Alumax, Inc. v. Commissioner of Internal Revenue, 093097 FEDTAX, 7779-95

Docket Nº:7779-95
Opinion Judge:CHIECHI, Judge
Party Name:ALUMAX INC. AND CONSOLIDATED SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Willard B. Taylor, Michael Lacovara, Philip L. Graham, Jr., and Michael W. Martin, for petitioners. Lewis R. Mandel and Robert E. Marum, for respondent.
Case Date:September 30, 1997
Court:United States Tax Court
 
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109 T.C. No. 8

ALUMAX INC. AND CONSOLIDATED SUBSIDIARIES, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 7779-95

United States Tax Court

September 30, 1997

For certain years prior to the period at issue, petitioners, company A (A) and its subsidiaries (A group), were members of an affiliated group of corporations within the meaning of sec. 1504(a)1 that had A as its common parent, which filed consolidated returns for those corporations. During that time, A had issued and outstanding two classes of stock, each of which possessed 50 percent of the voting power of all classes of its stock, one class of which was held by certain corporations (B group stockholders) who were members of an affiliated group of corporations (B group) within the meaning of sec. 1504(a), and the other class of which was held by certain other corporations (C group stockholders). Company B (B) filed consolidated returns for years preceding the period at issue as the common parent of the B group.

Around the beginning of the period at issue, A amended its certificate of incorporation (certificate) and thereby effected certain changes in its capital structure and in the rights of its capital stock. Around the same time, A and its stockholders executed a stockholders agreement (agreement) that also effected certain changes in the rights of A's capital stock. Thereafter, A had two classes of stock outstanding that had the rights stated in the certificate and the agreement and that were held by the B group stockholders and the C group stockholders, respectively.

For each year during the period at issue, B filed a consolidated return in which it claimed to be the common parent of an affiliated group within the meaning of sec. 1504(a) that consisted of corporations in both the A group and the B group. During the course of the examination by the Internal Revenue Service of those consolidated returns, either B or its successor executed written agreements extending the period of limitations under sec. 6501 for each year during the period at issue for the assessment of tax due from the corporations that were included in those returns.

Held: For each year during the period at issue, petitioners were not members of the affiliated group within the meaning of sec. 1504(a) that had B as its common parent, and, consequently, they are not entitled to join in the consolidated return that B filed for each of those years in which it claimed to be the common parent of a group of corporations that included petitioners. Held, further, the period of limitations under sec. 6501 for each of the years during the period at issue for the assessment of tax due from the A group has not expired.

Willard B. Taylor, Michael Lacovara, Philip L. Graham, Jr., and Michael W. Martin, for petitioners.

Lewis R. Mandel and Robert E. Marum, for respondent.

OPINION2

CHIECHI, Judge

Respondent determined the following deficiencies in petitioners' Federal income tax:

Taxable Year Ended

Deficiency

Dec. 31, 1981

$5,663,086

Dec. 31, 1983

11,454,565

Dec. 31, 1984

40,433,142

Dec. 31, 1985

48,511,681

Nov. 24, 19861

23,175,558

1We shall refer to the taxable year ended Nov. 24, 1986, as 1986.

The principal issues for decision are:3

(1) Were petitioners members of the affiliated group within the meaning of section 1504(a) that had Amax Inc. (Amax) as its common parent, which filed a consolidated Federal income tax return (consolidated return) for each of the years 1984, 1985, and 1986 that included petitioners?4 We hold that they were not and that therefore petitioners may not join in any of those consolidated returns.

(2) Has the period of limitations under section 6501 for each of the years 1984, 1985, and 1986 for the assessment of tax due from petitioners' group expired? We hold that it has not.

This case was submitted fully stipulated. All of the facts that have been stipulated are so found unless otherwise stated herein.

General

Alumax Inc. (Alumax), a Delaware corporation organized by Amax on October 17, 1973, had its principal place of business in Norcross, Georgia, at the time the petition was filed.5 At all relevant times Alumax has been an integrated aluminum company engaged in the production and sale of primary aluminum, semi-fabricated products, and diverse fabricated products.

Amax, a New York corporation organized in 1887, has been at all relevant times a worldwide supplier of metals and energy, as well as a manufacturer and distributor of metals-related products and chemicals.6 Prior to December 5, 1973, Amax' principal businesses were in aluminum, coal, gold, and molybdenum. Amax conducted the aluminum business, which it had entered during 1962, through certain domestic and foreign subsidiaries (Amax Aluminum Group).

On December 5, 1973, Amax caused Amax Realty Corp. (Amax Realty), Bemax Realty Corp. (Bemax), and Cemax Corporation (Cemax), three of its wholly owned subsidiaries that were part of the Amax Aluminum Group, to transfer to Alumax substantially all of their respective assets. In consideration for those transfers, Alumax assumed substantially all of the respective liabilities of those corporations and issued to them 70, 58, and 52 shares, respectively, of its common stock. On the same date, Amax transferred to Alumax the capital stock of substantially all of its other subsidiaries that were part of the Amax Aluminum Group. In consideration for those transfers, Alumax issued to Amax 320 shares of its common stock. After the transfers on December 5, 1973, Alumax had 500 shares of common stock issued and outstanding.

The 1974 Restructuring of Alumax

The 1974 Restated Certificate of Incorporation and the 1974 Stockholders Agreement

On January 15, 1974, Alumax filed with the Office of the Secretary of State of Delaware (Delaware Secretary of State) a restated certificate of incorporation (1974 restated certificate of incorporation) that was effective as of that date (1974 restructuring). On a date not specified in the record, Alumax and certain of its stockholders executed a stockholders agreement dated as of January 16, 1974 (1974 stockholders agreement) that contained certain of the provisions that were contained in the 1974 restated certificate of incorporation. Unless otherwise indicated, the 1974 restated certificate of incorporation effected, inter alia, the following.

Alumax was authorized to issue (1) 500 shares of class A common stock (class A common stock) that had a par value of $100 a share and (2) 500 shares of class B common stock (class B common stock) that had a par value of $100 a share. As a result of the 1974 restructuring, (1) the 320 shares of the Alumax common stock that Amax held as of January 15, 1974, were changed into 70 shares of the class A common stock and 250 shares of the class B common stock, and (2) the 70, 58, and 52 shares of the Alumax common stock that Amax Realty, Bemax, and Cemax, respectively, held as of that date were changed into 70, 58, and 52 shares of the class A common stock.

On January 30, 1974, pursuant to an agreement between Amax and Mitsui & Co. Ltd. (Mitsui Japan), a Japanese general trading company engaged at all relevant times, inter alia, in the trading of base and refined metals including aluminum and the manufacturing of consumer and industrial products in Japan, Amax sold to Mitsui Japan all 250 shares of the class B common stock that it held for $125 million in cash.

Each share of each class of Alumax common stock had one vote, and any action of the Alumax stockholders required an affirmative vote of a majority of the outstanding shares of each such class. The affirmative action of a majority of the outstanding shares of each class of Alumax common stock was required (1) to amend, modify, or repeal the 1974 restated certificate of incorporation and (2) to amend or repeal the Alumax bylaws.

The 1974 stockholders agreement provided that Alumax was to pay dividends on or with respect to its stock at such times and in such amounts as its board of directors (Alumax board) determined was appropriate in light of its earnings, cash flow, and capital requirements. Each share of each class of Alumax common stock participated equally in all dividends and other distributions on or with respect to such stock, including distributions in liquidation or dissolution and dividends or other distributions as may have been duly declared by the Alumax board.

The Alumax board, which consisted of 10 voting and 2 nonvot-ing members, exercised all corporate powers (Alumax board corporate powers) unless otherwise expressly provided by law, the 1974 restated certificate of incorporation, and/or the Alumax bylaws. Except as not pertinent here, the class A common stock and the class B common stock had the following voting rights with respect to the Alumax board membership: (1) The class A common stock had the right by affirmative vote of a majority of the outstanding shares of that stock entitled to vote to elect, remove with or without cause, accept resignations of, and fill vacancies in the offices of one-half of the voting members of the Alumax board; (2) the class B common stock had the right by affirmative vote of a majority of the outstanding shares of that stock to elect, remove with or without cause, accept resignations of, and fill vacancies in the offices of the remaining half of those voting members; and (3) both classes of Alumax common stock had the right by affirmative vote of a majority of the outstanding shares of each such class of stock to elect, remove with or without cause, accept resignations of, and fill vacancies in the offices of any of the nonvoting members of the board and to increase or decrease the number of those Alumax board members.

In exercising the Alumax board corporate powers,

(1) each voting member of the Alumax board had one vote;

(2) a majority of the five...

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