corporation (Other Than
Subsidiary).--For purposes of sections 302 and 303,
if--
(A) one or more persons are in control of each
of two corporations, and
(B) in return for property, one of the
corporations acquires stock in the other
corporation from the person (or persons) in
control,
then * * * such property shall be treated as a
distribution in redemption of the stock of the
corporation acquiring such stock.[6] * * *
6 The Hursts argue that one reason the Commissioner’s argu-
(continued...)
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011