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In support thereof, respondent cites section 1.382(a)-1(h)(6),
Example (1), Income Tax Regs., which provides:
Example (1). X Corporation is engaged in the
business of manufacturing and selling machinery. On
January 1, 1958, the corporation suspends its
manufacturing activities and begins to reduce its
inventory of finished products because of general
adverse business conditions and lack of profits.
During the period between January 1 and September 1,
1958, the business of the corporation remains dormant.
On September 1, 1958, A, an individual, purchases at
least 50 percent in value of X Corporation's
outstanding stock. On October 1, 1958, the corporation
begins to manufacture the same type of machinery it
manufactured before January 1, 1958. The reactivation
of the corporation in the same line of business as that
conducted before January 1, 1958, does not constitute
the carrying on of a trade or business substantially
the same as that conducted before the increase in stock
ownership.
This Court, however, has recognized that in some situations, a
company may be temporarily inactive and still satisfy the
requirements of section 382. See Clarksdale Rubber Co. v.
Commissioner, 45 T.C. 234 (1965); H.F. Ramsey Co. v.
Commissioner, 43 T.C. 500 (1965). Thus, the question becomes
what degree of activity is necessary to sustain the
characterization of “active trade or business.”
Our issue is therefore factual. If we conclude that
petitioner permanently ceased all business operations before the
change of ownership, then it was engaged in no business at the
time of the change, and therefore CDC could not “continue” to
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