- 10 -
Generally, a corporation organized for the purpose of carrying
on a business activity constitutes a separate taxable entity. See
Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943). A
corporation will not be disregarded for Federal tax purposes if it
(1) served an intended business function, or (2) engaged in
business. See id. at 438-439. However, if the corporate form is
a sham or unreal, it will be disregarded. See Higgins v. Smith,
308 U.S. 473, 477-478 (1940).
Once the taxpayer has elected to conduct his business affairs
in corporate form, the taxpayer must accept any tax disadvantages
of that form. See id. at 477. A taxpayer is not free to "turn
around and disclaim the business form he created in order to
realize a loss as his individual loss." Sangers Home for Chronic
Patients, Inc. v. Commissioner, 72 T.C. 105, 116 (1979); see also
Barker v. Commissioner, T.C. Memo. 1993-280.
Whether a corporation exists or not is a matter of State law;
however, whether the corporate entity (if found to exist) should be
disregarded for Federal taxation purposes is a matter of Federal
law. See Stoody v. Commissioner, 66 T.C. 710, 716-717 (1976).
Here, it is clear that Cola, Inc. was formed on June 22, 1988, as
a distinct corporate entity under California law and it continued
to be a valid, legally existing corporate body during the years at
issue. And, for the reasons set forth below, we believe Cola,
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011