# Petition for A Writ of Certiorari — Your Host, Inc. v. Commissioner > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385607_1917%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for A Writ of Certiorari - **Published:** January 1, 1974 - **Citation:** 419 U.S. 829 ## Text a Gn the Supreme Court of the Gnited States OctToBEeR TERM, 1973 No. CoMMISSIONER OF INTERNAL REVENUE, - PETITIONER v. Cuer Foops, Inc. anpD Your Host Bakery, Inc. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 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 Second Circuit in these cases, but only if the Court grants the petition for a writ of certiorari in No. 73-1652. OPINIONS BELOW The findings of fact and opinion of the Tax Court (Appendix A, infra, pp. 5-40) are reported at 58 T.C. 10. The opinion of the court appeals (Appendix B, infra, pp. 41-55) is reported at 489 F. 2d 957. JURISDICTION The judgment of the court of appeals (Appendix C, infra, pp. 56-57) was entered on December 11, 1973. By (1) 539-270—74 1 2 order dated March 4, 1974, Mr. Justice Marshall ex- tended the time for filing a petition for a writ of cer- tiorari to and including May 10, 1974. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether additional corporate surtax exemptions under Section 11(d) of the Internal Revenue Code of 1954 claimed by respondent corporations should be disallowed under Section 269(a) of the Code, on the ground that respondents were formed and acquired for the principal purpose of securing the benefits of the surtax exemptions. STATUTES INVOLVED Internal Revenue Code of 1954 (26 U.S.C.): Sec. 11. Tax imposed. * * * * * (d) [as amended by See. 121, Revenue Act of 1964, P.L. 88-272, 78 Stat. 25] Surtax Exemp- tion.—For purposes of this subtitle, the surtax exemption for any taxable year is $25,000, except that, with respect to a corporation to which section 1561 or 1564 (relating to surtax exemptions in case of certain controlled corpo- rations) apres for the taxable year, the surtax exemption for the taxable year is the amount determined under such section. | * * * * * Sec. 269. Acquisitions made to evade or avoid in- come tax. (a) In General.—If— (1) any person or persons acquire, or ac- quired, on or after October 8, 1940, directly or indirectly control of a corporation, or NOT LED LI TGR a RRE ety 3 (2) any corporation acquires, or acquired on or after October 8, 1940, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is deter- mined by reference to the basis in the hands of the transferor corporation, and the principal purpose for which such ac- quisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then the Secretary or his delegate may disallow such deduction, credit, or other allow- ance. For purposes of paragraphs (1) and (2), control means the ownership of stock possess- ing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the corporation. * * * * * STATEMENT Respondent corporations were among those in a group of interrelated corporations through which a chain of restaurants, and related activities, were oper- ated in the Buffalo, New York area. Pursuant to Sec- tion 482 of the Internal Revenue Code, the Commis- sioner reallocated income for the years 1965-1968 among these corporations, allocating to other mem- bers of the corporate group all of the income reported by the respondents. As an alternative position, in the event the income in question was determined to be properly that of the respondents, the Commissioner disallowed under Section 269 of the Code the surtax exemptions claimed by respondents. This resulted in heii ee 4 the determination of deficiencies against respondents of approximately $40,000 (Appendix A, infra, pp. 7-8). The Tax Court sustained the Commissioner’s re- allocatien of all of respondents’ income to the other corporations. As a result, there was no oceasion for it to reach the Commissioner’s alternative contention against respondents (Appendix A, infra, p. 36). On appeal of the decision of the Tax Court by the corpo- rations to which the income of respondents was reallo- cated, the Commissioner cross appealed to preserve his alternative position against respondents in order to protect the revenue. The court of appeals affirmed the decision of the Tax Court and similarly did not reach the Commissioner’s alternative contention (Ap- pendix B, infra, p.45n.6). REASON FOR GRANTING THE WRIT The corporations to which the income originally reported by respondents have filed a petition for a writ of certiorari. Your Host, Inc. v. Commisstoner, No. 73-1652. Should the Court grant that petition, it should also grant the present petition. This is necessary to preserve the Commissioner’s alternative position if the Court should reverse the judgment of the court of appeals in No. 73-1652. CONCLUSION The petition for a writ of certiorari should be granted, but only if the Court grants the petition in No. 73-1652. Respectfully submitted. Rosert H. Bork, Solicitor General. May 1973. ee ec z mtn o A REN, SR WEE APPENDIX A 58 T.C. No. 2 United States Tax Court Your Host, [Nc., Er au.’ PETITIONERS Vv. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Dockets Nos. 2673-69, 2675-69 through 2688-69, 446- 70, 448-70 through 461-70, and 1194-71 through 1207-71 Filed April 6, 1972 (1) Your Host, Inc., was formed in 1947 by Wesson and Durrenberger to operate four Your Host Restau- rants. Between 1948 and 1956 ten more corporations were formed to operate Your Host Restaurants. In 1969 there were 40 Your Host Restaurants of which Your Host operated 15 with each of the other restau- rant corporations operating four or fewer locations. In addition to Your Host and the ten restaurant cor- porations, Wesson and Durrenberger formed a com- missary corporation in 1947, a real estate holding corporation in 1951, and a bakery corporation in 1955. Following Wesson’s death Durrenberger formed a vending machine corporation in 1958. 1 Cases of the following petitioners are consolidated herewith: Alro Realty, Inc., dockets Nos. 2675-69, 461-70, and 1207-71: Boulevard Host, Inc., dockets Nos. 2676-69, 448-70, and 1197- (5) 6 All of the Your Host Restaurants were similar in ap- pearance, served the same menu, and were open for business 24 hours a day. The restaurants projected an image to the public of being under the same marage- ment. Although the 15 corporations together comprised an integrated business entity, each paid the salaries of its own employees and the insurance and utility ex- penses for its locations. Each corporation was solely responsible for payment of the rent for its locations. Each corporation paid a portion of the salary of Dur- renberger, and each paid a fair share of the costs of management, administration, advertising, and main- tenance for the whole enterprise. Held: Respondent abused his discretion in allocat- ing all of the income and deductions of the ten restau- rant corporations to Your, Host under section 482; Held, further: Respondent did not abuse his disere- tion in alloeating all of the income and deductions of the bakery corporation to Sher-Del and vending ma- chine corporation to Your Host under section 482 where these corporations did business only with related corporations and where the dealings between the cor- porations were not at arm’s length. (2) Held, further. The principal purpose for the formation of four of the restaurant corporaticns and 71; Chef Foods, Inc.. dockets Nos. 2677-69, 449-70, and 1198-71. Main Host Ine., dockets Nos. 2678-69, 450-70, and 1199-71: Niagara Host, Inc., dockets Nos. 2679-69, 451-70, and 1200-71: Rochester Host, Inc., dockets Nos. 2680-69 and 452-70. Royal Host. Inc.. dockets Nos. 2681-69, 453-70, and 1201-71; Sharlem Host, Inc., dockets Nos. 2682-69, 454-70, and 1202-71; Telesnav, Incorporated, dockets Nos. 2683-69, 455-70, and 1203-71; 309 Delaware Ave., Inc., dockets Nos. 2684-69, 456-70, and 1206-71: _ Transit Hest, Inc., dockets Nos. 2685-69, 457-70, and 1205-71: Utica Host, Inc., dockets Nos. 2686-69, 458-70, and 1204-71; Sher-Del Foods, Inc.. dockets Nos. 2687-69, 459-70, and 1195- 71; and Your Host Bakery, tae., dockets Nos. 2688-69, 460-70. and 1196-71. 7 the real estate holding corporation v as tax avoidance; therefore, respondent’s disallowance of the surtax exemptions of these corporations under section 269 Was correct. Ralph J. Gregg and George M. Zimmerman, for the petitioners. Stephen M. Miller for the respondent. Irwin, Judge: Respondent determined the follow- ing deficiencies in the corporate income taxes of petitioners: Docket Deficiency Petitioner No. Year Sec. 482 Sec. 531 Your Host, Ine. .... . ne --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385607_1917%3A1. Public record. Not legal advice.