Summary
In the Garber Industries Holding Co. v. Commr. case, A sold all of his closely held corporation shares to his brother B. As a result of that sale, B's percentage ownership of the company increased by more than 50 percentage points. On its consolidated income tax return for 1998, the company claimed a net operating loss deduction of $808,935 for regular tax purposes and $735,783 for alternative minimum tax purposes. The Tax Court held that A and B are not treated as one individual under Section 382(l)(3)(A)(i). The court held further that A's sale of his company shares to B resulted in an ownership change with respect to the company.
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Extract
Garber Industries Holding Co., Inc., Petitioner V. Commissioner of Internal Revenue, Respondent
Docket No. 10871-01. Filed January 25, 2005.
P, a closely held corporation, is the parent of an affiliated group that files consolidated Federal income tax returns. In April 1998, A sold all of his P shares to his brother, B. As a result of that sale, B's percentage ownership of P increased by more than 50 percentage points. On its consolidated income tax return for 1998, P claimed a net operating loss (NOL) deduction of $808,935 for regular tax purposes and $735,783 for alternative minimum tax (AMT) purposes. R determined that the 1998 transaction between A and B resulted in an ownership change with respect to P within the meaning of sec. 382(g), I.R.C. In accordance with sec. 382(b), I.R.C., R reduced P's 1998 NOL deduction, for both regular tax and AMT purposes, to $121,258.1. Held, sec. 382(1)(3)(A)(i), I.R.C., which provides that an "individual" and all members of his family described in sec. 318(a)(1), I.R.C. (i.e., his spouse, children, grandchildren, and parents), are treated as one individual for purposes of applying sec. 382, I.R.C., applies solely from the perspective of individuals who are shareholders (as determined under applicable attribution rules) of the loss corporation.2. Held, further, A and B are not treated as one individual under sec. 382(1)(3)(A)(i), I.R.C.3. Held, further, A's sale of his P shares to B resulted in an ownership change with respect to P wi...See the full content of this document
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