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purchased 2.5 million of the 2,660,000 shares pledged to Merrill
Lynch in 1980 for 1 cent a share, and we have so found.
Petitioners also do not object to respondent’s proposed finding
of fact that the stock certificates given to Merrill Lynch for
the remaining 160,000 pledged shares represented shares Mr.
Rendall purchased at various times after 1980, and we have so
found. Because the selling shareholder may do no more than
select and identify shares for sale from among the shares “left
in the custody of a broker or other agent,” no more than 160,000
of the 634,100 pledged shares Merrill Lynch sold on Mr. Rendall’s
behalf could have been identified by him as having been purchased
for more than 1 cent a share. Sec. 1.1012-1(c)(3), Income Tax
Regs. Thus, at least 474,100 (634,100 - 160,000) of the sold
shares had a cost basis to Mr. Rendall of 1 cent a share. See
also Kluger Associates, Inc. v. Commissioner, 617 F.2d 323, 327-
328 (2d Cir. 1980), affg. 69 T.C. 925 (1978).
Moreover, Mr. Rendall failed to adequately identify the
other 160,000 pledged shares sold by Merrill Lynch. Petitioners’
purported identification on their 1997 originally filed and
amended returns was inadequate for two reasons: (1) Those
returns did not specify which of Mr. Rendall’s shares purchased
after 1980 at more than 1 cent a share constituted the 160,000
shares pledged to Merrill Lynch; and (2) even if those shares had
been identified on petitioners’ 1997 returns, that identification
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