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In Dahlem Found., Inc. v. Commissioner, supra, we concluded
that a corporation’s activities (e.g., locating land for a
shopping center, negotiating and paying the purchase price for
the land, securing leases for occupancy of buildings in the new
shopping center, and performing management functions with respect
to the shopping center) established that the corporation did not
constitute a mere holding company for purposes of the accumulated
earnings tax. Id. at 1576-1577. We explained that the word
“mere” in the statutory language at issue is meant to draw a
distinction between corporations that are strictly passive in
nature and those which engage in some measure of business
activity. Id. at 1576; see also sec. 1.533-1(c), Income Tax
Regs. (defining a holding company as a corporation that has
practically no activities except holding property and collecting
income therefrom).
Under section 1.537-3(b), Income Tax Regs., it is provided
that, for purposes of the accumulated earnings tax, where a
corporation substantially owns and effectively operates a
subsidiary company, the business activities of the subsidiary may
5(...continued)
burden of proof as to whether a corporation constitutes a mere
holding company for purposes of the accumulated earnings tax may
be available under the provisions of sec. 7491. The parties
herein, however, do not request any such shift in the burden of
proof as to the issue of petitioner’s status as a mere holding
company.
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