Commissioner of Internal Revenue v. British Motor Car Distributors, Ltd., a Corporation

The taxpayer corporation incurred losses while engaged in the business of selling home appliances. It disposed of all its assets and the corporate shares were then sold to new owners, who used the corporation to operate a previously going automobile business. The question here presented is whether the taxpayer is entitled to carry over the losses incurred in the old business, where it is clear that the principal purpose of the acquisition of the taxpayer by the new owners was to avoid taxes. The Tax Court, five judges dissenting, ruled in the affirmative, 31 T.C. 437 (November 26, 1958), and the Commissioner has appealed. We here hold that carry-over of the loss is forbidden under § 129(a) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 129 (a) (added by Chapter 63, 58 Stat. 47,1944 ). The judgment of the Tax Court accordingly must be reversed.

Empire Home Equipment Company, Inc., was incorporated under the laws of California on November 13, 1948. Empire engaged in the business of selling home appliances at wholesale and retail. During its fiscal years ending in 1949, 1950 and 1951, Empire incurred net operating losses in the sum of $374,406.57. In December, 1949, Empire’s…