Interlake Corp. v. Comm'r of Internal Revenue
| Decision Date | 18 March 1999 |
| Docket Number | No. 8258–96.,8258–96. |
| Citation | 112 T.C. 103,112 T.C. No. 10 |
| Parties | INTERLAKE CORPORATION, Successor in Interest to Interlake, Inc., and Consolidated Subsidiaries, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
P, as the result of a restructuring transaction, became the successor common parent of a consolidated group of corporations (the group). A, the former common parent of the group, became a wholly owned subsidiary of P. P then distributed, pro rata, to its shareholders, all of the issued and outstanding common shares of A, which became, as a result of the spinoff, a separate publicly traded corporation.Subsequent to the restructuring transaction, P and the group incurred a consolidated net operating loss (CNOL). P filed an application under sec. 6411, I.R.C., for a tentative refund of income tax attributable to the carryback of the postrestructuring transaction CNOL to 1984, a prespinoff year during which A controlled the group. A and its new group also incurred a postrestructuring transaction CNOL for which A filed an application under sec. 6411, I.R.C., for a tentative refund of income tax attributable to the carryback of its postrestructuring transaction CNOL to 1981 and 1984, prespinoff years during which A controlled the group. After review by the Internal Revenue Service, the requested tentative refunds were issued to P and A, respectively. The tentative refunds issued to A were treated as rebate refunds with respect to P and the group for purposes of computing the group's deficiencies for 1981 and 1984.P contends that the tentative refunds in issue were paid to the wrong taxpayer, and therefore the tentative refunds do not constitute rebate refunds. R concedes that a refund issued to the wrong taxpayer, or to an unauthorized representative of the taxpayer is a nonrebate refund that may not be taken into account in determining the taxpayer's deficiency. However, R contends that payment to A was proper because A was an authorized representative of the group for purposes of the issuance of the tentative refunds.Held: The tentative refunds constitute nonrebate refunds with respect to P and the group because A's authority to act for the group, at least with respect to the issuance and receipt of the tentative refunds, terminated when A's affiliation with the group terminated. Accordingly, A was not an authorized recipient of the tentative refunds, and respondent cannot seek recovery of the tentative refunds from P through the deficiency procedures. Union Oil Co. v. Commissioner, 101 T.C. 130, 1993 WL 280507 (1993), distinguished.John M. Newman, Jr., and Kenneth E. Updegraft, Jr., for petitioner.
Lawrence C. Letkewicz, for respondent.
This matter is before the Court on the parties' cross-motions for summary judgment pursuant to Rule 121(a). Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the taxable years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Respondent determined deficiencies in the Federal income tax of the Interlake Corp. and its consolidated subsidiaries as follows:
+----------------+
¦Year¦Deficiency ¦
+----------------¦
¦ ¦
+----------------¦
¦1974¦$78 ¦
+----+-----------¦
¦1975¦21 ¦
+----+-----------¦
¦1976¦19,750 ¦
+----+-----------¦
¦1977¦66 ¦
+----+-----------¦
¦1978¦19 ¦
+----+-----------¦
¦1980¦952,588 ¦
+----+-----------¦
¦1981¦1,751,739 ¦
+----+-----------¦
¦1983¦4,413,390 ¦
+----+-----------¦
¦1984¦9,796,362 ¦
+----------------+
After concessions by petitioner, only the deficiencies with respect to 1981 and 1984 remain in issue. We must decide whether certain tentative refund allowances that were paid to Acme Steel Co. (formerly Interlake, Inc.), with respect to taxable years 1981 and 1984 constitute rebates to petitioner, Interlake Corp. (successor in interest to Interlake, Inc.), and its consolidated subsidiaries, for purposes of computing petitioner's deficiency, if any, for taxable years 1981 and 1984.
Summary judgment may be granted if the pleadings and other materials demonstrate that no genuine issue exists as to any of the material facts and that a decision may be entered as a matter of law. See Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520, 1992 WL 88529 (1992), affd. 17 F.3d 965 (7th Cir.1994). The parties agree, and the record shows, that there is no genuine issue as to any material fact. Accordingly, we may render judgment on the issue in this case as a matter of law. See Rule 121(b).
Some of the facts and certain exhibits have been stipulated by the parties for purposes of the instant motion. The stipulation of facts is incorporated in this Opinion by reference. When petitioner filed its petition in the instant case, its principal place of business was located in Lisle, Illinois.
As a result of a May 29, 1986, restructuring transaction (restructuring transaction), petitioner became the successor common parent of a consolidated group of corporations that had previously been headed by Interlake, Inc. References to the group are to the group of consolidated corporations controlled by Interlake, Inc., before the restructuring transaction and then by petitioner after the restructuring transaction.
Prior to the restructuring transaction, Interlake, Inc., was the common parent of the group. The group consisted of various subsidiaries, including the Alabama Metalurgical Corp. (AMC). Interlake, Inc., was a publicly owned corporation, and its shares of common stock were listed and traded on the New York Stock Exchange (N.Y.SE).
Petitioner was organized on February 26, 1986, in anticipation of the planned restructuring transaction. From its incorporation until the restructuring transaction on May 29, 1986, petitioner was a wholly owned subsidiary of Interlake, Inc., and a member of the group.
As a result of the restructuring transaction, Interlake, Inc., became a wholly owned subsidiary of petitioner, and AMC became a wholly owned subsidiary of Interlake, Inc.1 Immediately following the restructuring transaction, Interlake, Inc., changed its name to Acme Steel Co. (Acme), which continued to use Interlake, Inc.'s Federal identification number after the restructuring transaction.
As a result of the restructuring transaction, petitioner became the successor common parent of the continuing group. Petitioner is a publicly owned corporation, and its shares of common stock are listed and traded on the NYSE.
On June 23, 1986, petitioner distributed, pro rata to its shareholders, all of the issued and outstanding common shares of Acme (spinoff). As a result of the spinoff, Acme became a separate publicly traded corporation, the shares of which are listed and traded on the National Association of Securities Dealers Automated Quotation system.
The June 23, 1986, spinoff severed Acme's tie to the group. Petitioner and Acme ceased to be members of the same consolidated group, and, since the spinoff, they are not under common control. Additionally, neither petitioner nor Acme owns any shares of stock in the other or any of the other's affiliates.
The parties do not stipulate as to the tax character of the restructuring transaction or the spinoff.
On their 1986 consolidated Federal income tax return, filed on or about August 7, 1987, petitioner and the group reported a consolidated net operating loss (CNOL) in the amount of $8,461,369 and excess consolidated general business credits in the amount of $1,496,693. The return was prepared on the basis that petitioner is the successor common parent of the group, and it included the taxable income or loss of petitioner and each member of the group for either (1) the entire 52–53 week year (beginning on December 30, 1985, and ending on December 28, 1986) or (2) the portion of that taxable year during which each such corporation was a member of the group.
On or about August 11, 1987, petitioner and the group filed, with the Internal Revenue Service Center, Kansas City, Missouri (service center), Form 1139, Corporation Application for Tentative Refund. On the application, petitioner and the group requested a tentative refund of income tax in the amount of $5,346,097 attributable to the carryback of the 1986 CNOL and excess consolidated business credits to the group's 1984 taxable year. Petitioner attached to the application for tentative refund allowance a statement detailing the restructuring transaction in which petitioner became the successor common parent of the group.
On or about September 14, 1987, the service center, after processing petitioner's application, made a tentative refund allowance to petitioner in the amount of $5,346,097. The service center charged the tentative refund allowance to the Federal income tax account of the group for 1984 (i.e., to the tax account of Acme).
Acme and its wholly owned domestic subsidiary, AMC, had a short taxable year for 1986, which short taxable year began on June 23 and ended on December 28. On their consolidated Federal income tax return for the 27–week short taxable year ended on December 28, 1986, Acme, and its consolidated subsidiary, AMC, reported a CNOL in the amount of $29,286,968, the entire amount of which was attributable to Acme. The return was prepared on the basis that, after the spinoff, Acme and its consolidated subsidiary, AMC, constituted a new consolidated group, which was unrelated to petitioner and the group.
On or about September 17, 1987, Acme and its consolidated subsidiary filed, with the service center, two Forms 1139, Corporation Application for Tentative Refund. On the first Form 1139, Acme and its consolidated subsidiary requested a tentative refund of income tax in the amount of $11,298,371, attributable to the carryback of the Acme 1986 short-year CNOL to Acme's ...
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