International Multifoods v. Commissioner
United States Tax Court
108 T.C. 579 (1997)
- Written by David Bloom, JD
Facts
International Multifoods Corporation (IMC) (plaintiff) was a United States company that sought to expand to Latin America. Damca International Corporation (Damca) was a subsidiary of IMC. IMC and Damca owned stock in Multifoods Alimentos, Ltda. (MAL). MAL acquired stock in Paty S.A.-Produtos Alimenticios, Ltda. (Paty), a Brazilian pasta manufacturer. As a result of MAL’s acquisition of Paty’s stock, IMC and Damca initially had an indirect interest in Paty. MAL’s shares in Paty were transferred to IMC and Damca after MAL was liquidated. The vast majority of IMC’s shares in Paty were then transferred to Damca. Paty did not generate any net income or distribute dividends and, thus, became an unprofitable investment for IMC and Damca. IMC and Damca sold all of the Paty stock to another company. IMC and Damca lost money on the sale. IMC and Damca filed a joint federal income tax return that included a claim for a foreign tax credit. IMC reported the loss from the sale of Paty stock as a US-source loss in calculating the foreign tax credit. The Internal Revenue Service (defendant) disallowed the foreign tax credit on the grounds that IMC incurred a foreign-source loss, not a US-source loss. IMC petitioned for judicial review.
Rule of Law
Issue
Holding and Reasoning (Ruwe, J.)
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