## Facts

- An individual, Uly O. Thompson, formed Moline Properties, Inc. in 1928 to hold Florida real estate as a security device for creditors.
- Thompson conveyed the property to the corporation; the corporation assumed existing mortgages, and Thompson received essentially all corporate stock, placed in a voting trust as loan security.
- The corporation’s early activities included assuming obligations, defending condemnation proceedings, and suing to remove deed restrictions affecting the property.
- After the debt was repaid and refinancing occurred in 1933, corporate control reverted to Thompson.
- In 1934, part of the property was leased as a parking lot for $1,000 rent; the remaining property was sold in parcels during 1934–1936.
- Sale proceeds were received by Thompson and deposited into his personal bank account; the corporation kept no books and had no bank account, and it conducted no business after 1936 but was not dissolved.
- The 1934 and 1935 sales were initially reported on the corporation’s returns; later, Thompson sought a refund for 1935 and attempted to report the 1935 gain on his individual return.
- The Commissioner treated the gains from the sales as taxable to the corporation.

## Issues

1. Whether gains from sales of real property titled in a wholly owned corporation may be taxed to the sole shareholder by disregarding the corporate entity as a mere fiction or “agent.”
2. Whether a corporation formed for a security-related purpose, and later engaging in property leasing and sales, remains a separate taxable entity for federal income tax.

## Decision

- The Supreme Court affirmed the court of appeals and upheld the Commissioner’s determination.
- Gains from the corporation’s 1935–1936 property sales were taxable to the corporation, even though it was wholly owned by one shareholder.
- The corporation was not treated as a mere agent of the shareholder, and its separate existence was respected for tax purposes.

## Legal Principles

- A corporation is ordinarily a separate taxable entity for federal income tax purposes.
- The corporate entity will be respected so long as its purpose is the equivalent of business activity or it in fact carries on business.
- A taxpayer who chooses to employ the corporate form to hold and dispose of property generally must accept the tax consequences of that choice and may not later disregard the form to shift income to the shareholder.
- Disregarding the corporate form is limited to exceptional circumstances (e.g., sham entity, fraud, or lack of any business purpose or activity), which were not shown on these facts.

## Conclusion

Because the corporation was formed for a legitimate creditor-related function and performed activities consistent with an operating entity (including assuming liabilities, litigating, leasing, and selling property), it remained a separate taxable entity, and the gain from its property sales was taxable to the corporation rather than to its sole shareholder.


Moline Props., Inc. v. Comm’r, 319 U.S. 436 (1943)