117 T.C. No. 7
UNITED STATES TAX COURT
TEXTRON INC. AND SUBSIDIARY COMPANIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20643-98. Filed August 21, 2001.
P, a domestic corporation, acquired substantially
all of the stock of A, a foreign corporation. The
Federal Trade Commission (FTC) contemporaneously filed
a complaint in U.S. District Court seeking to enjoin
P’s acquisition and control of A pending resolution of
potential restraint of trade issues. Pursuant to the
court’s order, P transferred its A stock to a voting
trust pending the FTC’s consideration of the issues.
The trust had an independent trustee who held and voted
the stock without influence by P. The trustee was
directed to, and did, operate A independently of P and
as an active competitor of P. P was the trust’s only
beneficiary.
Held: Sec. 951(a), I.R.C., does not include A’s
subpt. F income in P’s income because P did not own the
A shares after the transfer.
Held, further, sec. 951(a), I.R.C., includes A’s
subpt. F income in the trust’s income which, under
secs. 671 and 677(a), I.R.C., must be recognized by P.
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