Briarcliff Candy Corp. v. Commissioner of Internal Revenue
United States Tax Court (1987)
54 T.C.M. (CCH) 667
- Written by Kelly Simon, JD
Facts
In 1973, Eckmar Corporation (Eckmar) recapitalized its subsidiaries, which resulted in Briarcliff Candy Corporation (Briarcliff) (plaintiff) acquiring Health-Med Corporation (Health-Med) and Health-Med’s subsidiaries. After the closing, Eckmar owned 4,000 shares of Health-Med junior preferred stock and approximately 500 shares of Health-Med preferred stock; and Briarcliff owned 40,000 shares of Health-Med common stock. The Health-Med junior preferred stock was convertible into Health-Med common stock at such a high ratio that, once converted, Eckmar would hold as much as 95 percent of the Health-Med voting stock. After the acquisition, Briarcliff, Health-Med, and the Health-Med subsidiaries filed consolidated tax returns. The net operating losses of Briarcliff were deducted against the profits of Health-Med and its subsidiaries. The Commissioner of Internal Revenue (the commissioner) (defendant) disallowed the deductions, determining that Briarcliff and Health-Med had constructed the acquisition so that Health-Med could avoid tax liability on its profits. The commissioner issued a notice of deficiency to Briarcliff. Briarcliff filed a lawsuit in the United States Tax Court disputing the deficiency and moved for summary judgment.
Rule of Law
Issue
Holding and Reasoning (Panuthos, J.)
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