646 F. 2d 341 - Omaha Aircraft Leasing Co v. Commissioner of Internal Revenue

The question in this case is whether Omaha Aircraft Leasing Co. was, during the tax years 1973, 1974, and 1975, engaged in "the active and regular conduct of a lending or finance business" within the meaning of Section 542(c)(6)(A) of the Internal Revenue Code, 26 U.S.C. § 542(c)(6)(A), and therefore exempt from the personal-holding-company tax imposed by Section 541 of the Code, 26 U.S.C. § 541. The Tax Court, 74 T.C. 251 (1980), held that the appellant taxpayer was not so engaged.

We affirm, substantially for the reasons stated in Judge Hall's opinion for the Tax Court. Taxpayer argues, among other things, that it was error for the Tax Court to consider, as one of the factors leading to its decision, the fact that all three of taxpayer's loans outstanding during the relevant time period were to related corporations, wholly owned by the taxpayer's own sole shareholder. We disagree. The fact that all the borrowers were related, while not dispositive, is relevant to the nature of taxpayer's business and the purpose of the personal-holding-company tax to discourage the maintenance of "incorporated pocketbooks" by individuals. Cf. Int.Rev.Code § 304, 26 U.S.C. § 304. Here, taxpayer did nothing except collect interest on loans already outstanding. It made no new loans. It had no employees or space of its own, but simply paid one of its affiliates a percentage of its gross income to service the loans previously made. Taxpayer was nothing but a passive receptacle for interest income from its corporate sisters.

The judgment is affirmed.