- 9 - could be reissued for consideration (i.e., cash), and the cash would increase its assets and the reissued shares would be reflected in an increase in its shareholder equity. Most importantly, contrary to petitioner’s assertion, the acquisition of treasury stock is actually a contraction of corporate capital. Specifically, in this case, when petitioner reacquired shares in 2002, the total cost of its treasury stock was $53,999. On the Schedule L balance sheets for 2002 and 2003, petitioner correctly subtracted $53,999 from its retained earnings. This calculation was done because when stock is reacquired by a corporation there is a necessary and corresponding reduction in retained earnings and shareholder equity. The treasury stock is held in a contra equity account, so named because it reduces total shareholder equity in the corporation. Only a subsequent resale of treasury stock would result in an expansion of shareholder equity. It follows then that because treasury stock has no value if and until it is resold, that it is not held “by value” per section 448(d)(2)(B). In this case, the only stock which was held “by value” is the stock owned by Mr. Apgar and Mr. Oliver. Because Mr. Apgar and Mr. Oliver are petitioner’s employees, and as they together hold 100 percent of petitioner’s stock, petitioner meets the ownership test defined in section 1.448-1T(e)(5)(i), Temporary Income Tax Regs., supra.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 NextLast modified: November 10, 2007