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be attributed to the parent corporation. The relevant language
of section 1.537-3(b), Income Tax Regs., provides as follows:
If one corporation owns the stock of another
corporation and, in effect, operates the other
corporation, the business of the latter corporation may
be considered in substance, although not in legal form,
the business of the first corporation. * * * Thus, the
business of one corporation may be regarded as
including the business of another corporation if such
other corporation is a mere instrumentality of the
first corporation; that may be established by showing
that the first corporation owns at least 80 percent of
the voting stock of the second corporation. If the
taxpayer’s ownership of stock is less than 80 percent
in the other corporation, the determination of whether
the funds are employed in a business operated by the
taxpayer will depend upon the particular circumstances
of the case. * * *
See also Inland Terminals, Inc. v. United States, 477 F.2d 836,
839-841 (4th Cir. 1973) (holding that the above regulation
generally allows a subsidiary corporation to accumulate earnings
for the business needs of its parent corporation); Montgomery Co.
v. Commissioner, 54 T.C. 986, 1006-1007 (1970) (applying the
above regulation and concluding that a corporation did not
constitute a mere holding company where the taxpayer pursued a
business venture through its wholly owned subsidiary); Farmers &
Merchs. Inv. Co. v. Commissioner, T.C. Memo. 1970-161 (applying
the above regulation and concluding that, although a corporation
owned less than 80 percent of the voting stock of its subsidiary,
the subsidiary’s business was attributable to the corporation
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