- 13 -
Julian E., beginning in 1986, in whatever monthly amounts would
be necessary to cover his and Alma’s living expenses, (2) those
payments “were made over time, and accounted for properly as
state law dividends”, and (3) because “[n]o other shareholder
received the monthly guaranteed payments that were received by
Julian E. Long”, LPP ceased to be an S corporation “from the
moment that the agreement was made”.
We find that the evidence does not support petitioner’s
position. She has failed to carry her burden of proving that the
1986 agreement constituted a “binding agreement” giving Julian E.
enhanced or disproportionate “rights to [LPP’s] distribution and
liquidation proceeds”, as required by section 1.1361-1(l)(1) and
(2)(i), Income Tax Regs. Such an agreement is necessary in order
for us to conclude that LPP had a second class of stock.
To begin with, petitioner has failed to establish that the
1986 agreement was in any way “binding”. At best, petitioner
testified that that agreement was nothing more than an informal,
oral understanding among the board members/shareholders of LPP to
have LPP make monthly distributions to Julian E. in whatever
amounts he (and Alma) needed to cover their living expenses, a
practice similar to that which prevailed prior to 1986. There is
no evidence that the family members, in their capacity as
directors and/or shareholders of LPP, took any formal corporate
10(...continued)
in deciding whether the 1986 agreement created a second class of
LPP stock.
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: March 27, 2008