Dover Corporation and Subsidiaries, (2004)
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Dover Corporation and Subsidiaries, (2004)
122 T.C. No. 19
UNITED STATES TAX COURT DOVER CORPORATION AND SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 12821-00. Filed May 5, 2004.D and H, United Kingdom corporations, were controlled foreign corporations with respect to P. H was a wholly owned subsidiary of D. In 1997, D sold the stock of H to an unrelated third party. In 1999, P requested that H be granted an extension of time to retroactively elect to be treated as a 'disregarded entity' pursuant to sec. 301.7701-3, Proced. & Admin. Regs., effective 'immediately prior to' D's sale of the H stock. R granted the requested extension of time on Mar. 31, 2000. H's retroactive disregarded entity election was filed on or about Oct. 10, 1999. Pursuant to that election, there was, for Federal tax purposes, a deemed sec. 332, I.R.C., liquidation of H followed immediately by D's deemed sale of H's assets, rather than a sale by D of the H stock.Held: In light of R's administrative guidance pertaining to the tax effects of a liquidation governed by secs. 332 and 381, I.R.C., D's deemed sale of H's assets constitutes a sale of property used in D's trade or business within the meaning of sec. 1.9542(e)(3)(ii) through (iv), Income Tax Regs., with the result that D's gain on that sale does not constitute Subpart F (foreign personal holding company) income to P pursuant to sec. 954(c)(1)(B)(iii), I.R.C. Rauenhorst v. Commissioner, 119 T.C. 157 (2002), applied.Robert D. Whoriskey, George Pompetzki, Eduardo A. Cukier, and Linda Galler, for petitioner.Lyle B. Press, for respondent.OPINION HALPERN, Judge: Dover Corporation (petitioner) is the common parent of an affiliated group of corporations making a consolidated return of income (the group or affiliated group). By notice of deficiency dated September 14, 2000 (the notice), respondent determined deficiencies in Federal income tax for the group for its 1996 and 1997 taxable (calendar) years in the amounts of $9,329,596 and $24,422,581, respectively. All but one of the adjustments that gave rise to those determinations have been settled, and this report addresses the sole remaining issue, which involves an interaction between the so-called check-the-box regulations and the definition of foreign personal holding company income (FPHCI); viz, whether the deemed sale of assets immediately following their deemed receipt (pursuant to the check-the-box regulations) from a disregarded foreign entity gives rise to FPHCI.Unless otherwise stated, all section references are to the Internal Revenue Code in effect for 1997, the year at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.Background Introduction This case was submitted for decision without trial pursuant to Rule 122. Facts stipulated by the parties are so found. The stipulation of facts filed by the parties, with attached exhibits, is included herein by this reference. Respondent objects, on the grounds of relevance, to 26 exhibits referenced in certain of the stipulations. See the discussion infra section IV.Petitioner is a Delaware corporation, whose shares are publicly traded and which maintains its principal place of business in New York, New York.Business Activities of the Affiliated Group Together, the affiliated group is a diversified industrial manufacturer, producing through its members and foreign subsidiaries a broad range of products and sophisticated manufacturing equipment for other industries and businesses. During and prior to 1997, the group's business activities were divided into five business groups, one of which was known as Dover Elevator.Dover Elevator Dover Elevator, like each of the other business groups, was managed by a...See the full content of this document
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