Rev. Rul. 55-94

Advice has been requested whether the date of commencement of business or the date of recommencement of business should be used in determining whether a corporation is a `new corporation' within the meaning of section 430(e) of the Internal Revenue Code of 1939.

The taxpayer was organized in 1914 with an authorized capital structure consisting of 25 x shares of preferred stock and 75 x shares of common stock. In 1936, its net assets were transferred to a partnership, the members of which were stockholders of the corporation. The stockholders' interest in the partnership was in the same proportion as their stock holdings in the corporation. Although the entire outstanding capital stock was cancelled, the corporation retained its charter. From 1936 to 1950 the corporation had no income and its only activities were the filing of annual statements and payment of State Franchise taxes.

As of January 1, 1950, the corporation was reactivated and the partnership transferred its net assets to the corporation and dissolved. The corporation amended its charter to authorize 10 x shares of common stock, which together with 600 x dollars of debentures were issued in exchange for the partnership's net assets.

Section 430(e) of the Code provides in effect that in the case of a corporate taxpayer which `commenced business' after July 1, 1945, and whose fifth taxable year ends after June 30, 1950, excess profits tax shall be levied at specified rates different from those imposed generally of its business operations, it will

Section 40.430-2(e)(3) of Regulations 130 provides that the `date the corporation commenced business shall be determined for purposes of section 430(e) and of (e) of this section under the rules provided in the regulations promulgated under section 445,' which relates to the computation of average base period net income in the case of new corporations.

Section 40.445-1(a)(2) of Regulations 130 provides in part as follows:

The words `commenced business' do not have the same meaning as `in existence.' Ordinarily, a corporation commences business when it starts the business operations for which it was organized; a corporation comes into existence on the date of its incorporation. Mere organizational activities, such as incorporation or the issuance of capital stock, are not alone sufficient to show commencement of business. If the activities of the corporation have advanced to the extent necessary to establish the nature of its business operation, it will be deemed to have commenced business. For example, the acquisition of operating assets which are necessary to the type of business contemplated may constitute the commencement of business.

In I.T. 3871, C.B. 1947-2, 62, it was held that upon presentation of the facts to the `collector,' a corporation which has ceased business operations, has retained no assets, and has no income, may be relieved from filing Federal income tax returns even though the corporation has not been formally dissolved. This conclusion was based on the fact that there was no specific provision in section 29.52-1 of Regulations 111 (now section 39.52-1 of Regulations 118) with respect to the necessity of filing a Federal income tax return in the case of a corporation which has ceased business operations but has not been formally dissolved. It was also observed that the above-mentioned section of the regulations provided that a corporation which has received a charter but has never perfected its organization, which has transacted no business and which has had no income, may be relieved of the necessity of making a return as long as it remains in an unorganized condition. The conclusion reached in I.T. 3871, supra , is further supported by reference to the decision in Kamin Chevrolet Co. v. Commissioner , 3 T.C. 1076, wherein it was held that the Commissioner acted properly in annualizing, pursuant to section 711(a) of the 1939 Code, the excess profits tax return filed for the calendar year 1940 by a corporation which on June 30, 1940, distributed all its assets, subject to liabilities, to its stockholders and discontinued its business, but did not surrender its charter. The court stated in effect that even conceding that under State law the corporation had a legal existence for the entire calendar year it did not follow that for purposes of income and excess profits tax dissolution may not occur prior to the date the charter is cancelled; that there may be a de facto dissolution even though there is not a de jure one; and that since the corporation had `no capital, no income and no expense' and was `a mere empty shell' there could be no doubt that there was a de facto dissolution as of the date of the liquidation.

Accordingly, assuming the reactivation of the corporation as of January 1, 1950, resulted from a nontaxable transaction under section 112(b)(5) of the 1939 Code, it is held that a `de facto' dissolution occurred in 1936; that the taxpayer terminated its business at that time; and that the corporation is deemed a new corporation which `commenced business' as of the date of such reactivation, within the meaning of section 430(e) of the Code