Covil Insulation Co. v. Commissioner
United States Tax Court
65 T.C. 364 (1975)
- Written by Kelly Simon, JD
Facts
In 1965, Covil Insulation Co., Inc. (Covil) (plaintiff) acquired all of the outstanding stock of J. L. Wynn & Co. for $5. At the time of the acquisition, J. L. Wynn’s name changed to Imesco, Inc. After the acquisition, Covil capitalized $45,000 of Imesco’s indebtedness. In the years following the acquisition, Covil filed consolidated tax returns. In these consolidated returns, the losses of Imesco offset the profits of affiliates included in the return. The Imesco losses far exceeded the basis that Covil had invested in the subsidiary. In 1968, Covil liquidated Imesco, at which time Covil had an excess-loss account of over $118,000. Covil again filed consolidated returns in 1968. The Commissioner of Internal Revenue (the commissioner) (defendant) found that Covil’s 1968 consolidated tax return was deficient, as the excess-loss account amount was not treated as income. Covil filed a suit against the commissioner in United States Tax Court, challenging the validity of the requirement that the excess-loss account be treated as income.
Rule of Law
Issue
Holding and Reasoning (Featherston, J.)
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