# Petition — Commissioner v. Delta Metalforming Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1981
- **Citation:** 451 U.S. 968

## Text

| Office Supreme Court, U.S.

FILED
if

80-1499 || Me 4 war

ALEXANDER L. STEVaS,
SeteRK

Iu the Supreme Court of the United States

OCTOBER TERM, 1980

COMMISSIONER OF INTERNAL REVENUE, PETITIONER
Vv.

DELTA METALFORMING Co., INC.

PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

WADE H. McCREE, JR.
Solicitor General
Department of Justice
Washington, D.C. 20530
(202) 683-2217

In the Supreme Court of the United States

OCTOBER TERM, 1980

No.

COMMISSIONER OF INTERNAL REVENUE, PETITIONER
Vv.
DELTA METALFORMING Co., INC.

PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

QUESTION PRESENTED

Section 1561(a) of the Internal Revenue Code of
1954 (26 U.S.C.) provides that a “controlled group
of corporations” shall be limited to a single corporate
surtax exemption. Under Section 1563 (a) (2), a “con-
trolled group of corporations” includes a “brother-
sister controlled group,” which is defined as “[t]wo or
more corporations if 5 or fewer persons who are indi-
viduals * * * own * * * stock” possessing two pre-
scribed and differing percentages of the total com-
bined voting power of all classes of voting stock or of
the total value of all classes of the stock of each
corporation.

The question presented is whether the statutory
definition is met if the “5 or fewer persons” own
the prescribed stock singly or in combination, as the
governing Treasury Regulations provide, or whether
each person whose stock is to be taken into account
must own stock in each corporation of the group, as
the decision below held.

(1)

The Solicitor General, on behalf of the Commis-
sioner of Internal Revenue, petitions for a writ of
certiorari to review the judgment of the United States
Court of Appeals for the Fifth Circuit entered in this

case.
OPINIONS BELOW

The opinion of the court of appeals (App. A, infra,
la-22a) is reported at 632 F.2d 442. The opinion of
the Tax Court (App. C, infra, 25a-36a) is not offi-
cially reported.

JURISDICTION

The judgment of the court of appeals was entered
on December 8, 1980 (App. B, infra, 23a-24a). The
jurisdiction of this Court is invoked under 28 U.S.C.
1254(1).

STATUTES AND REGULATIONS INVOLVED

The relevant provisions of Sections 11(d), 1561(a)
and 1563(a)(2) of the Internal Revenue Code of
1954 (26 U.S.C. (1970 ed.)) and of the Treasury
Regulations, Section 1.1563-1(a) (3) (26 C.F.R.), are
set forth at App. D, infra, 37a-40a.

STATEMENT

Respondent Delta Metalforming Company is a
Texas corporation. The stock of respondent is owned
by three individuals who, together with F.T. Sharp,
own all of the stock of two other corporations, Delta
Steel Buildings and Delta Engcon (App. A, infra,
la-2a). During 1975, the stock of the three cor-
porations was owned as follows (App. A, infra,
2a):

(1)

Respondent

Delta Delta Delta

Shareholder Metalforming Steel Engcon
W.T. Slayton 86.4% 26.7% 26.4%
L.L. Eddins 27.2% 19.9% 20.8%
J.G. Ellis 36.4% 26.7% 26.4%
F.T. Sharp —o— 26.7 % 26.4%
Totals 100.0% 100.0% 100.0%

On audit for 1975, the Commissioner of Internal
Revenue determined that the three corporations con-
stituted a brother-sister controlled group within the
meaning of Section 1563(a) (2) of the Internal Reve:
nue Code of 1954. He therefore disallowed the sepa-
rate corporate surtax exemption claimed by respond-
ent and allowed only the single surtax exemption
claimed by Delta Steel (App. A, infra, 3a).

In this proceeding brought by respondent in the
Tax Court for redetermination of the ensuing defi-
ciencies, the Tax Court held that respondent was not
a member of a “brother-sister controlled group”
within the meaning of Section 1563(a)(2)(A)_be-
cause F.T. Sharp did not own any stock in respond-
ent. Hence, the Tax Court upheld respondent’s claim
to a separate corporate surtax exemption (App. C,
infra, 33a-36a).

The court of appeals affirmed (App. A, infra, 1a-
22a). In so holding, the court acknowledged that its
decision squarely conflicted with Fairfax Auto Parts
of Northern Virginia, Inc. v. Commissioner, 548 F.2d
501 (4th Cir. 1977), rev’g 65 T.C. 798 (1976), cert.
denied, 434 U.S. 904 (1977); T. L. Hunt, Ine. v.
Commissioner, 562 F.2d 532 (8th Cir. 1977), rev’g
35 T.C.M. 966 (1976); and Allen Oil Co. v. Com-
missioner, 614 F.2d 336 (2d Cir. 1980), rev’g 38
T.C.M. 355 (1979) (App. A, infra, 5a-7a). The court

noted, however, that its decision was in accord with
Vogel Fertilizer Co. v. United States, 634 F.2d 497
(Ct. Cl. 1980), petition for a writ of certiorari pend-
ing, No. 80-1251 (filed Jan. 23, 1981) (see App. A,
infra, 21a).

REASONS FOR GRANTING THE PETITION

The question presented in this case is before the
Court in our petition for a writ of certiorari in
Vogel Fertilizer Co. v. United States, No. 80-1251.
The Court should therefore hold this case pending its
disposition in that case.

CONCLUSION

Consideration of this petition should be deferred
pending the Court’s disposition in No. 80-1251.

Respectfully submitted.

WADE H. McCREE, Jk.
Solicitor General

FEBRUARY 1981

la
APPENDIX A

UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT

No. 78-3699

DELTA METALFORMING Co., INC.,
PETITIONER-APPELLEE

Vv.

COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT-APPELLANT

Dec. 8, 1980

Appeal from the Decision of the
United States Tax Court

Before BROWN, HENDERSON and SAM D.
JOHNSON, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

Today we decide an issue of corporate income tax
reaching a result contrary to majorities of the Sec-
ond, Fourth and Eighth Circuit Courts of Appeal.
Unlike our respected brethren and sisters, we hold
with the Tax Court, the persuasive dissent of Judge
William Webster, and more recently the decision of
the Court of Claims, that a person must own stock
in each member of an alleged brother-sister controlled
group to satisfy the 80% test under § 1563 (a) (2) (A)
and so be denied its own separate surtax exemption.

I.

The facts are not in dispute. The taxpayer com-
pany, Delta Metalforming Company, is a Texas cor-

2a

poration. Three individuals own its outstanding
stock. Those three persons, together with a fourth
person, also own all of the voting stock of two other
corporations, Delta Steel Buildings and Delta Engcon.
The following chart represents the percentage of
ownership of the three Delta companies for 1975:

Taxpayer
Corp. Delta Delta Delta Identical

Stockholder Metalforming Steel Engcon ownership

Percent Percent Percent Percent
W. T. Slayton 86.4 26.7 26.4 26.4
L. L. Eddins 27.2 19.9 20.8 19.9
J. G. Ellis 86.4 26.7 26.4 26.4
F. T. Sharp -0- 26.7 26.4 -0-

Total 100 100 100 72.7

In 1975 Delta Metalforming took the surtax ex-
emption allowed by § 11(d) on its corporate income
tax return, as did Delta Steel.’ At that time § 11(a)
imposed a tax on taxable corporate income. Section
11(c) imposed a 26 percent surtax on income exceed-
ing the surtax exemption. The surtax exemption un-
der §11(d) was $25,000, except as provided in
§ 1561. Section 1561 provided that members of a
controlled group of corporations were limited to one
$25,000 exemption, which they could share. Section
1563(a)(2) defined a “brother-sister controlled
group” by two tests of stock membership, a 50% test
and a 80% test.

1Section references are to the Internal Revenue Code of
1954, effective for the year in question, 1975. Section 11(d)
was repealed in 1978 by P.L. 95-600, Nov. 6, 1978, but the
basic statutory scheme remains. See, § 1561(a) as amended
by P.L. 95-600, Nov. 6, 1978.

8a

In 1977 the Commissioner assessed a tax deficiency
against Delta Metalforming. The Commissioner de-
termined that, under § 1563(a) (2), Delta Metalform-
ing was a member of a brother-sister controlled
group of corporations with Delta Steel and Delta
Engcon. Since the surtax exemption had already
been claimed by Delta Steel, the Commissioner found
that Delta Metalforming was not entitled to its own
separate surtax exemption.

Delta Metalforming filed a petition with the U. S.
Tax Court to redetermine the asserted deficiency.
The parties stipulated that Delta Steel and Delta
Engcon met the 50% test in § 1563(a)(2)(B), but
disagreed on whether Delta Metalforming satisfied
the 80% test. The Tax Court, following its earlier
decisions and declining to follow contrary results by
three Circuit Courts of Appeal, held that Delta Metal-
forming did not come within the 80% test, and so
held for the taxpayer. Delta Metalforming Co. v.
Commissioner, T.C.M. 1978-354. The Government
appeals. We affirm.”

II.

This appeal concerns the meaning of the 80% test
in § 1563(a)(2)(A). Section 1563(a) (2) provides:

§ 1563. Definitions and special rules

(a) Controlled group of corporations.—For
purposes of this part, the term “controlled group
of corporations” means any group of—

* * * * *

*

2The taxpayer also has the same issue pending for the
years 1972-74 in the U.S. District Court for the Northern
District of Texas. Delta Metalforming Co. v. United States,
No. CA 8-78-1469-G (filed Dec. 7, 1978).

4a

(2) Brother-sister controlled group.--Two
or more corporations if 5 or fewer per-
sons... own... stock possessing—

(A) at least 80 percent... of the total
value of shares of all classes of the stock
of each corporation, and

(B) more than 50 percent ... of the
total value of shares of all classes of
stock of each corporation, taking into
account the stock ownership of each
such person only to the extent such
stock ownership is identical with respect
to each such corporation.

The 80% requirement is met only if the stock of one
stockholder, F. T. Sharp, who owns shares in Delta
Engcon and Delta Steel but not in Delta Metalform-
ing, may be counted.

The Government argues, as it did in the Tax Court,
that for the purposes of determining whether a group
of corporations meets the 80% ownership require-
ments of § 1563(a)(2)(A) and so constitutes a
brother-sister controlled group, an individual 1aust
merely be one of the five or fewer individuals who
collectively own at least 80% of the stock of all the
corporations. Thus, an individual need not own stock
in each of the two or more corporations to have his
stock ownership tabulated toward the 80%. The
Government relies in part on Income Tax Regu-
lation 1.1563-1(a) (3) which defines a brother-sister
controlled group as two or more corporations if, “the
same five or fewer persons ... own... singly or

in combination,” stock satisfying the 80 and 50 per-
cent tests.°

Delta Metalforming, however, says that an indi-
vidual’s stock ownership can be added into the 80%
ownership requirement only when that individual
owns stock in each and every member of the alleged
brother-sister controlled group. Since Sharp owned
no stock in Delta Metalforming, his stock in Delta
Steel and Delta Engcon could not then be taken into
consideration for the 80% test, the percentage of
stock ownership falls below 80, Delta Metalforming
is not a member of a controlled group, § 1561 would
not apply, and Delta Metalforming would be entitled
to its own separate surtax exemption.

Several Courts have grappled with these arguments
with inconsistent results. The Tax Court first con-
sidered the meaning of the 80% test in Fairfaw Auto
Parts of Northern Virginia, Inc. v. Commission,
65 T.C. 798 (1976). In Fairfax the Court, with
four Judges dissenting, held that a person must own
stock in each member of the controlled group in order
for its stock ownership to be taken into account to
satisfy the ownership tests of § 1563(a)(2). The
Court examined Income Tax Regulation 1.1563-

§ Treas. Reg. § 1.1563-1 (a) (3)

“(3) Brother-sister controlled group-(i) The term
“brother-sister controlled group” means two or more
corporations if the same five or fewer persons .. . own
... singly or in combination, stock possessing—

(a) ...at least 80 percent of the total value of shares
of all classes of the stock of each corporation; and

(b) ... more than 50 percent of the total value of
shares of all classes of stock of each corporation, taking
into account the stock ownership of each such person
only to the extent such stock ownership is identical with
respect to each such corporation.”

1(a)(8) but found it an “unrealistic and unreason-
able interpretation of the statutory language.” 65
T.C. at 802. The Court also analyzed the language
of the statute itself, its legislative history, and basic
purpose to conclude that each person must own stock
in each controlled group corporation. In a brief per
curiam opinion the Fourth Circuit reversed, uphold-
ing the Regulation. Fairfax Auto Parts of Northern
Virginia v. Commissioner, 548 F.2d 501 (4th Cir.),
cert. denied, 434 U.S. 904, 98 S.Ct. 300, 54 L.Ed.2d
190 (1977), noted and criticized, 1976, Brigham
Young U.L.Rev. 1000.

Meanwhile the Tax Court had already followed its
position to hold for the taxpayer in C.L. Hunt, Inc.
v. Commissioner, T.C.M. 1976-221. The Eighth Cir-
cuit also reversed, 7.L. Hunt, Inc. v. Commissioner,
562 F.2d 5382 (8th Cir. 1977), this time, over a
vigorous dissent. Dissenting Judge William Webster
would invalidate Regulation 1.1563-1(a)(3) as an
improper and unintentional penalty on closely held
corporations. Despite Judge Webster’s dissent, the
Eighth Circuit subsequently followed Hunt in Yaffe
Iron and Metal Corp. v. United States, 593 F.2d 832
(8th Cir. 1979).

The Tax Court again adhered to Fairfax in Allen
Oil Co. v. Commissioner, T.C.M. 1979-88,* which the

* As the Tax Court explained in the opinion below, T.C.M.
at —, the Tax Court has national jurisdiction and, despite
reversals by Courts of Appeals, should, except in cases geo-
graphically destined for a disapproving Circuit, follow its
conviction that its original result was correct until decided
otherwise by the Supreme Court. Lawrence v. Commissioner,
27 T.C. 718 (1957). Although a series of reversals may in-
cline the Tax Court to bow to higher authority, see Bankers
Union Life Insurance Co. v. Commissioner, 62 T.C. 661, 675
(1974), the switching of positions by the Tax Court may

Ta

Second Circuit overturned. Allen Oil Co. v. Com-
missioner, 614 F.2d 886 (2d Cir. 1980). Ever deter-
mined, despite reversals by the Second, Fourth and
Eighth Circuits, the Tax Court followed Fairfax in
Charles Baloian Co. v. Commissioner, 68 T.C. 620
(1977), now pending on appeal in the Ninth Cir-
cuit [78-2488 & 78-2508, appeal argued July 10,
1980] as did the Court of Claims in Vogel Fertilizer
Company v. United States [69-78, August 13, 1980]
(Ct.Cl.1980).

In our case the Tax Court again upheld Fairfax
and ruled for the taxpayer. Delta Metalforming Co.
v. Commissioner, T.C.M. 1978-354.

III.

We begin, as we must and should, with the lan-
guage of the statute itself. Southern Community
College v. Davis, 442 U.S. 397, 405, 99 S.Ct. 2361,
2366, 60 L.Ed.2d 980, 987-88 (1979) (“It is ele-
mentary that ‘[t]he starting point in every case in-
volving the construction of a statute is the language
itself.’”) See also Touche Ross & Co. v. Redington,
442 U.S. 560, 568, 99 S.Ct. 2479, 2485, 61 L.Ed.2d
82, 91 (1979). The critical words of § 1563(a) (2)
define a “controlled group of corporations.”

Corporations P, Q, R, S, and T are members of a brother-
sister controlled group.”

3la

of 1974) Congress indicated its approval of respond-
ent’s interpretation and application of section 1563,
and that under the circumstances respondent’s regula-
tions were neither unreasonable nor clearly inconsist-
ent with the statute and consequently there was no
basis in the law for this Court to refuse to apply the
regulations.

The decision of this Court in Fairfax Auto Parts of
No. Va., Inc. v. Commissioner, supra, was reversed
on appeal by the Court of Appeals for the Fourth
Circuit in January of 1977. In the per curiam opinion
of that court, 548 F.2d 501, the issue was not dis-
cussed in detail; the court said that the majority and
dissenting opinions of the Tax Court set out the argu-
ments supporting both interpretations of the statute
and there was no need to repeat them. It concluded
that the dissent’s interpretation of the statute accords
with the text of the statute and its legislative history
and reversed for the reasons set forth in the dissent-
ing opinion of the Tax Court.

Prior to the reversal of Fairfax Auto Parts this is-
sue again came before this Court in 7. L. Hunt v.
Commissioner, T.C.Memo. 1976-221. In that case re-
spondent admitted that if the Tax Court continued to
follow the Fairfax case he would lose but urged the
Court to reconsider its conclusion in Fairfax. In a
brief Memorandum Opinion this Court said:

Although Fairfax was promulgated only a few

months ago, we have carefully reviewed it. We

remain impressed by its cogent reasoning.
Consequently the Tax Court affirmed its position in
Fairfax and held for the taxpayer.

The Hunt case was appealed to the Court of Ap-
peals for the Eighth Circuit which also reversed the

82a

Tax Court in a divided opinion issued in September
of 1977, 562 F.2d 532. The majority opinion agreed
with the Fourth Circuit that the dissenting opinion in
the Tax Court correctly interpreted and applied the
law and that there was no statutory requirement in
applying the 80 percent test that each of the five
or fewer persons who owned 80 percent of the stock
of the corporations in the group own stock in each of
the corporations. Consequently, the holding of the
Tax Court constituted an unwarranted addition to
the statute of a requirement not reflected in the plain
language of the statute. While the majority opin-
ion discussed the language of the statute, its legisla-
tive history, and the regulations, it reiterated the
arguments in the dissenting opinion of the Tax Court
in Fairfax and relied thereon in upholding the va-
lidity of the regulations. Judge Webster filed a
strong dissenting opinion in which he pointed out that
it was not consistent with the purpose of Congress
to permit use of different groups to meet the two
tests, and that to give the statute any meaning the
same group that has 50 percent control of the corp-
orations must also have at least an 80 percent finan-
cial interest in the corporations. He concluded that
the regulation was an unwarranted extension of the
statute and therefore invalid.

Prior to the reversal of the Hunt case by the
Eighth Circuit, the issue again came before this
Court in Charles Baloian Co. v. Commissioner, supra.
Since the Tax Court had been reversed in Fairfax, the
opinion in Baloian was Court reviewed. The major-
ity opinion, written by Judge Forester, a recalled
judge who heard the case, again rejected respondent’s
interpretation of the statute and held for the peti-
tioner. The opinion said:

* * * We fully recognize that section 1.1563-
1(a)(3), Income Tax Regs., dictates a holding
in favor of respondent; however, in a reviewed
opinion, Fairfax Auto Parts of No. Va., Ine. v.
Commissioner, supra, we held this regulation to
be “plainly inconsistent with the thrust of the
statutory language” (65 T.C. at 803) and, there-
fore, to be invalid. * * *

Respondent’s substantive arguments on this is-
sue are in large part drawn from the views ex-
pressed by the dissenting opinion filed in Fair-
fax Auto Parts of No. Va., Inc. v. Commisioner,
supra. We had the benefit of those views and
arguments during our initial consideration of
that case, and we do not find them to be any
more persuasive today than we did at that time.
Notwithstanding the Fourth Circuit’s disagree-
ment with our position on this question, we re-
main convinced of its correctness.

A dissenting opinion was again filed by Judge Simp-
son and this time he was joined by four other judges.

We now have the same issue before us again in
this case with the benefit of the opinion of the Eighth
Circuit in the Hunt case. We have carefully con-
sidered the majority opinion in that case and, with
all due respect, we do not believe it adds any argu-
ments in favor of respondent’s position and the
validity of his regulations that have not been pre-
sented and considered by this Court before. The
fuli Tax Court having considered these arguments
twice before in the last 2-% years, and there being
no changes in the law, we will adhere to our conclu-
sions in the Fairfax, Hunt, and Baloian cases for
the reasons stated in the majority opinion in the
Fairfax case and decide the issue in this case for
petitioner. We see no reason to repeat those reasons

84a

here. We might add that we believe the arguments of
Judge Webster in his dissenting opinion in the Hunt
case strengthens our conclusion.

We do not take lightly the reversal by another
Circuit Court on this issue. But as we said in Law-
rence v. Commissioner, 27 T.C. 713 (1957), the Tax
Court is a court of national jurisdiction and to avoid
confusion should thoroughly consider the reasoning
of the reversing appellate court but if it is still of the
opinion that its original result was right, it should
follow its honest beliefs until the Supreme Court de-
cides the point. It was pointed out that if the Tax
Court changed its position each time it was reversed
by a Circuit Court it would only lead to confusion
and the Court would not be properly performing its
function.* We have since recognized that after a
series of reversals with no affirmances we might
promote uniformity better by bowing to higher au-
thority, see Bankers Union Life Insurance Co. v.
Commissioner, 62 T.C. 661, 675 (1974), but as
pointed out in Lawrence the change of position some-
times backfires.’

*See the dissenting opinion of Drennen, J., in Bradford v.
Commissioner, 60 T.C. 253, 261 (19738).

5 An interesting illustration of how the switching of posi-
tions because of reversals sometimes backfires occurred re-
cently in a series of cases involving certain aspects of the
taxation of life insurance companies. The issue that was
common in each of the cases mentioned was whether the load-
ing portion of deferred and uncollected premiums should be
included in assets for purposes of computing the phase I tax
on life insurance companies under secs. 804 and 805 of the
Code as enacted by the Life Insurance Company Income Tax
Act of 1959.

The issue was first presented to this Court (and this Judge)
in Western National Life Insurance Co. of Texas v. Commis-
sioner, a Court-reviewed case, 50 T.C. 285 (1968), modified

85a

51 T.C. 824 (1969), revd. 482 F.2d 298 (5th Cir. 1970). In
the second opinion this Court held that the loading factor in
the deferred and uncollected premiums should not be included
in the company’s assets for purposes of computing the phase
I tax. This conclusion was contrary to the position taken by
respondent in his regulations on the subject and to the opin-
ion of the Seventh Circuit in Franklin Life Insurance Com-
pany V. United States, 399 F.2d 757 (1968). Our decision
was reversed by the Fifth Circuit, supra. The Fourth Circuit
had also adopted respondent’s position in Jefferson Standard
Life Insurance Co. v. United States, 408 F.2d 842 (1969).
Nevertheless, in Western & Southern Life Insurance Co. Vv.
Commissioner, 55 T.C. 1086 (1971), we adhered to the posi-
tion we had taken in Western National. The Sixth Circuit
reversed. 469 F.2d 8 (1972).

The issue again came before the Tax Court (and this
Judge) in Banker’s Union Life Insurance Co. v. Commis-
sioner, 62 T.C. 661 (1974). Being faced with the contrary
views of four Circuit Courts, and the regulations, and no
appellate decisions supporting our views, in a Court-reviewed
opinion we concluded that under the circumstances the best
way for us to promote uniformity was to bow to higher au-
thority. So, because of the decisions of the Court of Appeals
mentioned above, we changed our position and held that the
loading factor in the premiums was includable in assets for
purposes of computing the tax.

Shortly thereafter in Standard Life and Accident Insur-
ance Co. V. Commissioner, T.C. Memo. 1974-242 (1974), a
Memorandum Opinion, we followed our decision in Banker’s
Union, which also followed the four circuits. On appeal the
Tenth Circuit, 525 F.2d 786 (1975), reversed this Court in
Standard Life and became the first Court of Appeals to affirm
our conclusion in Western National. Certiorari was granted
by the Supreme Court and in its opinion in Commissioner V.
Standard Life & Acc. Ins. Co., 483 U.S. 148 (1977), the Court
affirmed the Tenth Circuit and approved the position we had
taken in our modified opinion in Western National Life In-
surance Co. of Texas Vv. Commissioner, 51 T.C. 824 (1969),
and Western & Southern Life Insurance Co. v. Commissioner,
55 T.C. 1086 (1971), and held that the loading factor in the
deferred and uncollected premiums should not be included
in assets for purposes of computing the tax.

86a

While we modified the position we took in Lawrence
in our opinion in Golsen v. Commissioner, 54 T.C. 742
(1970), to the extent that if the Circuit Court in
which an appeal of the case would normally lie has
already expressed its views on the issue in an opinion
that is “squarely in point” we will follow the views
of the Circuit Court in that particular case, our re-
fusal to follow the Fourth and Eighth Circuits in
this case is not controlled by Golsen. An appeal of
this case will normally lie in the Fifth Circuit which
has not yet expressed its views on the issue.

Decision will be entered
for the petitioner.

87a

APPENDIX D

Internal Revenue Code of 1954 (26 U.S.C. (1970
ed.) ):

SEC. 11 [as amended by Revenue Act of 1964,
Pub. L. No. 88-272, Section 121, 78 Stat.
25, and Tax Reform Act of 1969, Pub. L.
No. 91-172, Section 401(b)(2)(B), 83
Stat. 602]. TAX IMPOSED.

* * * * *

(d) Surtax Exemption—For purposes of this
subtitle, the surtax exemption for any taxable
year is * * *, except that, with respect to a corpo-
ration to which section 1561 or 1564 (relating to
surtax exemptions in case of certain controlled
corporations) applies for the taxable year, the
surtax exemption for the taxable year is the
amount determined under such section.

SEC. 1561 [as added by Revenue Act of 1964,
Pub. L. No. 88-272, Section 235(a), 78
Stat. 116, and amended by Tax Reform Act
of 1969, Pub. L. No. 91-172, Section 401
(a) (1), 83 Stat. 599]. LIMITATIONS ON
CERTAIN MULTIPLE TAX BENEFITS
IN THE CASE OF CERTAIN CON-
TROLLED CORPORATIONS.

(a) General Rule.—The component members
of a controlled group of corporations on a De-
cember 31 shall, for their taxable years which
include such December 31, be limited for pur-
poses of this subtitle to—

(1) one * * * surtax exemption under
section 11(d).

88a

(2) one $100,000 amount for purposes of
computing the accumulated earnings credit
under section 535(c)(2) and (3), and

(3) one $25,000 amount for purposes
of computing the limitation on the small
business deduction of life insurance com-
panies under sections 804(a)(4) and 809

(d) (10).

The amount specified in paragraph (1) shall be
divided equally among the component members
of such group on such December 31 unless all
of such component members consent (at such
time and in such manner as the Secretary or his
delegate shall by regulations prescribe) to an
apportionment plan providing for an unequal al-
location of such amount. The amounts specified
a paragraphs (2) and (3) shall be divided equal-
ly among the component members of such group
on such December 31 unless the Secretary or
his delegate prescribes regulations permitting an
unequal allocation of such amounts.

SEC. 1563[as added by Revenue Act of 1964,
Pub. L. No. 88-272, Section 235 (a), 78
Stat. 120, and amended by Tax Reform
Act of 1969, Pub. L. No. 91-172, Section
401(c), 83 Stat. 602]. DEFINITIONS
AND SPECIAL RULES

(a) Controlled Group of Corporations.—For
purposes of this part, the term “controlled group
of corporations” means any group of—

* * * * *
(2) Brother-Sister Controlled Group.—
Two or more corporations if 5 or fewer per-

39a

sons who are individuals, estates, or trusts
own (within the meaning of subsection (d)
(2)) stock possessing—

(A) at least 80 percent of the total
combined voting power of all classes of
stock entitled to vote or at least 80 per-
cent of the total value of shares of all
classes of the stock of each corporation,
and

(B) more than 50 percent of the
total combined voting power of all
classes of stock entitled to vote or more
than 50 percent of the total value of
shares of all classes of stock of each
corporation, taking into account the
stock ownership of each such person
only to the extent such stock ownership
is identical with respect to each such
corporation.

Treasury Regulations on Income Tax (26 C.F.R.):

§ 1.1563-1 Definition of controlled group of cor-
porations and component members.

(a) Controlled group of corporations.—(1)
In general. For purposes of sections 1561
through 1563 and the regulations thereunder,
the term “controlled group of corporations”
means any group of corporations which is either
a “parent-subsidiary controlled group” (as de-
fined in subparagraph (2) of this paragraph),
a “brother-sister controlled group” (as defined in
subparagraph 3 of this paragraph), a “combined
group” (as defined in subparagraph (4) of this
paragraph), or an “insurance group” (as de-

402

fined in subparagraph (5) of this paragraph).
For the exclusion of certain stock for purposes
of applying the definitions contained in this
paragraph, see section 1563(c) and § 1.1563-2.

* * * * *

(3) Brother-sister controlled group. (i) The
term “brother-sister controlled group” means two
or more corporations if the same five or fewer
persons who are individuals, estates, or trusts
own (directly and with the application of the
rules contained in paragraph (b) of § 1.1563-3)
singly or in combination, stock possessing—

* * * * *

W ov. 6. covennment painting orrice; 1961 930677 272

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1971%3A1. Public record. Not legal advice.