## Facts

- Bercy Industries, Inc. (“Old Bercy”) conducted an active business and generated taxable income for fiscal years ending May 25, 1968, and May 31, 1969.
- Beverly Manor, Inc. was formed in 1968 as a shell corporation and was wholly owned by Beverly Enterprises.
- In 1970, Old Bercy merged into Beverly Manor; Beverly Manor survived and later changed its name to Bercy Industries, Inc. (“New Bercy”).
- Old Bercy shareholders received only voting common stock of Beverly Enterprises (171,429 shares); Old Bercy’s shares were canceled.
- After the merger, New Bercy conducted the operating business formerly conducted by Old Bercy and later incurred a net operating loss (NOL).
- New Bercy sought to carry back the post-reorganization NOL under I.R.C. § 172 to offset Old Bercy’s pre-reorganization taxable income for 1968 and 1969.
- The Commissioner disallowed the carryback and determined deficiencies for the 1968 and 1969 fiscal years; the parties narrowed the case to the NOL carryback issue.

## Issues

1. Whether the 1970 merger constituted a qualifying reorganization such that tax attribute succession rules applied.
2. Whether a surviving corporation may carry back its post-reorganization NOL under I.R.C. § 172 to offset the acquired corporation’s pre-reorganization income, in light of I.R.C. § 381(b)(3).

## Decision

- The Tax Court held New Bercy could not carry back its post-reorganization NOL to Old Bercy’s pre-reorganization taxable years.
- The court treated the § 381 framework, including § 381(b)(3), as controlling over § 172’s general carryback rule in this setting.
- Deficiencies attributable to the disallowed carryback were sustained.

## Legal Principles

- I.R.C. § 172’s general allowance for NOL carrybacks is limited in corporate acquisition settings by the specific attribute succession provisions of I.R.C. § 381.
- Under the Tax Court’s reading of § 381(b)(3), a surviving corporation’s post-reorganization NOL may not be carried back to reduce the acquired corporation’s pre-reorganization income.
- The statutory scheme distinguishes between (a) carryovers of the acquired corporation’s pre-reorganization attributes to post-reorganization years and (b) carrybacks of the survivor’s post-reorganization losses to pre-reorganization years.

## Conclusion

The Tax Court denied the claimed carryback because, when a corporation acquires another’s assets in a reorganization governed by § 381, § 381(b)(3) was interpreted to bar using the survivor’s post-reorganization NOL to offset the acquired corporation’s pre-reorganization income, notwithstanding § 172’s general carryback provision.


Bercy Indus., Inc. v. Comm’r, 70 T.C. 29 (1978)