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Under the income tax regulations, a transaction constitutes
a tax-free reorganization only if there is “a continuity of the
business enterprise under the modified corporate form”. Sec.
1.368-1(b), Income Tax Regs. Continuity of business enterprise
requires that the acquiring corporation either continue the
acquired corporation’s historic business or use a significant
portion of the acquired corporation’s historic business assets in
a business. See sec. 1.368-1(d)(2), Income Tax Regs. In
essence, the acquiring corporation must retain a link to the
business enterprise of the acquired corporation by continuing the
acquired corporation’s business or by using the acquired
corporation’s business assets in a business. See Berry Petroleum
Co. v. Commissioner, 104 T.C. 584, 635-636 (1995), affd. 142 F.3d
442 (9th Cir. 1998). In this case, as explained below, we find
that Central neither continued Colonial’s historic business nor
used a significant portion of Colonial’s historic business assets
in Central’s business operations.
1. Continuation of Acquired Corporation’s Historic Business
In general, a corporation’s historic business is the
business it has conducted most recently. See sec. 1.368-
1(d)(3)(iii), Income Tax Regs. Petitioners contend that there is
a continuity of Colonial’s trucking business because Central is
also in the trucking business. We disagree.
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