Commissioner of Internal Revenue, Petitioner, v. United Contractors, Inc., Respondent, 344 F.2d 123 (4th Cir. 1965)

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U.S. Court of Appeals for the Fourth Circuit - 344 F.2d 123 (4th Cir. 1965)

Argued March 3, 1965
Decided March 29, 1965

Robert A. Bernstein, Atty., Dept. of Justice (Louis F. Oberdorfer, Asst. Atty. Gen., and John B. Jones, Jr., Meyer Rothwacks and Harry Baum, Attys., Dept. of Justice, on brief), for petitioner.

A. Fred Freedman, Washington, D. C. (Henry G. Burke, Baltimore, Md., on brief), for respondent.

Before HAYNSWORTH, Chief Judge, and BOREMAN and J. SPENCER BELL, Circuit Judges.


This appeal by the Commissioner from a decision by the Tax Court1  in favor of the respondent, United Contractors, Inc., raises the question of whether a parent corporation's intercompany profit2  eliminated in a consolidated income tax return for the taxable period ended September 30, 1951, is realized by the parent corporation and taxable to it as ordinary income upon the sale of the stock of the subsidiary in 1959 to a non-member of the group.

Petitioner strenuously argues here, as it did before the Tax Court, that a proper interpretation of section 1502 of the Internal Revenue Code of 1954, as amended, and the regulations issued thereunder requires the inclusion in taxpayer's gross income, in 1959, of the previously eliminated intercompany profit in order clearly to reflect its income and to prevent the profit from escaping taxation. The Tax Court rested its decision in this case on Henry C. Beck Builders, Inc. v. Commissioner, 41 T.C. 616 (1964), a decision by the full court (five members dissenting) in which the material facts and the arguments made by the parties were identical to those in this case.

We have considered the able and exhaustive briefs of the parties and the arguments before this court; we find ourselves in agreement with the decision of the Tax Court for the reasons set forth in the opinion for the majority in the Beck case. Therefore the decision of the Tax Court is



1964 P-H T.C. Memo. Dec. ¶ 64,068


The profit was earned by the parent in constructing an apartment building for the subsidiary during 1950-1951