Bercy Industries, Inc. v. Commissioner

In 1965, Bercy was incorporated. One year later, Bercy changed its name to Bercy Industries, Inc. (Old Bercy). In 1968, Beverly Manor, Inc. was incorporated. Beverly Manor was a shell corporation that did not have its own business operations. Beverly Enterprises (Beverly) was Beverly Manor’s sole shareholder. In 1970, Beverly, Beverly Manor, Old Bercy, and the shareholders of Old Bercy planned and agreed to a reorganization in which Old Bercy merged with Beverly Manor. Beverly Manor was the surviving corporation that changed its name to Bercy Industries, Inc. (New Bercy). The shareholders of Old Bercy received 171,429 shares of Beverly voting common stock as the only consideration for the merger. The shares of Old Bercy were canceled on the merger date. On its tax returns, New Bercy argued that the acquisition qualified as a (B) subsidiary reverse-merger reorganization and that net operating losses could be carried back to the prior tax years of a target acquired through an asset reorganization. The Commissioner of Internal Revenue (the commissioner) (defendant) determined that the transaction did not qualify as a (B) reorganization, and, therefore, the carryback of net operating loss was prohibited. The commissioner disallowed the loss deduction. New Bercy filed a lawsuit in United States Tax Court and argued that New Bercy’s loss deductions of Old Bercy’s net operating losses of Old Bercy were appropriate.