## Facts

- Old Nassau Utilities Fuel Corp. operated a fuel-oil business with a water terminal and storage tanks in New York.
- Reliance Fuel Oil Corp., a retail fuel-oil seller lacking comparable facilities, sought to obtain Old Nassau’s facilities.
- Reliance purchased approximately 84.8% of Old Nassau’s stock from majority shareholders and later acquired additional shares.
- Reliance formed a new subsidiary (New Nassau), later renamed YOC Heating Corp.
- Old Nassau transferred all assets (subject to liabilities) to New Nassau, and New Nassau assumed those liabilities.
- As part of the consideration, New Nassau issued stock to Reliance based on Reliance’s Old Nassau holdings, and New Nassau paid cash to most minority Old Nassau shareholders for their Old Nassau stock.
- After the steps were completed, Reliance owned New Nassau, and Old Nassau had disposed of its operating assets.
- YOC claimed a cost (stepped-up) basis in the acquired assets and treated post-acquisition net operating losses (NOLs) as carryovers to its own later years.
- The Commissioner asserted the asset basis must carry over from Old Nassau (reorganization treatment) and that YOC’s post-acquisition NOLs had to be carried back to Old Nassau’s prior years before any carryover to YOC’s later years.

## Issues

1. Whether YOC’s basis in assets acquired from Old Nassau was YOC’s cost basis or Old Nassau’s carryover basis.
2. Whether YOC’s post-acquisition NOL had to be carried back to Old Nassau’s pre-acquisition taxable years before being carried over to YOC’s subsequent taxable years.

## Decision

- The Tax Court held YOC was entitled to a stepped-up (cost) basis in the assets acquired from Old Nassau.
- The Tax Court held YOC was not required to carry back its post-acquisition NOL to Old Nassau’s prior years before carrying it over to YOC’s later years.
- The court rejected the Commissioner’s attempt to treat the multi-step transaction as a tax-free reorganization producing carryover basis and successor-type NOL treatment.

## Legal Principles

- A transaction will not qualify as an F reorganization if continuity of proprietary interest by the transferor’s historic shareholders is not sufficiently maintained, including where minority interests are largely eliminated for cash.
- D reorganization treatment requires satisfaction of the statutory “control” requirement immediately after the transfer; step-transaction analysis does not dispense with this requirement where the post-transfer ownership does not meet the control threshold.
- When a transfer is treated as an asset purchase rather than a tax-free reorganization, the acquirer generally takes a cost basis in acquired assets.
- Where the acquirer is treated as a separate taxpayer that purchased assets (not a continuation of the seller in a reorganization), the acquirer’s post-acquisition NOL is not required to be carried back to the seller’s pre-acquisition taxable years before being carried over to the acquirer’s later years.

## Conclusion

The Tax Court treated the acquisition as a taxable asset purchase rather than an F or D reorganization, granting YOC a cost basis in the acquired assets and permitting YOC’s post-acquisition NOL to be carried over to its own later years without first being carried back to Old Nassau’s prior taxable years.


YOC Heating Corp. v. Commissioner, 61 T.C. 168 (1973)