## Facts

- Alumax, a Delaware corporation, had two principal shareholder groups: AMAX Inc. (Amax) and a group of Japanese companies.
- From 1974 to 1984, Amax and the Japanese interests shared control equally in shareholder voting, board elections, board voting, and dividends.
- In 1984, Alumax restructured its capital and governance:
  - The parties continued to hold equal numbers of common shares, but Amax’s class carried four votes per share and the Japanese class carried one vote per share, giving Amax about 80% of votes on most shareholder matters.
  - For six major categories of corporate action, approval required a majority of each stock class, giving the Japanese interests blocking rights:
    - Mergers
    - Asset purchases or sales meeting specified size thresholds
    - Liquidation or dissolution
    - Large capital appropriations or asset dispositions
    - Election or dismissal of the CEO
    - Certain loans to affiliated corporations outside the ordinary course
  - The board had six voting directors: Amax’s shares elected four and the Japanese interests elected two; Amax-elected directors had two votes each and Japanese-interest directors had one vote each, producing 80% board voting power for Amax on ordinary matters.
  - The board’s ability to act on the six major categories was limited by the same class-approval requirements applicable at the shareholder level.
- After the restructuring, Alumax was included in Amax’s consolidated federal income tax returns for 1984–86.
- The IRS determined Alumax was ineligible to be included in Amax’s consolidated return under IRC §§ 1501 and 1504(a), leading to additional asserted tax liability of roughly $129 million for 1981–86.
- The Tax Court upheld the IRS determination, concluding Amax did not possess 80% of Alumax’s “voting power” under § 1504(a).

## Issues

1. Whether Amax owned “at least 80 percent of the total voting power” of Alumax’s stock under IRC § 1504(a) so that Alumax could be included in Amax’s consolidated return for 1984–86.

## Decision

- The Eleventh Circuit affirmed the Tax Court.
- The court held that Amax did not have 80% of Alumax’s “voting power” within the meaning of IRC § 1504(a).
- Because the statutory voting-power threshold was not met, Alumax could not join Amax’s consolidated return.

## Legal Principles

- For IRC § 1504(a), “80 percent of the voting power” is assessed functionally as effective power to control corporate decision-making through the board, not merely formal vote counts or the ability to elect directors.
- Minority shareholder class-veto rights over major corporate actions can dilute a parent’s board and shareholder dominance so that the parent lacks the required voting power for consolidated-return affiliation.
- Consolidated-return eligibility turns on whether the parent can operate the subsidiary as part of a single enterprise, which requires substantial managerial control over fundamental corporate policy.

## Conclusion

The Eleventh Circuit concluded that Amax’s nominal 80% voting position was insufficient for consolidated-return affiliation because class-based approval requirements and veto rights allowed the Japanese interests to block key strategic and structural decisions, preventing Amax from exercising the level of control that IRC § 1504(a) treats as “80 percent of the voting power.”


Alumax Inc. v. Commissioner, 165 F.3d 822 (11th Cir. 1999)