## Facts

- In 1973, Eckmar Corporation (Eckmar) recapitalized and restructured its subsidiary corporations.
- The recapitalization resulted in Briarcliff Candy Corporation (Briarcliff) acquiring Health‑Med Corporation (Health‑Med) and Health‑Med’s subsidiaries.
- After the closing, Briarcliff held 40,000 shares of Health‑Med common stock.
- Eckmar held 4,000 shares of Health‑Med junior preferred stock and about 500 shares of Health‑Med preferred stock.
- The junior preferred stock was convertible into Health‑Med common stock at a ratio that, upon conversion, could give Eckmar as much as 95% of Health‑Med’s voting power.
- Following the transaction, Briarcliff became the common parent of an affiliated group that included Health‑Med and its subsidiaries.
- The affiliated group filed consolidated federal income tax returns for the tax years at issue.
- On those consolidated returns, the group used Briarcliff’s preexisting net operating loss carryovers to offset income earned by Health‑Med and its subsidiaries.
- The Commissioner of Internal Revenue issued a notice of deficiency to Briarcliff, disallowing the claimed benefits on the ground that the acquisition was structured so that Health‑Med’s profits would be sheltered by Briarcliff’s losses.
- Briarcliff petitioned the United States Tax Court to contest the deficiency and moved for summary judgment on the Commissioner’s I.R.C. § 269 determination.

## Issues

1. Whether, on the summary-judgment record, the Commissioner could apply I.R.C. § 269 on the theory that the principal purpose of the acquisition and recapitalization was federal income tax avoidance through use of Briarcliff’s NOL carryovers against Health‑Med’s income.
2. Whether Briarcliff was entitled to summary judgment because no genuine dispute of material fact existed as to the transaction’s principal purpose.

## Decision

- The Tax Court denied Briarcliff’s motion for summary judgment.
- The court held that the record did not resolve, as a matter of law, whether the transaction’s principal purpose was tax avoidance within the meaning of I.R.C. § 269.
- The court concluded that intent and purpose questions surrounding the acquisition structure—including the ownership and voting-control features and the consolidated-return use of Briarcliff’s NOLs—required factfinding and could not be decided on summary judgment.

## Legal Principles

- Under I.R.C. § 269, if a person or persons acquire control of a corporation (or acquire property of a corporation) and the principal purpose of the acquisition is evasion or avoidance of federal income tax by securing a deduction, credit, or other allowance, the Commissioner may disallow the tax benefit.
- “Principal purpose” is a question of fact that turns on intent and objective circumstances, including the transaction’s structure and tax results.
- The existence of business reasons does not automatically defeat § 269; the question is whether tax avoidance was the main purpose.
- Summary judgment is inappropriate when material fact disputes remain, especially on motive, intent, and purpose.
- On a motion for summary judgment, the moving party must show there is no genuine dispute of material fact and that it is entitled to judgment as a matter of law; where the taxpayer seeks summary judgment against a § 269 determination, it must show the record eliminates triable issues on purpose.

## Conclusion

Because the recapitalization and acquisition brought a profitable corporate group into a consolidated group headed by a loss corporation and included ownership features affecting voting control, the Tax Court found unresolved fact questions about whether tax avoidance was the principal purpose under I.R.C. § 269 and therefore denied Briarcliff’s summary-judgment motion.


Briarcliff Candy Corp. v. Commissioner of Internal Revenue, 54 T.C.M. (CCH) 667