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Petitioner argues that the treasury shares should be taken
into consideration when applying the percentage ownership test
as set forth in section 448(d)(2)(B) and section 1.448-
1T(e)(5)(i), Temporary Income Tax Regs., supra. Under
petitioner’s argument, percentage of ownership would be as
follows:
Lawrence Apgar 35.5 percent
James Oliver 14.5 percent
Treasury shares 50 percent
Petitioner maintains that although the treasury shares were
not outstanding shares, they nonetheless had a “contra value”2
of $53,999 at the end of its 2002 and 2003 taxable years.
Accordingly, says petitioner, due to this “value”, the shares
should be considered as held by “by value” pursuant to section
44(d)(2)(B) and therefore included when applying the ownership
test as described in section 1.448-1T(e)(5)(i), Temporary Income
Tax Regs., supra.
Petitioner’s rationale may be summarized as follows:
First, petitioner argues that it should not be bound for
2 We are unclear as to petitioner’s use of the term contra
value. Petitioner appears to concede that although the treasury
shares are not outstanding equity per se to the corporation, that
they nonetheless have a value (contra value), based on what
petitioner paid to its shareholders upon acquisition of the
shares. We believe that petitioner may be mistakenly
interchanging its concept of contra equity with the term contra
equity account.
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Last modified: November 10, 2007