Court Opinion

ID: 4479735
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:49.926201+00
Date Added: 2024-06-11T15:03:33.003199
License: Public Domain

MijRdock, J., concurring: Equity invested capital, as defined in the statute, includes property paid in for stock. That property goes into the computation under certain circumstances at its unadjusted basis for determining loss. See sec. 718 (a) (1) and (2), I. R. C. Properties of the transferor were paid in for the stock of the petitioner. There was no gain or loss recognized on that transfer. The amount to be included in equity invested capital as property paid in for stock is the unadjusted basis of the transferred property in the hands of the transferor corporations. Equity invested capital also includes accumulated earnings and profits of a taxpayer as of the beginning of the year. The earnings and profits of the transferors, under the principle of the Sansome case, become the earnings and profits of the transferee. The assets of the transferor corporations at their book basis already reflect the earnings of those corporations. If both the assets and the earnings of the traiisferors go into equity invested capital of the transferee corporation, there is a duplication equivalent to the amount of the earnings and profits of the transferor corporations taken over by the transferee. Such a duplication must be eliminated. Sec. 718 (b) (3). The duplication continues even though the transferee corporation loses the earnings of the transferor corporations. Because of the duplication above described, the loss of earnings works a double reduction of what makes up equity invested capital. Not only do the earnings disappear, but the asset account is correspondingly reduced. In other words, the transferee corporation, in the loss of the earnings of the transferor corporation, has lost a corresponding amount of the assets paid in for its stock which supported those earnings in the example above, so there is still necessity for an elimination. Hill, /., agrees with the above.