Will this satisfy the IRS?

Facts for Research Problem #1

Part 1, written memo due October 7, 10 points.

Using RIA Checkpoint, answer the following question.

The Magpie family have been your clients for many years.  Hudson and Pica Magpie formed Four and Twenty Industries, Inc. many years ago.  They gifted shares of stock to each of their many children when they reached age 18.  One of their children, Cissa, proved to be adapt at business.  The business thrived for many years when she and her father ran the show.  However, the two of them had a falling out during the recession.  The company redeemed Cissa's shares under IRC Section 302(b)(3) in 2008 for $10,000,000.  Her basis in the shares was $11,000.  She received a waiver of the family attribution rules in exchange for a promise to not to reacquire shares in the company for 10 years.  The corporation had in excess of $100 Million in Earnings and Profits at the time of the redemption.

Pica was recently diagnosed with Cnemodicoptes, and Hudson wants to retire to spend their few remaining months together.  Hudson and Cissa have reconciled, and Hudson wants Cissa to come back and run the business.  One of your junior accountants has already told Hudson and Cissa that Cissa may not be an employee of the company.  (You need to figure out if this is true).  Based on this information, Hudson and Cissa have come to you with a plan.  Cissa will form a management company, and she will own 100% of the stock.  The management company will run Four and Twenty in exchange for 30% of gross sales.  Will this satisfy the IRS?

At a minimum, you must consult: IRC Section 302(c)(2), Rev. Rul. 70-104, and Lynch v. Commissioner, 801 F.2d 1176.