Walt Disney Incorporated v. Commissioner, Internal Revenue Service

Walt Disney Incorporated (“Disney”) brought this action for redetermination of the Commissioner of Internal Revenue’s assessment of a $453,197 federal income tax deficiency for Disney’s tax year ended January 28, 1982. Pursuant to Rule 91 of the Rules of Practice and Procedure of the United States Tax Court, the facts were stipulated by the parties, and the case was submitted to the Tax Court for decision. Concluding that under the terms of Treas.Reg. §§ 1.1502— 3(f)(2) & (3) there was no “disposition” within the meaning of 26 U.S.C. § 47 (a)(1) (1976), and thus Disney was not required to “recapture” investment tax credit taken on any of the assets involved in the transaction at issue, the Tax Court held that there was no federal income tax deficiency. Walt Disney v. Commissioner, 97 T.C. 221 , 1991 WL 145046 (1991). The Commissioner appeals. We have jurisdiction under 26 U.S.C. § 7482 , and we reverse.

I

Retlaw, a California corporation and a predecessor of appellee Walt Disney Incorporated, was formed by Walter E. Disney before his death. At all relevant times prior to December 1, 1981, Retlaw’s main businesses and assets (exclusive of cash, cash equivalents, and receivables)…