Snap-Drape v. Commissioner
United States Tax Court
During taxable year 1990, P made contributions to its ESOP in the amount of $ 240,732 and claimed a deduction for the entire amount under sec. 404(a), I.R.C.
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During taxable year 1990, P made contributions to its ESOP in the amount of $ 240,732 and claimed a deduction for the entire amount under sec. 404(a), I.R.C. P also paid to the ESOP a cash dividend with respect to its common stock in the amount of $ 1,440,000. The ESOP transferred the entire amount of the dividend to the Bank as payment of interest and principal under a note, executed for purposes of purchasing securities of P. On its 1990 Federal income tax return, P claimed a deduction with respect to the cash dividend paid to the ESOP in the amount of $ 1,440,000 under sec. 404(k), I.R.C.…
1Opinion of the Court
OPINION
Wright, Judge:
Respondent determined a deficiency in petitioner’s Federal income tax for taxable year 1990 in the amount of $239,463.
After concessions by the parties, the issues for our consideration are as follows:(1) Whether dividends paid to an employee stock ownership plan, deductible under section 404(k),1 are deductible under section 56(g)(4)(C)(i) in computing the adjusted current earnings of a corporation for purposes of determining alternative minimum tax, and thus, whether section 1.56(g)-1(d)(3)(iii)(E), Income Tax Regs., is valid. We hold that the section 404(k) dividends…
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