## Facts

- Continental Trading, Inc. was incorporated in Panama (1947) and maintained its principal office in Mexico City.
- It qualified to do business in Nevada (1948–1951) using a Reno resident agent address and represented it had only one U.S. place of business.
- For 1948–1950, Continental had no paid U.S. employees, kept no books of account in the United States, and maintained only limited U.S. bank records.
- Its U.S. assets consisted primarily of stock in two companies and balances in two U.S. bank accounts.
- Continental filed U.S. income tax returns for 1948–1950 claiming “resident foreign corporation” treatment based on being engaged in a U.S. trade or business.
- Continental’s principal U.S.-connected activities involved investment-type matters: collecting stock dividends, paying principal and interest on loans, and conducting borrowing and fund transfers through U.S. banks.
- Continental also engaged in a small number of discrete transactions involving goods in the United States: a single milk-fat buy/sell transaction (1948), purchasing equipment for a Mexican company with reimbursement at cost (1950), and ordering tin milk cans for a related company during 1948–1950.
- The Commissioner determined Continental was not engaged in a U.S. trade or business and assessed deficiencies based on the tax regime applicable to foreign corporations not so engaged.
- The Tax Court sustained the deficiencies, finding Continental’s U.S. activity was primarily investment management and that the goods transactions were casual or incidental.

## Issues

1. Whether Continental’s U.S.-connected investment management activities constituted being “engaged in trade or business within the United States” under I.R.C. § 231(b) (1939 Code) for 1948–1950.
2. Whether Continental’s isolated goods transactions, considered together with its other U.S. contacts, were sufficient to establish a U.S. trade or business and thus resident-foreign-corporation treatment.

## Decision

- The Ninth Circuit affirmed the Tax Court’s decision sustaining the Commissioner’s deficiency determinations.
- The court held that Continental was not engaged in trade or business within the United States during 1948–1950 and therefore did not qualify as a resident foreign corporation under § 231(b).
- The court treated the classification question as fact-intensive and declined to disturb the Tax Court’s findings and characterizations of Continental’s activities.
- The Supreme Court denied certiorari.

## Legal Principles

- Whether a foreign corporation is “engaged in trade or business within the United States” under § 231(b) depends on the substance of its activities and is largely a factual determination.
- Passive investment management (e.g., holding stock, collecting dividends, and routine banking or fund-transfer transactions) generally does not constitute engaging in a U.S. trade or business for resident-foreign-corporation treatment.
- Isolated or incidental transactions in goods, without regular, continuous profit-seeking operations in the United States, are insufficient to establish that a foreign corporation is engaged in a U.S. trade or business.
- Formal qualification to do business in a state, maintaining a nominal U.S. address through a resident agent, or filing returns claiming resident foreign status does not alone establish engagement in a U.S. trade or business.

## Conclusion

The court upheld deficiencies on the ground that Continental’s U.S. contacts reflected investment management and sporadic, non-systematic purchasing and sales activity, which did not amount to conducting a trade or business within the United States under § 231(b) of the 1939 Internal Revenue Code.


Continental Trading, Inc. v. Commissioner of Internal Revenue, 265 F.2d 40 (9th Cir. 1959), cert. denied, 361 U.S. 827 (1959)