Zanesville Investment Co. v. Commissioner of Internal Revenue
United States Court of Appeals for the Sixth Circuit
335 F.2d 507 (1964)
- Written by Heather Ryfa, JD
Facts
Earl J. Jones was the sole stockholder of Muskingum Coal Company (Muskingum) and Zanesville Investment Company (Zanesville) (plaintiff). Zanesville had a wholly owned subsidiary, Earl J. Jones Enterprises, Inc. (Enterprises). Muskingum began suffering sustained losses, and Zanesville and Enterprises began making loans to Muskingum. Jones then transferred all the Muskingum stock to Zanesville. The three corporations attempted to make Muskingum profitable again but were unsuccessful. After the transfer, Zanesville filed consolidated returns with Enterprises and Muskingum; Enterprises was profitable and Muskingum posted losses. The commissioner of the Internal Revenue Service (defendant) disallowed Muskingum’s losses to be deducted from Enterprise’s profits on the return. Zanesville appealed to the United States Tax Court, which ruled in favor of the commissioner, finding that the principal purpose of the stock transfer was the tax benefit from deducting Muskingum’s anticipated losses against Enterprise’s anticipated profits. Zanesville then appealed to the Sixth Circuit Court of Appeals.
Rule of Law
Issue
Holding and Reasoning (Levin, J.)
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