Pescosolido v. Commissioner
United States Tax Court
91 T.C. 52 (1988)
- Written by Heather Ryfa, JD
Facts
Carl Pescosolido (plaintiff) consolidated six closely held corporations into Lido Corporation of New England, Inc. (Lido) to be more efficient and for estate-tax-planning purposes. Pescosolido’s attorney received a ruling letter from the commissioner of the Internal Revenue Service (defendant) indicating that nonvoting preferred stock issued by Lido, which was not to be redeemed for five years, would be classified as § 306 stock in accordance with § 306 of the Internal Revenue Code (code). Section 306 provided that disposition of preferred stock would be at ordinary tax rates rather than capital-gains rates in order to prevent corporations from distributing earnings through issuing and then redeeming such preferred stock instead of issuing dividends. Less than five years after Lido issued the preferred stock, Pescosolido donated some of this preferred stock to charitable educational institutions. Pescosolido deducted these donations as charitable contributions on his tax returns, valuing the stock at its fair market value. The commissioner sent a notice of deficiency that disallowed the charitable contributions. However, the commissioner conceded that Pescosolido was entitled to deduct the cost basis of the shares. The matter ended up before the United States Tax Court.
Rule of Law
Issue
Holding and Reasoning (Cohen, J.)
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