Commissioner v. British Motor Car Distributors

British Motor Car Company (the partnership) was a partnership that imported and sold foreign automobiles owned by Kjell H. Qvale and his wife. In 1951 the partnership purchased Empire Home Equipment Company (Empire), a failing appliance company, for $21,250. After the acquisition, Empire changed its name to British Motor Car Distributors (Distributors) (plaintiff). The partnership then acquired all outstanding stock from Distributors and transferred its assets to Distributors. In 1952 and 1953, Distributors was a successful company. Despite this, Distributors carried forward the operating losses it had sustained as Empire during the years 1949, 1950, and 1951 and deducted those losses from its income. The Commissioner of Internal Revenue (the Commissioner) (defendant) disallowed the deductions, arguing that § 269(a) of the Internal Revenue Code prevented Distributors from carrying forward Empire’s losses because Empire acquired the partnership and became Distributors principally for tax purposes. The United States Tax Court disagreed. The tax court held that § 269(a) applied only to a profitable company that acquired a failing company. In this case, the tax court reasoned, the failing company with losses that could be carried over and exploited for tax purposes was the acquiring company. The Commissioner appealed.