RAY FELDMAN, TRANSFEREE, ET AL., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Robert Edward Dallman, for petitioners. George W. Bezold, for respondent. 593,979 Federal income tax responsibilities of Woodside Ranch Resort, Inc. (Woodside Ranch), for 2002, plus an addition to taxes, fines, and interest associated with Woodside Ranch’s unpaid 2002 Federal income tax liability.

593,979 Federal income tax responsibilities for 2002, in addition to the addition to tax, fines, and interest. Lots of the known facts have been stipulated and are so found. On the right time of filing their separate petitions, petitioners resided in Wisconsin, Florida, and Arizona. On November 17 Trial was held, 2010, in Milwaukee, Wisconsin. In the 1920s Woodside Ranch was established and started business as a Wisconsin corporation with its place of business in Mauston, Wisconsin. From its incorporation until May of 2002 Woodside Ranch controlled and possessed a dude ranch holiday resort offering, among other activities, horseback riding, going swimming, boating, hiking, fishing, snow skiing, and snowmobiling, along with accommodations.

The historical shareholders in Woodside Ranch were William Feldman and his five children. In 2002, at the time of the transactions before us, Woodside Ranch stock was possessed by 10 shareholders, 9 of whom were grandchildren or great-grandchildren of William Feldman. They herein are petitioners. The 10th shareholder, Lucille Nichols, daughter of William Feldman, has died, and her estate is not involved in these consolidated cases. Right before the 2002 transactions involved with these instances, the officers of Woodside Ranch were: President-dependent Lucille Nichols; vice president-Richard Feldmann; secretary-Ray Feldman;, and treasurer-Carrie Donahue.

These same individuals also were the directors of Woodside Ranch. Normally, each year 6 to 20 incidents resulting in injuries to customers occurred at Woodside Ranch. Just a few of these accidents led to formal claims against Woodside Ranch. Even though sporting and other activities at Woodside Ranch involved some threat of injury for Woodside Ranch customers, overtime Woodside Ranch didn’t obtain extensive personal injury insurance covering potential injuries.

Such extensive insurance was available but expensive, and management of Woodside Ranch selected not to purchase it. Woodside Ranch does carry several plans that protected some activities at the ranch. 4 As mentioned, for many years including 2002 Woodside Ranch management was unwilling to pay the high cost of comprehensive liability insurance covering participant athletics.

The shareholders were interested in minimizing the tax liabilities associated with a sale of their passions in Woodside Ranch. A corporate and business asset sale would activate significant Federal and State corporate and business income tax liabilities. In the fall of 2001 negotiations began with an individual named Damon Zumwalt (Zumwalt) for the sale of Woodside Ranch, with the expectation on both sides that the commercial operation of the dude ranch would be continued by Zumwalt. 2.6 million in cash (hereinafter often referred to as the asset sale or the Zumwalt asset sale).

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Zumwalt was the only real owner and lone member of WRLLC. In a June 5, 2002, memorandum to the Woodside Ranch shareholders, petitioner Ray Feldman described the above mentioned estimated fees as posing a “dilemma” for the shareholders. 750,000, which the officials, directors, and shareholders of Woodside Ranch at all relevant times were aware.

After the asset sale to Zumwalt, Woodside Ranch had no operating assets and ceased to engage in any significant business activity. Representatives of MidCoast claimed to have expertise in tax issues and provided to the Woodside Ranch officials promotional materials which outlined a potential tax-avoidance deal as an alternative to a liquidation of Woodside Ranch. 750,000 associated with the Zumwalt asset sale. However, the Woodside Ranch table of directors did not adopt the recommended plan of liquidation, and the Woodside Ranch directors decided to go with instead to go after the alternative tax-avoidance transaction suggested by MidCoast mentioned previously and referred to more specifically below. – lower deferred tax liability”.