*99 Decision will be entered under Rule 50.
The Esspi Glove Corporation, from the date of its incorporation until June 15, 1943, was engaged in the business of manufacturing and selling gloves. On the latter date all of the stock of Esspi was purchased by two new stockholders, its name was changed to the Alprosa Watch Corporation, its place of business was moved, and the nature of the business was changed to the buying and selling of jewelry. Held, petitioner Alprosa Watch Corporation and the Esspi Glove Corporation constitute one and the same tax entity and that the income and expenses of the glove business for the period July 1, 1942, to June 14, 1943; the net operating losses of that business for a prior taxable year ended April 30, 1942; and the unused excess profits credits of Esspi from prior years may be included by petitioner in computing its excess profits credits for the taxable year ended June 30, 1943.
*240 This proceeding involves an excess profits tax deficiency for the taxable year ended June 30, 1943, in the amount of $ 37,633.45.
*241 The question before the Court is whether the petitioner, the Alprosa Watch Corporation, constituted the same taxable entity as the Esspi Glove Corporation and is entitled to include in its tax returns the income and expenses of the Esspi Glove Corporation for the period July 1, 1942, to June 14, 1943; to deduct the net operating losses of the glove business for its prior taxable year ended April 30, 1942; and to include unused excess profits credits of prior years of the Esspi Glove Corporation in computing Alprosa's excess profits credits for the taxable year ended June 30, 1943.
FINDINGS OF FACT.
On May 16, 1940, a corporation was organized pursuant to the laws of the State of New York under the name "USA Esspi Glove Corporation." The certificate of incorporation provided, among other things, that the corporation would have the power*101 "To buy, sell, manufacture, repair, alter and exchange, export, import and deal in all kinds of merchandise at wholesale and retail."
At the time of its organization all the outstanding capital stock of the USA Esspi Glove Corporation was issued to Charles V. Spillar, who thereupon paid $ 50,000 in cash into the corporation. Pursuant to a certificate of change of name filed with the Secretary of State of the State of New York on July 17, 1941, the corporate name was changed to "Esspi Glove Corporation," hereinafter referred to as Esspi. From the date of incorporation until June 14, 1943, this corporation was engaged in the business of manufacturing and selling women's gloves, with its place of business at 404 Fourth Avenue, New York City. Charles V. Spillar died on October 16, 1942, and thereafter until June 14, 1943, the executors of his estate, Paul J. Edwards and George Boochever, conducted the business affairs of Esspi.
Both prior to and during 1943, Paul V. Eisner and Max E. Taussig were engaged as a partnership, under the firm name of Paul V. Eisner & Co., in the business of importing and selling Swiss watches. It was their practice to buy Swiss watches through a resident*102 buyer in Switzerland. On March 25, 1943, the Swiss buyer purchased a quantity of "Pierce" watches for the partnership from the Pierce Watch Co. in Switzerland for an aggregate sum of $ 35,885.54. The sole United States importer and distributor for watches of this name was the Pierce Watch Co. of New York, a direct competitor of the partnership. Due to the condition of wartime communications, the partners were unable to prevent the shipment of the watches and they subsequently arrived at the New York Customs House.
The Pierce Watch Co. initially refused to permit the removal of the watches from customs. It subsequently agreed to accept the shipment itself or to permit the partnership to turn the watches over to an existing *242 organization which was not a competitor of the Pierce Watch Co. provided the agency to which the shipment was transferred would agree to share any profit made on the sale of the watches equally with the Pierce Watch Co.
Paul J. Edwards, one of the executors of the estate of Charles V. Spillar, deceased, had been an attorney for Paul V. Eisner & Co. for many years and was consulted by Eisner in regard to the proposal made to the partnership by the *103 Pierce Watch Co. in regard to securing a noncompetitive outlet for the disposal of the "Pierce" watches. As a result of these conferences and at the suggestion of Edwards, Irene Eve Taussig, and Lizette Eisner, the wives of the two partners of Paul V. Eisner & Co. purchased from him and his coexecutor, George Boochever, on June 14, 1943, all of the outstanding capital stock of the Esspi Glove Corporation. Mrs. Eisner and Mrs. Taussig each paid $ 11,200, or half of the purchase price of $ 22,400, the then book value of the capital stock. The negotiations for and the actual purchase of the stock were handled by the partners, as their wives had had no prior business experience. Since that date, Irene Eve Taussig and Lizette Eisner have been the sole stockholders of the corporation.
On June 15, 1943, the corporate name was changed to Alprosa Watch Corporation, hereinafter referred to as petitioner, by filing a certificate of change of name with the Secretary of State of the State of New York. The place of business of the Alprosa Watch Corporation was moved from the location of Esspi at 404 Fourth Avenue to 580 Fifth Avenue, which was to the same building in which the partnership *104 was located, but Alprosa occupied a separate office on a different floor. The glove business was discontinued and thereafter petitioner engaged in the business of selling jewelry, including watches.
On June 16, 1943, the corporate assets, consisting chiefly of glove-manufacturing machinery, were sold back to the executors of the Spillar estate for $ 32,599.71, of which the purchasers paid $ 22,314.03 in cash and assumed liabilities to the extent of $ 10,285.68. The balance sheet of Alprosa thereafter reflected the following:
| Assets | ||
| Cash | $ 22,314.00 | |
| Organization expense (original | ||
| incorporation) | 379.20 | |
| Total | 22,693.20 | |
| Liabilities | ||
| Capital stock: | ||
| L. Eisner | $ 25,000.00 | |
| I. Taussig | 25,000.00 | |
| Operating deficit: | $ 50,000.00 | |
| Current year | 26,426.15 | |
| Prior year | 985.90 | |
| (27,412.05) | ||
| Due to estate of Charles V. Spillar, | ||
| etc | 105.25 | |
| Total | 22,693.20 |
On June 30, 1943, which was the last day of petitioner's taxable year, the shipment of Pierce watches was sold by the partnership to *243 the petitioner at the cost price of $ 35,885.54. The profit on the resale of the watches by petitioner was reported in its corporate*105 income and declared value excess profits tax returns for the fiscal year ended June 30, 1943, in the amount of $ 41,598. Half of this profit was shared with the Pierce Watch Co. Petitioner continued in business for about three years after June 30, 1943.
At no time during the period July 1, 1942, to June 30, 1943, had the stockholders or directors of petitioner adopted any resolution to dissolve or liquidate petitioner; nor had any certificate of dissolution of petitioner been filed with the Secretary of State of the State of New York; nor had any steps whatsoever been taken by petitioner or its officers, directors, or stockholders to dissolve or liquidate petitioner.
Petitioner filed all Federal income and excess profits tax returns and its Federal income and excess profits tax returns for the fiscal year July 1, 1942, to June 30, 1943, with the collector of internal revenue for the third district of New York. Petitioner at all times kept its books on the accrual basis, filed its income and excess profits tax returns on the accrual basis, and at no time kept its books or filed its income and excess profits tax returns on the cash basis.
For the period July 1, 1942, to June 14, 1943, *106 while the name of the corporation was Esspi Glove Corporation, the excess of the deductions over income amounted to $ 26,426.15; for the period June 15, 1943, to June 30, 1943, while the corporation was known as the Alprosa Watch Corporation, the excess of income over deductions amounted to $ 47,133. The corporation known as Esspi Glove Corporation had a net operating loss carry-over for the taxable period ended April 30, 1942, of $ 985.90.
The corporation known as Esspi Glove Corporation had an unused excess profits credit for the taxable period May 1, 1941, to April 30, 1942, of $ 4,000, and for the period May 1, 1942, to June 30, 1942, of $ 668.49.
In the statement attached to the deficiency notice, the respondent explained his determinations as follows:
It is held that your returns for the taxable year ended June 30, 1943 improperly included the income and expenses of the Esspi Glove Corporation for the period July 1, 1942 to June 14, 1943, and such income and expenses have therefore been eliminated in the computation of your net taxable income for said year. It is also held that you are not entitled to deduct the alleged net operating loss of the said company for its prior *107 taxable year ended April 30, 1942.
* * * *
It is further held that in computing your excess profits credit for the taxable year ended June 30, 1943 based on invested capital, you are not entitled to include therein the excess profits credits of the Esspi Glove Corporation.
The prime reason for the acquisition of the stock of an existing corporation, viz., the Esspi Glove Corporation, was to secure an instrument for the disposal of the Pierce watches, although the acquiring *244 persons were aware of the tax advantages which might accrue to them by reason of the existing losses and credits then available to the Esspi Glove Corporation.
OPINION.
The petitioner herein, the Alprosa Watch Corporation, which was engaged in the business of selling jewelry, including watches, during the period June 15 to June 30, 1943, claims the right to include in its returns for the fiscal year ended June 30, 1943, the income and losses realized by the Esspi Glove Corporation during the preceding portion of that fiscal year and in a prior year. Petitioner also seeks the benefit of the excess profits credits of the latter corporation. These claims are predicated on the theory that petitioner and Esspi*108 are one and the same taxable entity, notwithstanding changes in the corporate name, stock ownership, business activity, and the location of the place of business.
Respondent takes the position that, while "technically the same corporate entity may have continued in existence," the benefit of the deductions and credits stemming from the prior activities of Esspi should be denied the petitioner. He argues that the control of Esspi was in fact acquired by the partners in the names of their wives "for the sole purpose of evading or avoiding federal taxes," that the whole transaction was unrealistic, served no business purpose, and should be rejected on the authority of Gregory v. Helvering, 293 U.S. 465">293 U.S. 465, and Higgins v. Smith, 308 U.S. 473">308 U.S. 473.
The cases relied on by respondent are landmark cases which have been regularly invoked to prohibit unreal uses of the corporate form to effect tax savings. Both cases involve transactions between corporations and their sole stockholders that were held to be unrealistic, tax-dodging devices, without substance or a legitimate business purpose. In both cases, the corporate entity *109 used by the taxpayer as a vehicle of tax avoidance was disregarded for Federal tax purposes.
Under the theory upon which respondent has determined the deficiency in this proceeding, there is neither a corporation nor a transaction which we may "disregard" in determining the issue before us. Respondent submits that the "new corporation," Alprosa Watch Corporation, should be disregarded for Federal tax purposes -- yet that corporation, and not its stockholders or the partnership, is the taxpayer against which the respondent has found the deficiency. On the other hand, the transaction between the partnership and petitioner may not be disregarded, once it has been tacitly recognized by the finding of a deficiency against the petitioner based primarily upon the profits realized as a result of that transaction.
In addition, the facts in the instant case do not support a finding that the sole or principal purpose of the entire transaction was the *245 evasion or avoidance of Federal taxes. We have found as a fact that the acquisition of an existing corporation was necessary if the Pierce watches were to be marketed, and, while we are satisfied that the parties in interest were not*110 unaware of the tax advantages that might accrue through Esspi, the record does not support a finding that tax avoidance was the dominating motive.
A man's tax avoidance motives do not alone establish his liability. In Chisholm v. Commissioner, 79 Fed. (2d) 14, it was stated:
* * * In Gregory v. Helvering, supra, * * * the incorporators adopted the usual form for creating business corporations; but their intent, or purpose, was merely to draught the papers, in fact not to create corporations as the court understood that word. That was the purpose which defeated their exemption, not the accompanying purpose to escape taxation; that purpose was legally neutral. Had they really meant to conduct a business by means of the two reorganized companies, they would have escaped whatever other aim they might have had, whether to avoid taxes, or to regenerate the world.
It follows that the principles of Gregory v. Helvering, and Higgins v. Smith, are inapplicable.
It has been conceded by both parties that the provisions of section 129 of the Internal Revenue Code are inapplicable, since the present case involves*111 a taxable year beginning prior to December 31, 1943. However, it is respondent's suggestion that the legal principles set out in section 129 may well have been the law existing prior to the enactment of that section. Section 128 (c) of the Revenue Act of 1943, which limits the significance of the date upon which the amendments made by section 129 were made effective, states in part:
* * * The determination of the law applicable to prior taxable years shall be made as if this section had not been enacted and without inferences drawn from the fact that the amendment made by this section is not expressly made applicable to prior taxable years.
The parties have not cited, nor have we been able to discover, any statement of law prior to the enactment of section 129 expressive of the specific principles set out in that section. There is considerable doubt in our minds that, even assuming that this case were to be governed by section 129, the facts constitute a situation condemned by that section. That section would seem to prohibit the use of a deduction, credit, or allowance only by the acquiring person or corporation and not their use by the corporation whose control was acquired.
*112 The remaining question in the case is whether Esspi and petitioner are actually the same corporate entity. In view of the established principle that a corporation and its stockholders are separate legal entities, it is recognized that a change in stock ownership does not produce a new corporate personality. Erie Coca Cola Bottling Co., 1 B. T. A. 531; East Coast Motors, Inc., 35 B. T. A. 212. In Northway Securities Co., 23 B. T. A. 532, we held that the petitioner corporation was the same jural person as its so-called predecessor, notwithstanding *246 a change in name, business situs, and type of business. Cf. American Coast Line, Inc. v. Commissioner, 159 Fed. (2d) 665.
In the case before us the corporate name was changed, the locus of business was immediately moved, the corporate stock was acquired by new owners, and the nature of the business was converted from the manufacture and sale of gloves to the purchase and sale of jewelry. The new business activity was authorized by the original certificate of incorporation. Furthermore, it is significant*113 that no steps were taken to liquidate Esspi in the taxable year -- in fact, petitioner conducted business for three years thereafter. In these circumstances, and on the authority of the cited cases, we hold that Esspi Glove Corporation and Alprosa Watch Corporation were the same corporate person for Federal tax purposes.
As it is our conclusion that the petitioner and the Esspi Glove Corporation constitute for Federal tax purposes one and the same taxpayer, it follows that petitioner may include in its corporate tax returns for the fiscal year ended June 30, 1943, the income and expenses of the Esspi Corporation for the period July 1, 1942, to June 14, 1943, and is entitled to deduct the net operating losses of the latter company for its prior taxable year ended April 30, 1942. We hold further that petitioner is entitled to the use of the unused excess profits credits of the Esspi Glove Corporation in computing its excess profits credit for the taxable year ended June 30, 1943.
Decision will be entered under Rule 50.