26 U.S.C. § 269 — Acquisitions made to evade or avoid income tax

submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 473 words · no verdicts yet

in plain englishAI-generated · not legal advice

This section lets the Secretary disallow a tax deduction, credit, or benefit gained through a corporate acquisition. It applies when the main purpose is evading income tax, including certain post-purchase liquidations. The Secretary can also allow such benefits partly, if that avoids the evasion.

(a) This subsection targets tax-motivated acquisitions. It applies in two situations. First, when a person or group gains control of a corporation. Second, when a corporation acquires another corporation's property, using that corporation's original cost basis. In either case, if the main purpose is to evade or avoid federal income tax, the Secretary may act. The evasion must involve claiming a deduction, credit, or other tax benefit the acquirer would not otherwise get. If so, the Secretary may disallow that deduction, credit, or benefit. "Control" means owning at least 50 percent of the corporation's voting stock, or 50 percent of its total stock value.

(b) This subsection targets certain post-purchase liquidations. It applies when a corporation buys another in a "qualified stock purchase," skips a section 338 election, and liquidates the target within two years. If the main purpose of that liquidation is to evade or avoid federal income tax, the Secretary may act. Again, the evasion must involve claiming a benefit the acquirer would not otherwise get. The Secretary may then disallow that deduction, credit, or benefit. The terms "qualified stock purchase" and "acquisition date" mean what they mean in section 338.

(c) When subsection (a) or (b) applies, the Secretary has flexibility. The Secretary may allow part of a disallowed deduction, credit, or benefit, if that will not cause tax evasion or avoidance. The Secretary may also divide income, deductions, credits, or benefits among the corporations or properties involved. The Secretary allows that division only to the extent it avoids evasion or avoidance. The Secretary may combine both of these approaches, using each in part.

facts

- Code placement: Title 26 (Internal Revenue Code), § 269, titled "Acquisitions made to evade or avoid income tax." - Length: Approximately 473 words, comprising subsections (a) general rule, (b) certain liquidations after qualified stock purchases, and (c) Secretary's power to allow partial deductions. - Original enactment: Enacted August 16, 1954, by ch. 736, 68A Stat. 80. - Amendment history: Subsequently amended four times — by Pub. L. 88–272 (1964), Pub. L. 94–455 (1976), Pub. L. 98–369 (1984), and Pub. L. 113–295 (2014). - Source credit references: Contains five distinct statutory citations in its source credit, reflecting the original enactment plus four amending public laws.

the actual law source: uscode.house.gov ↗public domain

(a) In general

If—

(1)

any person or persons acquire, directly or indirectly, control of a corporation, or

(2)

any corporation acquires, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation,

and the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then the Secretary may disallow such deduction, credit, or other allowance. For purposes of paragraphs (1) and (2), control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the corporation.

(b) Certain liquidations after qualified stock purchases

(1) In general

If—

(A)

there is a qualified stock purchase by a corporation of another corporation,

(B)

an election is not made under section 338 with respect to such purchase,

(C)

the acquired corporation is liquidated pursuant to a plan of liquidation adopted not more than 2 years after the acquisition date, and

(D)

the principal purpose for such liquidation is the evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which the acquiring corporation would not otherwise enjoy,

then the Secretary may disallow such deduction, credit, or other allowance.

(2) Meaning of terms

For purposes of paragraph (1), the terms “qualified stock purchase” and “acquisition date” have the same respective meanings as when used in section 338.

In any case to which subsection (a) or (b) applies the Secretary is authorized—

(1)

to allow as a deduction, credit, or allowance any part of any amount disallowed by such subsection, if he determines that such allowance will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or

(2)

to distribute, apportion, or allocate gross income, and distribute, apportion, or allocate the deductions, credits, or allowances the benefit of which was sought to be secured, between or among the corporations, or properties, or parts thereof, involved, and to allow such deductions, credits, or allowances so distributed, apportioned, or allocated, but to give effect to such allowance only to such extent as he determines will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or

(3)

to exercise his powers in part under paragraph (1) and in part under paragraph (2).

Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 80; Pub. L. 88–272, title II, § 235(c)(2), Feb. 26, 1964, 78 Stat. 126; Pub. L. 94–455, title XIX, §§ 1901(a)(38), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1771, 1834; Pub. L. 98–369, div. A, title VII, § 712(k)(8)(A), (B), July 18, 1984, 98 Stat. 952; Pub. L. 113–295, div. A, title II, § 221(a)(45), Dec. 19, 2014, 128 Stat. 4045.)

history & why it existsrecord from the source credit

1954Enacted · Act of Aug. 16, 1954, ch. 736
1964Amended · Pub. L. 88-272 · 78 Stat. 126
1976Amended · Pub. L. 94-455 · 90 Stat. 1771, 1834
1984Amended · Pub. L. 98-369 · 98 Stat. 952
2014Amended · Pub. L. 113-295 · 128 Stat. 4045

The record establishes that this section was originally enacted as part of the Internal Revenue Code of 1954, chapter 736, approved August 16, 1954, appearing at 68A Stat. 80. The source credit shows subsequent amendment activity on four occasions: by Public Law 88–272 in 1964, Public Law 94–455 in 1976, Public Law 98–369 in 1984, and Public Law 113–295 in 2014. Each amendment adjusted the section's text, though the credit itself does not detail the substance of each change beyond the statutory citations provided. Historical context for the section's original purpose can be drawn from the general understanding of the 1954 Code recodification. The 1954 Internal Revenue Code was a comprehensive reorganization and modernization of federal tax law, and provisions like this one are commonly understood to reflect Congress's broader effort during that era to police corporate acquisitions undertaken principally to secure tax benefits—such as losses, credits, or other allowances—rather than for legitimate business purposes. Anti-avoidance rules targeting acquisitions "made to evade or avoid income tax" are generally understood to respond to techniques where control of a loss corporation, or its favorable tax attributes, was acquired chiefly to offset the income of a profitable enterprise. Beyond this general characterization, the record does not establish the specific legislative intent behind the section's particular mechanics, including the later amendments' individual purposes. No committee reports, sponsor statements, or specific historical episodes are documented here, and none should be inferred.

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