Terry I. and Louise Major - Page 20

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                    2.   Louise Major’s Income                                        
               In support of respondent’s position, respondent provided               
          Form 1099-B and the declaration of Marlene Mills, a Mellon                  
          employee, evidencing that in 2001 Louise Major received                     
          $18,037.50 of demutualization11 income in the form of cash and              
          Form 1099-INT, reflecting interest income of at least $343.58.              
               Louise did not appear at trial.  While Terry was present at            
          trial, he did not offer any evidence contesting Louise’s                    
          deficiency or addition to tax.12  Thus, respondent’s                        
          determination of Louise’s deficiency is sustained.                          

               11 Demutualization, as it applies here, is the process of              
          converting from a mutual insurance company to a stock company               
          pursuant to a written plan of conversion.  Prior to Oct. 26,                
          2001, Louise had an interest in an insurance policy administered            
          by Principal Financial Group, Inc., a mutual insurance company.             
          On Oct. 26, 2001, Principal Financial Group, Inc.’s initial                 
          public offering became effective.  Demutualization of the company           
          also became effective on this same date.  On Dec. 10, 2001,                 
          Mellon distributed demutualization compensation to the former               
          Principal Financial Group, Inc. policyholders.  Former policy               
          holders could choose to receive their demutualization                       
          compensation in the form of Principal Financial Group, Inc.                 
          common stock, cash, or policy credits.  As stated above, Louise             
          received $18,037.50 in cash as demutualization compensation.                
               12 In petitioners’ pretrial memorandum and in an objection             
          to stipulation #9 in the Stipulation of Facts, they contended               
          that the amounts received from Mellon should be treated as a                
          return of premium or excess premium and, thus, not income.                  
          Petitioners also confirmed that Louise received these amounts in            
          cash.  However, since petitioners did not argue this assertion on           
          brief or at trial, the Court deems that petitioners have                    
          abandoned it.                                                               

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