Moline Properties Case Study

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Introduction Subsidiary Corporations have the opportunity of special tax treatment that if allowed may offer various benefits to the parent corporation or their shareholders. Respecting the subsidiary status of these corporations may hold large tax consequences or benefits. The tax statuses of these subsidiaries do not represent a black and white issue. Taxpayers and the authority of the IRS hold different interests regarding paying taxes. Taxpayers have the incentive to try to pay as little tax as possible in order to maximize their wealth. The IRS may choose to negate certain matters under the Sham Transaction Doctrine. Corporate taxation law is constantly growing and adapting which make the validity of these transactions even less clear.…show more content…
v. Commissioner, Moline Properties corporate identity and status was called into question. Moline Properties was originally incorporated by Mr. Thompson who conveyed property to Moline Properties and in return received the entirety of the available stock making Mr. Thompson the sole shareholder. Mr. Thompson owned other real property titles separate from Moline Properties. In 1934, 1935, and 1936 the mortgages representing the entirety of the corporation’s assets were paid off through the sale of the three associated parcels of land, one sold each year. The proceeds of the sale were deposited directly into Mr. Thompson’s bank account. In 1934 before the sale, a portion of the property was leased for use as a parking lot for a rental of $1,000. In addition Mr. Thompson paid directly for a lawsuit to remove restrictions on the property and the legal costs regarding defense of certain condemnation…show more content…
This case represented a turning point in policy where complete ownership and complete control are no longer of significance in determining taxability. In Commissioner V. Bollinger a partnership bought many buildings through a “corporation.” The corporation had no assets, liabilities, employees, or bank accounts. The court found that the corporation served no other business purpose other than to act as an agent of the partnership aforementioned. It was argued that evidence of an arm’s length transaction was needed in order for an agency relationship to exist and that based on the six National Carbide factors, it should be recognized as a separate entity. The court refused refuse an agency relationship based solely on the six carbide factors stating, It seems to us that the genuineness of the agency relationship is adequately assured, and tax-avoiding manipulation adequately avoided, when the fact that the corporation is acting as agent for its shareholders with respect to a particular asset is set forth in a written agreement at the time the asset is acquired, the corporation functions as agent and not principal with respect to the asset for all purposes, and the corporation is held out as the agent and not principal in all dealings with third parties relating to the

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