Document: 353 U.S. 382 77 S.Ct. 990 1 L.Ed.2d 924 LIBSON SHOPS, Inc., Petitioner,v.Gustave F. KOEHLER, District Director of Internal Revenue. No. 64. Argued Jan. 15, 1957. Decided May 27, Rehearing Denied June 24, See 354 943, 1390. Messrs. Henry C. Lowenhaupt, and Owen T. Armstrong, St. Louis, Mo., for the petitioner. Mr. John N. Stull, Washington, D.C., respondent. Justice BURTON delivered opinion Court. The issue before us is whether, under §§ 23(s) 122 Revenue Code 1939, as amended, 26 U.S.C.A. ss 23(s), 122, a corporation resulting from merger 17 separate incorporated businesses, which had filed income tax returns, may carry over deduct pre-merger net operating losses three its constituent corporations post-merger attributable to other businesses. We hold that such carry-over deduction not permissible. 2 Petitioner, Libson Shops, was on January 2, 1946, laws Missouri, Shops Management Corporation, provide management services selling women's apparel at retail. Its articles incorporation also permitted it sell apparel. At about same time, interests 16 retail locations. Twelve were went into business in Missouri; four Illinois. Each these sales operated separately returns. Petitioner's sole activity them. outstanding stock all owned, directly or indirectly, by individuals proportions. 3 On August 1, 1949, merged petitioner Missouri New shares petitioner's issued, pro rata, exchange corporations. By virtue agreement, name changed, amount par value revised, corporate purposes expanded. Following merger, conducted entire single enterprise. Thus, effect convert businesses one managing agency, reporting their incomes separately, enterprise filing return. 4 Prior showed losses. These follows: In year following each units formerly continued sustain loss. 5 return first after claimed above $22,432.76 Petitioner sought this amended. Commissioner disallowed paid deficiency. due course brought suit refund United States Court Eastern Missouri. That court dismissed complaint Appeals affirmed. 229 F.2d 220. granted certiorari decide questions law involved. 351 961, 76 1026, 100 L.Ed. 1482. 6 Section authorizes 'net loss computed section 122.'1 prescribes basic rules calculation. pertinent parts generally (1) loss' excess taxpayer's deductions gross (§ 122(a)); (2) that, if taxpayer has loss, be used carry-back' two prior years 122(b)(1) (A)) and, exhausted carry-back, remainder carry-over' succeeding 122(b)(2)(C)); (3) aggregate carry-backs carry-overs applicable given taxable deduction' § 122(c)). 7 are concerned here with claim an immediately year. particular provision case rests 8 'If any beginning December 31, 1947, 1950, shall * *.' (Emphasis supplied.) 122(b)(2)(C), 64 Stat. 937, 938, 65 505, U.S.C. U.S.C..A. 122(b)(2)(C). 9 controversy centers meaning 'the taxpayer.'2 contentions parties require whether can said petitioner, combination taxpayer' having those 10 support denial carry-over, Government argues statutory privilege available unless claiming entity sustained reliance Colonial Ice Co. v. Helvering, 292 435, 54 788, 78 1348, cases it,3 chartered entity. hand, relying Helvering Metropolitan Edison Co., 306 522, 59 634, 83 957, it,4 treated constituents whose legal attributes succeeded operation state law. However, we find unnecessary discuss since alternative argument made dispositive case. contends there continuity It year's offset against current only extent derived substantially produced Only 'taxpayer' Cir., 190 330; Weber F.id Flour Mills Commissioner, 82 764; Pennsylvania Insurances Lives Granting Annuities 75 719; Shreveport Producing & Refining 71 972; Brandon Corp. 762. 11 requirement applied accord legislative history carry-back provisions. Those provisions enacted ameliorate unduly drastic consequences taxing strictly annual basis. They designed permit set off lean lush years, strike something like average period longer than year.5 There is, however, no indication averaging some been taxed merger. What suggests Congress primarily fictuating business.6 12 This distinction recognized very relies. Stanton Brewery, Inc. 176 573, 577, stressed fact merging involved carried 'essentially continuing enterprise, entitled benefits (of provisions) ameliorating otherwise harsh fluctuating profits expanding business.' And Newmarket Manufacturing States, 233 493, 497, expressly distinguished instant ground 'one business' while 'several business.'7 13 difference merely matter form. case, supra, desiring change domicile caused organization new it. back old corporation. But itself would have carry-back. present corporations, chose file returns rather pool consolidated attempting Had opportunity If take acquired they elected forego when 14 do imply question evasion avoidance 129(a) 1939 Code, does contain vitiate possible acquisition property 'principal purpose' avoidance.8 inapplicable finding mean automatically carry-over. availability depends proper interpretation nothing suggest should construed give 'windfall' who happens purpose advantage others merged. conclude incurred losses.9 15 judgment Affirmed. DOUGLAS dissents. 18 WHITTAKER took part consideration decision As originally added Act c. 247, 53 862, 867—868, provided computation without relating them taxpayer. 153(a) 1942, 619, 56 798, 847—848, amended 122(b) allow but provide, both carry-overs, could so utilized. words omitted 1954 acquisitions assets anothr another E.g., Standard Paving Commissioner. Cir. Cpmmissioner, 493; E. J. Gallo Winery 227 699; 573; Koppers co. 134 F.Supp. 290, 133 Ct.Cl. 22. Lewyt 349 237, 243—244, 736, 740—741, 99 1029 (dissenting opinion); Manning Seeley Tube Box 338 561, 566—567, 70 386, 389, 94 346; 574; H.R.Rep. 855, 76th Cong., 1st Sess. 9—10; S.Rep. 1631, 77th 2d 51—52. House Committee Ways Means, stated that— 'The bill, together committee amendments, permits taxpayers years. 1932, 2-year allowed. No ever allowed greater reduced National Industrial Recovery entirely eliminated. result elimination alternating profit required pay higher taxes stable pfofits, although firms equal. enterprises capital-goods industries especially subject wide fluctuations earnings. therefore, believed allowance will greatly aid stimulate enterprises.' 9. 22, involves situation essentially before, 699, inconclusive point disclose Cf. 382(a) 1954, purchase trade business. Under circumstances defined, precludes corporation, continues engage 'substantially same' ownership. 382(a)(1)(C). 1943, 63, 58 21, 47, 128, section: 'Sec. 129. Acquisitions evade avoid '(a) Disallowance deduction, credit, allowance. person persons acquire, October 8, 1940, control acquires, controlled, acquisition, acquiring stockholders, basis property, hands determined reference transferor principal Federal securing benefit enjoy, then For clauses (2), means ownership possessing least 50 per centum total combined voting power classes vote corporation.' 129(a). 871, 78th 49—50; 627, 26—27, 58—61. pass situations presented Northway Securities 23 B.T.A. 532; Alprosa Watch T.C. 240; A.B. Container 842; W A G E, 19 249. changed character credits another.

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