- 30 -
United States v. Davis, 397 U.S. 301, 313 (1970). In this case,
Mrs. Hurst did in fact experience a reduction in her constructive
RHI interest, even after applying section 318’s attribution
rules, because her interest was reduced from 100 percent (her 50-
percent interest plus Mr. Hurst’s 50-percent interest) to 51
percent (her son’s interest in RHI after the deal was done.8
To find that the 49-percent reduction in ownership was
meaningful, we would then have “to examine all the facts and
circumstances to see if the reduction was meaningful for the
purposes of section 302.” Metzger Trust v. Commissioner,
76 T.C. 42, 61 (1981), affd. 693 F.2d 459 (5th Cir. 1982). This
would have allowed the trial to focus upon the practical differ-
ences, if any, which exist between a 51-percent interest and a
100-percent interest in RHI after the sale.
It is true that redemptions in which the 50-percent thresh-
old is not passed will generally be considered essentially equi-
valent to a dividend. Bittker & Eustice, Federal Income Taxation
of Corporations and Shareholders, par. 9.05[3][d] at 9-41 (7th
ed. 2002). Yet an exception exists when a threshold has been
8 Under section 318(a)(2)(C), Todd Hurst’s 51-percent owner-
ship of HMI stock after the sale also makes him constructive ow-
ner of 51 percent of RHI. Section 318(a)(1)(A)(ii) then makes
the elder Hursts constructive owners of 51 percent of RHI even
after they actually sold all of it to HMI. See sec.
318(a)(5)(A).
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