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Although the acquired company in H.F. Ramsey “was pretty much of
a shell corporation, [it] was not a shell immediately prior to
the negotiations for sale. It was a viable corporation which had
been actively engaged in the road construction business but which
was temporarily inactive.” Id. at 516. Although the Court
found that the taxpayer in H.F. Ramsey was acquired with the
principal purpose of avoiding Federal income taxes in violation
of section 269, we also found that the taxpayer continued to
carry on, after the acquisition, substantially the same trade or
business conducted before the acquisition. The U.S. Court of
Appeals for the Sixth Circuit stated in Six Seam Co. v. United
States, supra at 353:
the correct standard in determining whether such
limited activity amounts to continuing a trade or
business under the statute is whether it evidences only
an intent to wind up corporate affairs, or whether
instead the company is simply maintaining a low profile
with an intention to resume operations should the
business climate improve.
The regulations support the construction that a temporary
break in operations which is not intended to be permanent is not
to be considered as “not carrying on an active trade or
business.” See sec. 1.382(a)-1(h)(6), Example (2), Income Tax
Regs.
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