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promise to pay money in the future. Sec. 1.317-1, Income Tax
Regs. Thus, section 304(a)(1)(B) is met.
The next issue is whether the Hursts were in “control” of
HMI (the “acquiring corporation”) for section 304 purposes after
the transaction as they were before. Under section
318(a)(1)(A)(ii), a taxpayer constructively owns any stock owned
by his children. Thus, the Hursts are considered to own Todd’s
51-percent interest in HMI. As all three elements of section
1.304-5(b) are met, section 304(a) applies.
Because section 304(a) applies,
determinations as to whether the acquisition
is, by reason of section 302(b), to be
treated as a distribution in part or full
payment in exchange for the stock shall be
made by reference to the stock of the issuing
corporation. * * *
Sec. 304(b)(1).
The consequence of applying section 304 is thus to send us
back to section 302, treating the Hursts’ sale of their RHI stock
to HMI as if it were a redemption by RHI. For the Commissioner,
this deemed redemption analysis under section 302(b) turns on the
uncontested fact that Mrs. Hurst remained an employee of HMI
after the sale. He argues that HMI’s purchase of RHI made RHI
into an HMI subsidiary. Section 1.302-4(c), Income Tax Regs.,
would then govern: “If stock of a subsidiary corporation is
redeemed, section 302(c)(2)(A) shall be applied with reference to
an interest both in such subsidiary corporation and its parent.”
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