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Moline Properties v. Commissioner of Internal Revenue, 319 U.S. 436, 63 S.Ct. 1132, 87 L.Ed. 1499, 43-1 USTC P 9464, 30 A.F.T.R. 1291, 1943 C.B. 1011

Facts

Moline Properties, Inc. was created by Uly O. Thompson in 1928 as a security device for certain Florida realty. Thompson conveyed the property to the corporation, which assumed the mortgages and held the stock as security for a loan. After repaying the loan in 1933, Thompson regained control of the corporation, which continued to exist and engaged in limited business activities, including leasing property and selling portions of its holdings. The corporation reported gains and losses on its tax returns, but Thompson later sought to treat the gains as his personal income.

Petitioner was organized by Uly O. Thompson in 1928 to be used as a security device in connection with certain Florida realty owned by him.

Issue

Whether the gain realized on the sales of real property by Moline Properties, Inc. should be treated as taxable income to the corporation or to its sole stockholder, Uly O. Thompson.

The question is whether the gain realized on the 1935 and 1936 sales shall be treated as income taxable to petitioner, as the Government urges, or as Thompson's income.

Rule

The doctrine of corporate entity maintains that a corporation remains a separate taxable entity unless it is a sham or unreal, in which case the corporate form may be disregarded for tax purposes.

The doctrine of corporate entity fills a useful purpose in business life.

Analysis

The court applied the rule of corporate entity by recognizing that Moline Properties, Inc. was created for legitimate business purposes and had engaged in activities that established its separate identity. The court found that Thompson's control over the corporation did not negate its status as a separate entity, as it had conducted business and filed tax returns independently.

The petitioner corporation was created by Thompson for his advantage and had a special function from its inception.

Conclusion

The Supreme Court affirmed the decision of the Circuit Court of Appeals, holding that the gains from the sales were taxable to Moline Properties, Inc. as a separate entity.

Judgment affirmed.

Who won?

The Commissioner of Internal Revenue prevailed in the case, as the court upheld the taxation of the gains to Moline Properties, Inc. rather than to Thompson personally.

The Circuit Court of Appeals reversed on the ground that the corporate entity, chosen by Thompson for reasons sufficient to him, must now be recognized in the taxation of the income of the corporation.

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