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Q [Counsel]: If Long’s Preferred Products did
not make any payments on your
behalf, who else would have made
the payments?
A [Petitioner]: Mr. Lee, I know Long’s Preferred
Products did. I know I was
working. I know I had the meeting
with my father and my brother. I
know what took place. I know he
was not working. I know I was not
-- I mean, I was working, and I
know he was happy with the
arrangement. So I don’t know what
the books would reflect, but I know
what took place.
Q [Counsel]: When did this meeting take place?
A [Petitioner]: It would have been in 1986.
OPINION
I. Introduction
We must determine whether, on account of a second class of
stock, LPP’s status as an S corporation terminated in 1986. If
it did, then petitioner did not have to include in her 1998
income her allocable share of LPP’s 1998 income except to the
extent distributed to her. Petitioner concedes that she bears
the burden of proof. See Rule 142(a).
II. Discussion
A. Internal Revenue Code and Regulations
With respect to any taxable year, section 1361(a)(1) defines
an S corporation as “a small business corporation for which an
election * * * [to be an S corporation] is in effect for such
year.” Section 1361(b) defines a “small business corporation” as
a domestic corporation which must satisfy a number of
requirements, one of which is that it not have “more than 1 class
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