Joe Esco South-West Tire Co. v. Commissioner

JOE ESCO SOUTH-WEST TIRE CO., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent; 89ER PETROLEUM CO., INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent; OKLAHOMA BANDAG & SUPPLY CO., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Joe Esco South-West Tire Co. v. Commissioner

Docket Nos. 2668-79, 2669-79, 2670-79.

United States Tax Court

T.C. Memo 1982-83; 1982 Tax Ct. Memo LEXIS 660; 43 T.C.M. (CCH) 580; T.C.M. (RIA) 82083;

February 18, 1982.

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George F. Saunders, for the petitioners.

John L. Simpson, for the respondent.

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NIMS

MEMORANDUM OPINION

NIMS, Judge: Respondent determined the following deficiencies in petitioners' federal income taxes:

		Tax Year
Docket No.	Petitioner	Ending	Deficiency
2668-79	Joe Esco South-West Tire Co.	3/31/1976	$ 9,000
2669-79	89er Petroleum Co.	12/31/1975	9,000
2670-79	Oklahoma Bandag & Supply Co.	9/30/1976	9,000

The only issue for our decision is whether petitioners were members of a brother-sister controlled group of corporations, as that term is defined in section 1563(a)(2). ^{Joe EscoOklahomaSouth-West89er PetroleumBandag &Tire Co.Co.Supply Co.Joe W. Esco79%100%79%George Saunders14%John Holcomb7%Hanna Byrd7%C.L. Welch7%Don Wilson7%}

Respondent, relying on section 1.1563-1, Income Tax Regs., determined that petitioners are members of a section 1563(a)(2) brother-sister controlled group of corporations. Conseqently, respondent disallowed the full surtax exemption which each petitioner had claimed under section 11(d) and allocated a single exemption among petitioners pursuant to section 1561(a).

Petitioners contend that they are each entitled to a full surtax exemption, citing Fairfax Auto Parts of No. Va., Inc. v. Commissioner,65 T.C. 798 (1976), revd. and remanded 548 F.2d 501 (4th Cir. 1977), and its progeny in this Court.

The controversy centers on interpretation of the 80 percent test contained in section 1563(a)(2)(A). The Supreme Court resolved this issue in United States v. Vogel Fertilizer Co., 455 U.S.     (Jan. 13, 1982), which held that the 80 percent test contains a common ownership requirement. See also B & M Investors Corp. v. Commissioner, 78 T.C.     (Jan. 29, 1982). Because George Saunders and John Holcomb owned no shares in 89er Petroleum Co. or in Oklahoma Bandag & Supply Co., and because Hanna Byrd, C.L. Welch and Don Wilson owned no shares in Joe Esco South-West Tire Co. or in 89er Petroleum Co., their interests may not be included in the 80 percent computation. Petitioners, therefore, are not members of a brother-sister controlled group of corporations. They are each entitled to a full surtax exemption.

Decisions will be entered for the petitioners.

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Footnotes

• 1. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 in effect for the years in issue.↩