T.C. Memo. 2000-67
UNITED STATES TAX COURT
CHICAGO MERCANTILE EXCHANGE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 8984-95, 16082-95. Filed March 2, 2000.
P is a not-for-profit corporation that operates a
commodity exchange in Chicago, Illinois. R argues that
P has no affiliates within the meaning of sec.
204(a)(7)(C) of the Tax Reform Act of 1986 (TRA), Pub.
L. 99-514, 100 Stat. 2085, 2155, because P is not a
member of a controlled group of corporations. R
asserts that the flush language of TRA sec. 204(a)(7),
which provides that “a corporation is an affiliate of
another corporation if both corporations are members of
a controlled group of corporations”, is the exclusive
definition of the word “affiliates” for purposes of TRA
sec. 204(a)(7).
Held: The flush language on which R relies merely
specifies when a corporation will be considered to be
an “affiliate” of another corporation; it does not
contain the exclusive definition of that word for
purposes of TRA sec. 204(a)(7).
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Dennis E. Frisby, Ira Marcus, Jack Esses, and Thomas C.
Borders, for petitioner.
Robert M. Ratchford, for respondent.
MEMORANDUM OPINION
LARO, Judge: Respondent moves for summary judgment in his
favor, arguing that petitioner has no affiliates within the
meaning of section 204(a)(7)(C) of the Tax Reform Act of 1986
(TRA), Pub. L. 99-514, 100 Stat. 2085, 2155, because it is not a
member of a controlled group of corporations, which, respondent
asserts, is a requirement of that section. We will deny
respondent’s motion. We hold that a taxpayer need not be a
member of a controlled group of corporations to have affiliates
for purposes of TRA section 204(a)(7)(C). Unless otherwise
stated, section references are to the TRA.
Background1
Petitioner is a corporation organized under the General Not
For Profit Corporation Act of the State of Illinois to operate a
commodity exchange. It is a designated contract market that
provides and regulates a commodity exchange in Chicago, Illinois,
where futures contracts and options on futures contracts are
1
All facts were stipulated by the parties in stipulation
100 of the second supplemental stipulation of facts.
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traded. It is owned by its approximately 2,700 members, and its
principal place of business was in Chicago, Illinois, when it
petitioned the Court. It is not a member of a controlled group
of corporations within the meaning of section 1563(a) of the
Internal Revenue Code of 1986.
Discussion
The parties agree that respondent’s motion can be decided by
way of summary judgment, and so do we. Respondent argues that
petitioner has no affiliates for purposes of section 204(a)(7)(C)
because it is not a member of a controlled group of corporations.
Respondent asserts that the word “affiliates” for purposes of
section 204(a)(7)(C) requires that the taxpayer be a corporation
and that the corporation be a member of a controlled group.
Respondent relies on the flush language of section 204(a)(7),
asserting that this language sets forth the exclusive definition
of the word “affiliates” for purposes of section 204(a)(7)(C).
We disagree with respondent’s assertion that the flush
language of section 204(a)(7) contains the exclusive definition
of the word “affiliates” for purposes of section 204(a)(7).
Section 204(a)(7) provides:
(7) Certain Leasehold Improvements.– * * * [The
repeal of the investment tax credit and accelerated
cost recovery system] shall not apply to any reasonable
leasehold improvements, equipment and furnishings
placed in service by a lessee or its affiliates if–-
(A) the lessee or an affiliate is the
original lessee of each building in which
such property is to be used,
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(B) such lessee is obligated to lease
the building under an agreement to lease
entered into before September 26, 1985, and
such property is provided for such building,
and
(C) such buildings are to serve as world
headquarters of the lessee and its
affiliates.
For purposes of this paragraph, a corporation is an
affiliate of another corporation if both corporations
are members of a controlled group of corporations
within the meaning of section 1563(a) of the Internal
Revenue Code of 1954 without regard to section
1563(b)(2) of such Code. Such lessee shall include a
securities firm that meets the requirements of
subparagraph (A), except the lessee is obligated to
lease the building under a lease entered into on June
18, 1986.
We do not conclude that the flush language of this section
exclusively defines the word “affiliates” for purposes of its
application. The flush language merely specifies when a
corporation will be considered to be an affiliate of another
corporation.
We hold that the flush language of section 204(a)(7)(c) does
not contain the exclusive definition of the word “affiliates”.
Accordingly, we will deny respondent’s motion and set this case
for trial. Whether petitioner has “affiliates” within the
meaning of section 204(a)(7) is a factual determination that must
be made on the basis of a complete record. We have considered
all arguments for a contrary holding and, to the extent not
discussed above, find those arguments to be without merit or
irrelevant. To reflect the foregoing,
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An appropriate order will be
issued.