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consolidated Federal income tax return for the tax year that
began April 5, 1989, and ended January 26, 1990.
Prior to April 5, 1989, petitioners were wholly owned
subsidiaries of Services Group of America, Inc. (Services Group).
Services Group and its subsidiaries filed consolidated Federal
income tax returns. Prior to April 5, 1989, there were a number
of restructurings within the Services Group corporate entities
and renamings of various corporations. In addition to
stevedoring operations, prior to April 5, 1989, Services Group
engaged in wholesale food distribution and the insurance business
through separate wholly owned subsidiaries.
On April 4, 1989, the Services Group entities were divided
in a tax-free transaction pursuant to section 355 (the splitup).
Prior to the splitup, Services Group was owned equally by two
shareholders, FRS Capital Corporation (FRS) and Thomas Stewart
(Stewart). In settlement of a shareholder dispute, FRS
relinquished its 50-percent stock interest in Services Group in
exchange for all of the stock of Stevedoring. Petitioners
carried on all of the stevedoring operations of the former
Services Group entities. Petitioners' ownership affiliation with
the food services and insurance operations of the former Services
Group entities terminated on the effective date of the splitup.
As part of the splitup, Stewart received the insurance group and
the wholesale food operations of the former Services Group
entities. In the splitup, the stock and other consideration
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