Aetna Casualty and Surety Co. v. United States

Aetna Life Insurance Company (Aetna Life) was a Connecticut corporation that held 61.6 percent of the voting common stock of The Aetna Casualty and Surety Company (Old Aetna), a Connecticut corporation. Both corporations sold insurance but specialized in different types. Aetna Life organized Farmington Valley Insurance Company (Farmington Valley) as a wholly owned subsidiary also incorporated in Connecticut. As a result of this three-way corporate reorganization, the shareholders of Old Aetna received shares of Aetna Life. Aetna Life merged Old Aetna into Farmington Valley, and the shares of Farmington Valley were placed in a trust for Aetna Life shareholders. Therefore, the minority shareholders of Old Aetna still indirectly had an interest in New Aetna through their shares of Aetna Life. Farmington Valley later changed its name to The Aetna Casualty Surety Company (New Aetna) (plaintiff). New Aetna sought to carry back net operating losses to periods prior to the merger to offset Old Aetna’s taxable income. The commissioner of the Internal Revenue Service (United States) (defendant) disallowed the deduction. New Aetna appealed to the United States District Court for the District of Connecticut, which ruled in favor of the United States. New Aetna appealed to the United States Court of Appeals for the Second Circuit.