Advanced Delivery and Chemical Systems Nevada, Inc. - Page 19

                                       - 19 -                                         
          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               

Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011