Brown Group, Inc. v. Commissioner
United States Court of Appeals for the Eighth Circuit
77 F.3d 217 (1996)
Brown Group, Inc. (plaintiff) was a United States corporation that owned Brown Cayman Ltd (BCL), a controlled foreign corporation organized in the Cayman Islands. BCL was the majority partner in Brinco, a partnership organized in Brazil that purchased Brazilian shoes for Brown Group to resell in the United States. In 1986 Brinco’s only income came from commissions it received from Brown Group. As a partner in Brinco, BCL received a share of Brinco’s income from the commissions. Brown Group deducted the commissions on its income-tax return. If the commissions had been paid to BCL directly, BCL’s income would have been Subpart F income that was taxable to Brown Group. The Commissioner of Internal Revenue (the Commissioner) (defendant) assessed a deficiency against Brown Group, arguing that the commissions should be reclassified as Subpart F income. Brown Group petitioned the United States Tax Court for a redetermination. The tax court agreed with the Commissioner’s reasoning and recharacterized BCL’s earnings as Subpart F income that was taxable to Brown Group. Brown Group appealed.
Rule of Law
Holding and Reasoning (Garth, J.)
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