- 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 Next
Last modified: November 10, 2007