## Facts

- Garber Industries Holding Co., Inc. was a closely held “loss corporation” with net operating loss (NOL) carryovers and filed consolidated federal income tax returns.
- After a 1996 reorganization, two brothers held most shares: Charles M. Garber, Sr. owned 19% and Kenneth R. Garber, Sr. owned 65%; other family members held the remainder.
- The brothers’ parents were deceased and had never owned any of the corporation’s stock.
- On April 1, 1998, Kenneth sold all of his shares to Charles, increasing Charles’s ownership from 19% to 84% and reducing Kenneth’s ownership from 65% to 0%.
- On its 1998 return, the corporation claimed an NOL deduction of about \$808,935 (regular tax) and \$728,041 (AMT).
- The Commissioner determined the 1998 transaction caused an “ownership change” under I.R.C. § 382(g) and limited the 1998 NOL deduction to \$121,258.
- The case was submitted fully stipulated under Tax Court Rule 122; all issues were settled except whether the stock sale triggered a § 382 ownership change.

## Issues

1. Whether the family aggregation rule in I.R.C. § 382(l)(3)(A)(i), using the “family” definition incorporated from § 318(a)(1), required treating the two brothers as a single shareholder for § 382 testing.
2. If the brothers are not aggregated, whether Charles’s 65-percentage-point increase in ownership caused an “ownership change” under § 382(g), limiting the corporation’s NOL carryovers.

## Decision

- The Tax Court held for the Commissioner.
- The court ruled that the April 1, 1998 sale resulted in an “ownership change” under § 382(g).
- The court held that § 382(l)(3)(A)(i) did not allow aggregating the brothers into one shareholder where no parent or grandparent was a shareholder from whose perspective the statutory “family” could be applied.
- The court sustained the Commissioner’s § 382 limitation on the corporation’s 1998 NOL deduction.

## Legal Principles

- Under § 382(g), an “ownership change” occurs when, over the testing period, one or more 5-percent shareholders increase their ownership by more than 50 percentage points, triggering limits on a loss corporation’s use of NOL carryovers.
- The § 382(l)(3)(A)(i) family aggregation rule treats “an individual and all members of his family” as one individual, but it operates from the perspective of an identifiable shareholder-individual whose family is being aggregated.
- For § 382(l)(3)(A)(i), “family” is determined by reference to § 318(a)(1); because siblings are not directly included, sibling-to-sibling aggregation generally depends on an attribution path through a qualifying relative (e.g., a parent) who is relevant to the ownership analysis.
- A taxpayer may not aggregate siblings by positing a nonshareholder (or deceased) parent or grandparent as a theoretical “hub” to create family attribution not supported by the statutory structure.

## Conclusion

The Tax Court treated the brother-to-brother stock sale as a real ownership shift for § 382 purposes because the family aggregation rule could not be applied without a qualifying shareholder-relative to anchor family attribution; Charles’s resulting 65-point ownership increase produced an ownership change that limited the corporation’s NOL carryovers.


Garber Indus. Holding Co. v. Comm’r, 124 T.C. 1 (2005)