Section 306 stock is defined in section 306(c). Specifically, section 306(c)(1)(A) provides that section 306 stock includes "Stock (other than common stock issued with respect to common stock) which was distributed to the shareholder selling or otherwise disposing of such stock if, by reason of section 305(a), any part of such distribution was not includible in the gross income of the shareholder." Under 88 T.C. 1132">*1137 section 306(a)(1), if the shareholder disposes of such stock at a gain in a disposition which is not a redemption, the amount realized on the disposition of the stock will be treated as ordinary income. However, ordinary income is not recognized to the 1987 U.S. Tax Ct. LEXIS 63">*72 extent the amount realized exceeds the stock's ratable share of the amount which would have been a dividend at the time the stock was distributed if the corporation had distributed money equal to the fair market value of the stock rather than the stock itself. ⁴ If the amount realized exceeds the sum of the adjusted basis of the stock and the amount treated as ordinary income, the excess is treated as gain from the sale of such stock. Sec. 306(a)(1)(B).

The property to which section 170(e)(1)(A) applies includes stock described in section 306(a) to the extent that gain on the disposition of such stock would not have been long-term capital gain. Sec. 1.170A-4(b)(1), Income1987 U.S. Tax Ct. LEXIS 63">*73 Tax Regs. The amount of a charitable contribution of section 306 stock, therefore, is the excess of the fair market value of the section 306 stock at the time of its contribution over (1) the amount that would be treated as ordinary income or short-term capital gain had the stock been sold at its fair market value at the time of the contribution, and (2) in the case of a contribution to or for the use of a private foundation, 50 percent ⁵ of the amount of gain which would have been long-term capital gain had the property been sold. Sec. 170(e)(1)(A) and (B)(ii). ⁶

Petitioner received the stock which he contributed to the Trust without recognition of gain pursuant to section 305(a), at a time when Universal had sufficient earnings and profits. Such stock1987 U.S. Tax Ct. LEXIS 63">*74 is, therefore, section 306 stock and on its disposition, petitioner's charitable contribution deduction is limited to the property's fair market value reduced by the amount of gain that would have been ordinary income had the property been sold.

88 T.C. 1132">*1138 Petitioner argues, however, that the distribution and subsequent disposition of the preferred stock at issue in the instant case was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax, and therefore the transaction is not subject to the provisions of sections 306(a) and 170(e)(1)(A) under the exception contained in section 306(b)(4). Section 306(b)(4) provides, specifically, that section 306(a) will not apply --

If it is established to the satisfaction of the Secretary --

(A) that the distribution, and the disposition or redemption, or

(B) in the case of a prior or simultaneous disposition (or redemption) of the stock with respect to which the section 306 stock disposed of (or redeemed) was issued, that the disposition (or redemption) of the section 306 stock,

Section 306 was enacted to prevent capital gain treatment on preferred stock bailouts, a distribution and subsequent sale or redemption of preferred stock. S. Rept. 1622, 83d Cong., 2d Sess. 46 (1954). In Chamberlin v. Commissioner, 207 F.2d 462">207 F.2d 462 (6th Cir. 1953) revg. 18 T.C. 164">18 T.C. 164 (1952), the taxpayers were shareholders of a corporation with earnings and profits which distributed a dividend of preferred stock on common stock. Three days later, approximately half of the newly issued preferred stock was sold by prearrangement to two insurance companies. The stock was immediately redeemed by the corporation. 207 F.2d 462">207 F.2d at 464-465. The Court of Appeals for the Sixth Circuit held that the taxpayers received a nontaxable stock dividend and properly recognized long-term capital gain on the sale of the preferred stock. This result permitted1987 U.S. Tax Ct. LEXIS 63">*76 shareholders to bail out corporate earnings and profits at capital gains, rather than ordinary income, rates. ⁷

1987 U.S. Tax Ct. LEXIS 63">*77 88 T.C. 1132">*1139 Congress responded to the availability of the preferred stock bailout by enacting section 306 as part of the Internal Revenue Code of 1954. The legislative history of section 306 specifically addresses the congressional intent underlying section 306(b)(4), on which petitioner herein relies:

This subparagraph is intended to apply to the case of dividends and isolated dispositions of section 306 stock by minority shareholders who do not in the aggregate have control of the distributing corporation. In such a case it would seem to your committee to be inappropriate to impute to such shareholders an intention to remove corporate earnings at tax rates applicable only to capital gains. [S. Rept. 1622, 83d Cong., 2d Sess. 241, 243-244 (1954).]

The regulations under this section similarly indicate that isolated dispositions of section 306 stock by minority shareholders will not be considered as dispositions in pursuance of a plan of which one of the principal purposes is the avoidance of Federal income tax. Also, they indicate that if there is a prior or simultaneous disposition of the underlying stock with respect to which the section 306 stock was distributed, the transaction1987 U.S. Tax Ct. LEXIS 63">*78 will generally be treated as not in pursuance of such a plan. Sec. 1.306-2(b)(3), Income Tax Regs.

Petitioner, in the instant case, held more than 86 percent of the common stock of Universal both before and after the distribution and redemption of the preferred stock. The contribution of the preferred stock to the Trust was not an isolated disposition of section 306 stock by a minority shareholder who did not have control of the corporation as described in the legislative history. Further, petitioner did not make a prior or simultaneous disposition of the common stock on which the preferred stock was distributed. Rather, petitioner received a distribution of preferred stock on common stock which he contributed to the Trust without diminishing his control over the corporation. Thus, this 88 T.C. 1132">*1140 transaction does not fall within the legislative intent underlying section 306(b)(4).

The taxpayer's purpose is the touchstone of the exception contained in section 306(b)(4). 77 T.C. 30">Roebling v. Commissioner, supra at 59-60. With respect to a taxpayer's claim that section 306(b)(4) applies, "it is reasonable to require the taxpayer to come forward with the 1987 U.S. Tax Ct. LEXIS 63">*79 facts that would relieve him of his liability." Fireoved v. United States, 462 F.2d 1281">462 F.2d 1281, 462 F.2d 1281">1287 (3d Cir. 1972). In Fireoved, the Court of Appeals for the Third Circuit considered the application of section 306(b)(4) to a redemption of stock issued to the taxpayer as part of a recapitalization. The court recognized that the corporation had a legitimate business purpose for issuing the stock, but nonetheless found that because the taxpayer could have achieved the same result by receiving a cash dividend, rather than a stock dividend, and loaned the dividend proceeds to the corporation, "'one of the principal purposes' of the stock dividend would be for 'the avoidance of Federal income tax.'" 462 F.2d 1281">462 F.2d at 1287.

Petitioner herein argues that the purpose of the contribution of preferred stock to the Trust was to insure a steady stream of income to the Trust. A similar result could have been achieved, however, through the issuance of long-term bonds. Unlike the distribution of a preferred stock dividend, the distribution of such bonds would have been taxed to petitioner at ordinary income rates. See Rev. Rul. 80-33, 1980-1 C.B. 69, 70.1987 U.S. Tax Ct. LEXIS 63">*80 As in Fireoved, petitioner here maintains that there was a purpose, other than the avoidance of Federal income tax, for the distribution and redemption of preferred stock but fails to note that the same result could be obtained by alternative means.

Further, petitioner's argument that the principal purpose of the distribution of the preferred stock was to provide a guaranteed flow of revenue to the Trust is not supported by the record. Instead, petitioner attempts to meet his burden of proof through the use of facts which are not in evidence in this case. Statements contained in the parties' briefs will not be considered as evidence by this Court. Wisconsin Butter & Cheese Co. v. Commissioner, 10 B.T.A. 852">10 B.T.A. 852 (1928); Phillips v. Commissioner, 9 B.T.A. 1016">9 B.T.A. 1016 (1927); Rule 143(b). Petitioner's assertion, on brief, that the primary reason for 88 T.C. 1132">*1141 the donation of preferred stock to the Trust was to ensure a constant stream of income to the Trust is contrary to the various reasons for the contribution set forth in the exhibits attached to the stipulation of facts. Various documents prepared after the stock was contributed1987 U.S. Tax Ct. LEXIS 63">*81 and redeemed by the Trust suggest, alternatively, that preferred stock was used in order to avoid dilution of petitioner's share holdings in the corporation; that preferred stock was used to maintain a family tradition of ownership and avoid the potential of family disharmony in the event of a takeover bid, as well as to provide the Trust with a stream of income; and that the use of preferred stock was simply an oversight on the part of the attorney who structured the transaction. The only document admitted into evidence, however, which was prepared prior to the distribution of stock and subsequent contribution to the Trust discusses only the tax advantages of the transaction. It illustrates these tax advantages with an example indicating that the net cash to petitioner, following this transaction, exceeds the amount of cash petitioner would have received, after taxes, by $ 30,000, had the corporation paid a dividend of $ 100,000. ⁸ The memorandum also notes that a contribution of stock in a privately held corporation is likely to result in quick redemption by the charitable organization. The majority shareholder who contributed such stock would thereby be restored to the status1987 U.S. Tax Ct. LEXIS 63">*82 of a 100-percent shareholder.

Based on the conflicting record before us, we cannot find that petitioner has brought forward sufficient facts to demonstrate that the purpose of this transaction was not the avoidance of Federal income taxes. Therefore, we hold that petitioner has failed to show that one of the principal purposes of the transaction was not the avoidance of Federal income tax and that the amount of the charitable contribution deduction must be reduced under section 170(e)(1)(A).

88 T.C. 1132">*1142 Petitioner here has1987 U.S. Tax Ct. LEXIS 63">*83 attempted to use a charitable contribution to avoid the consequences of a preferred stock bailout. The use of this mechanism is not sufficient to remove the section 306 taint from the transaction. We note that this Court and other courts have looked favorably on charitable contributions and subsequent redemptions of stock. Behrend v. United States, an unreported opinion (4th Cir. 1972, 31 AFTR 2d 73-406, 73-1 USTC par. 9123); Palmer v. Commissioner, 62 T.C. 684">62 T.C. 684 (1974); Humacid Co. v. Commissioner, 42 T.C. 894">42 T.C. 894 (1964). ⁹ In 42 T.C. 894">Humacid Co. v. Commissioner, supra, we stated:

The law with respect to gifts of appreciated property is well established. A gift of appreciated property does not result in income to the donor so long as he gives the property away absolutely and parts with title thereto before the property gives rise to income by way of a sale. * * * [42 T.C. 894">42 T.C. 913; citations omitted.] ¹⁰

This statement was quoted with approval in both Behrend and Palmer. In each of these cases, respondent sought1987 U.S. Tax Ct. LEXIS 63">*84 to tax the gain on the redemption of the preferred stock to the taxpayers who donated the stock. The courts refused to uphold respondent's determination, finding that the taxpayers had made valid, completed gifts of the stock prior to its redemption by the charities and that, therefore, the gain on the redemption should not be taxed to the donors. While we recognize the courts' approval of these transactions, that is not the issue before us. Respondent is not attempting to attribute the redemption of the stock which petitioner contributed to the trust to petitioners, but rather to apply the statutory restrictions on a charitable contribution of section 306 stock as set forth in section 170(e)(1)(A). As discussed above, petitioner's attempt to invoke the exception contained in section 306(b)(4) has failed.

1987 U.S. Tax Ct. LEXIS 63">*85 While petitioner claimed a charitable contribution deduction in the amount of $ 100,000, the record reflects that the fair market value of the stock at the time of the contribution was $ 89,000. Pursuant to the provisions of section 170(e)(1)(A) and section 306(a), petitioner must recognize 88 T.C. 1132">*1143 ordinary income to the extent of the stock's ratable share of the amount which would have been a dividend at the time of distribution if the corporation had distributed money in any amount equal to the fair market value of the stock at time of distribution.

To reflect the foregoing,

Decision will be entered under Rule 155.