Associated MacHine (Formerly Associated MacHine Shop), a Corporation v. Commissioner of Internal Revenue

Petitioner, Associated Machine, Inc., is a California corporation. Until November 30, 1960, this corporation was known as J & M Engineering, Inc. (herein J & M). On that date, J & M acquired through merger another California corporation, Associated Machine Shop, Inc., simultaneously changing its name to “Associated Machine, Inc.” This action was found by the tax court to be a statutory merger within section 4100 of the California Corporations Code. Associated Machine v. Commissioner, 48 T.C. 318 (1968); P-H Tax Ct.Rep. & Mem. Dec. ¶¶ 18,079 (45), 18,592 (30). All three corporations were owned by the same individual and each had in turn the same, though separately functioning, board of directors.

For its fiscal year ending November 30, 1962, petitioner reported a loss of $82,863.30, and successfully applied to the Commissioner of Internal Revenue for a tentative carryback adjustment in that full amount using this loss to offset Associated Machine Shop’s adjusted taxable income for the calendar year 1959. See 26 U.S.C. § 172 (1954).

Two years later, in June, 1965, the Commissioner issued a statutory notice of deficiency which disallowed the deduction for the operating loss…