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November 9, 1950

McGOWAN, Collector of Internal Revenue

The opinion of the court was delivered by: KNIGHT

The plaintiff, Eastern Grain Elevator Corporation, had been engaged in the merchandising of grain, and the ownership and operation of grain elevators at the Port of Buffalo, New York, for many years prior to 1945. In the latter part of 1944 it had reduced its elevator holdings to a single elevator, The Concrete Central, so-called, which had a capacity of four million bushels of grain.

On November 27, 1944, plaintiff entered into a contract with the Continental Grain Company for the sale of the Concrete Central Elevator, lands and buildings for $ 770,000. A second contract was made the same day providing for certain operating adjustments due to the large amount of grain then in the elevator. Legal title to the elevator property was transferred on December 27, 1944, and on the following day the stockholders adopted a resolution providing for a liquidation of the corporation within a year and took action looking to such dissolution.

 On December 28, 1944, the capital and surplus of the corporation was $ 2,315,209.74, and on that day there was paid to the stockholders a liquidating distribution of $ 1,200,000, this being $ 6.00 on 200,000 shares. After this distribution plaintiff had $ 68,411.09 cash on hand; $ 950,000 in Government bonds; and $ 96,798.65 in accounts receivable.

 This action is brought to recover an assessment against the plaintiff for an alleged deficiency in excess profit taxes for the year 1944, in the amount of $ 20,861.65. This had been paid under protest.

 Section 710(c) (3) (A) of the Internal Revenue Code, 26 U.S.C.A. § 710(c) (3) (A), reads: 'Unused excess profits credit carry-back. If for any taxable year beginning after December 31, 1941, the taxpayer has an unused excess profits credit, such unused excess profits credit shall be an unused excess profits credit carry-back for each of the two preceding taxable years, except that the carry-back in the case of the first preceding taxable year shall be the excess, if any, of the amount of such unused excess profits credit over the adjusted excess profits net income for the second preceding taxable year computed for such taxable year (i) by determining the unused excess profits credit adjustment without regard to such unused excess profits credit, and (ii) without the deduction of the specific exemption provided in subsection (b) (1).'

 (b) (1) gives a definition of Adjusted Excess Profits Net Income as the excess profits net income, with certain exemptions.

 Plaintiff claims that its liquidation period extended from January 1, 1945, to December 3, 1945, and that it is entitled to the benefits of the unused excess profits credit carry-back provisions of the above quoted section of the Internal Revenue Act during such liquidation. The question is whether such section applies to a corporation while liquidating. Only a question of law is presented.

 It has repeatedly been held that a corporation does not cease to exist because it 'has * * * ceased to carry on the business for which it was chartered.' Lucas v. Swan, 4 Cir., 67 F.2d 106, 109, 90 A.L.R. 210. 'The existence of a corporation, however, does not terminate until it is legally dissolved in accordance with the law of its creation.' Commissioner of Internal Revenue v. Allegheny Broadcasting Corp., 3 Cir., 179 F.2d 844, 846; Wier Long Leaf Lumber Co. v. Commissioner of Internal Revenue, 5 Cir., 173 F.2d 549. Jaffee v. Commissioner of Internal Revenue, 2 Cir., 45 F.2d 679; United States v. Garfunkel, D.C., 52 F.2d 727; Metropolitan Telephone & Telegraph Co. v. Metropolitan Tel. & Tel. Co., 156 App.Div. 577, 141 N.Y.S. 598; Fletcher CYC Corporations, Vol. 16, secs. 7999 and 8013; Brock v. Poor, 216 N.Y. 387, 111 N.E. 229; Sec. 29.52-1 of Reg. 111; Sec. 105, N.Y. Stock Corporation Law, McK.Consol.Laws, c. 59.

 Defendant asserts that under no state of facts, while a company is liquidating, can it be allowed an excess profits credit to carry-back in reduction of its excess profits taxes in an operating year. Rather it claims that the corporation having ceased operations in 1944, having instituted proceedings looking to dissolution procedure, and being in a liquid financial position, was no longer a corporation serving a real corporate purpose and that it must be treated as de facto dissolved at the end of 1944. As was said in the Wier case, supra: '* * * if it appears that the corporation is a corporation in name and semblance only, without corporate substance and serving no real corporate purpose, it must, though not formally dissolved, be treated as dissolved de facto.'

 But it, also, said in the same case 'that the fact of liquidation and the particular circumstances and stages of it are relevant to the inquiry here, and that they may, indeed must, be inquired into.' (173 F.2d 551.)

 So here inquiry must be made into the activities in which the plaintiff engaged during any liquidation.

 The sale included land and elevator, certain other buildings and structures, fixtures, machinery, and all personal property used in connection with the elevator.

 The second, or supplemental contract, concerned the adjustment of elevator grain storage and conditioning charges; weighing up of the grain; insurance, customers' bonds; outside contracts and obligations of the seller and other minor matters.

 At the time of the sale, 2,495,539 bushels of grain were in storage. Included in this grain was a considerable amount in store for the account of the Commodity Credit Corporation, an agency of the United States. Making these adjustments required the services of a considerable number of employees beside certain ...

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