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Mrs. Racine had legal title to her Allegiance shares subject
to the interest of CIBC securing the repayment of the loans. In
addition, she had the right to receive dividends with respect to
this stock, to vote the shares, and to use the shares as
collateral.
During the 2000 year, the market price of Allegiance stock
began to decline. In response to this decline and the subsequent
margin calls, Mrs. Racine’s shares were liquidated.
On November 22, 2000, Mrs. Racine liquidated 2,000
Allegiance shares for their average fair market value of $17.92.
On November 29, 2000, Mrs. Racine’s financial adviser at
CIBC liquidated 16,921 Allegiance shares for their average fair
market value of $15.34 in order to pay down her margin debt.
On May 2, 2001, Mrs. Racine’s financial adviser at CIBC
liquidated 1,836 Allegiance shares for their average fair market
value of $20.41 in order to pay down her margin debt.
Petitioners’ 2000 Tax Return
Petitioners timely filed their Federal income tax return for
2000. This original return showed wages from Allegiance on Mrs.
Racine’s Form W-2, Wage and Tax Statement, of $2,037,800,
attributable to her salary and stock options. The return
reported $774,147 in tax, $563,855 in payments, and tax due of
$210,292. Petitioners did not submit the total amount due with
their 2000 tax return. Instead, petitioners submitted a payment
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