U.S. Code » Title 26 » Subtitle Subtitle A— Income Taxes › Chapter CHAPTER 1— NORMAL TAXES AND SURTAXES › Subchapter Subchapter B— Computation of Taxable Income › Part PART IX— ITEMS NOT DEDUCTIBLE

26 U.S.C. § 269

Acquisitions made to evade or avoid income tax

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(a) In generalIf—(1) any person or persons acquire, directly or indirectly, control of a corporation, or(2) any corporation acquires, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation,and the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then the Secretary may disallow such deduction, credit, or other allowance. For purposes of paragraphs (1) and (2), control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the corporation.(b) Certain liquidations after qualified stock purchases(1) In generalIf—(A) there is a qualified stock purchase by a corporation of another corporation,(B) an election is not made under section 338 with respect to such purchase,(C) the acquired corporation is liquidated pursuant to a plan of liquidation adopted not more than 2 years after the acquisition date, and(D) the principal purpose for such liquidation is the evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which the acquiring corporation would not otherwise enjoy,then the Secretary may disallow such deduction, credit, or other allowance.(2) Meaning of terms

For purposes of paragraph (1), the terms “qualified stock purchase” and “acquisition date” have the same respective meanings as when used in section 338.

(c) Power of Secretary to allow deduction, etc., in partIn any case to which subsection (a) or (b) applies the Secretary is authorized—(1) to allow as a deduction, credit, or allowance any part of any amount disallowed by such subsection, if he determines that such allowance will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or(2) to distribute, apportion, or allocate gross income, and distribute, apportion, or allocate the deductions, credits, or allowances the benefit of which was sought to be secured, between or among the corporations, or properties, or parts thereof, involved, and to allow such deductions, credits, or allowances so distributed, apportioned, or allocated, but to give effect to such allowance only to such extent as he determines will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or(3) to exercise his powers in part under paragraph (1) and in part under paragraph (2).(Aug. 16, 1954, ch. 736, 68A Stat. 80; Pub. L. 88–272, title II, § 235(c)(2), Feb. 26, 1964, 78 Stat. 126; Pub. L. 94–455, title XIX, §§ 1901(a)(38), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1771, 1834; Pub. L. 98–369, div. A, title VII, § 712(k)(8)(A), (B), July 18, 1984, 98 Stat. 952; Pub. L. 113–295, div. A, title II, § 221(a)(45), Dec. 19, 2014, 128 Stat. 4045.)Editorial NotesAmendments

2014—Subsec. (a). Pub. L. 113–295 struck out “or acquired on or after October 8, 1940,” after “persons acquire,” in par. (1) and after “corporation acquires,” in par. (2).

1984—Subsecs. (b), (c). Pub. L. 98–369 added subsec. (b), redesignated former subsec. (b) as (c) and inserted reference to subsec. (b).

1976—Subsecs. (a), (b). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” wherever appearing.

Subsec. (c). Pub. L. 94–455, § 1901(a)(38), struck out subsec. (c) relating to presumptions in the case of disproportionate purchase price.

1964—Subsec. (a). Pub. L. 88–272 substituted “the Secretary or his delegate may disallow such deduction, credit, or other allowance” for “such deduction, credit or other allowance shall not be allowed”.

Statutory Notes and Related SubsidiariesEffective Date of 2014 Amendment

Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

Effective Date of 1984 Amendment

Pub. L. 98–369, div. A, title VII, § 712(k)(8)(C), July 18, 1984, 98 Stat. 952, provided that: “The amendments made by this paragraph [amending this section] shall apply to liquidations after October 20, 1983, in taxable years ending after such date.”

Effective Date of 1964 Amendment

Pub. L. 88–272, title II, § 235(d), Feb. 26, 1964, 78 Stat. 127, provided that: “The amendments made by subsections (a) and (c) [enacting sections 1561 to 1563 of this title and amending this section and sections 441 and 802 of this title] shall apply with respect to taxable years ending after December 31, 1963. The amendment made by subsection (b) [amending section 1551 of this title] shall apply with respect to transfers made after June 12, 1963.”

Notes of Decisions
Cited in 35 cases (1 in the last 5 years), 1935–2025 · leading case: United Dominion Indus., Inc. v. United States, 532 U.S. 822 (2001).
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United Dominion Indus., Inc. v. United States, 532 U.S. 822 (2001). · cites it 2× “" 26 U. S. C. § 269 (a). And finally, if the Government were to conclude that § 269 provided too little protection and that it simply could not live with the single-entity approach, the Treasury could exercise the authority provided by the Code, 26 U.”
Your Host, Inc. v. Comm'r of Internal Revenue, Chef Foods, Inc. v. Comm'r of Internal Revenue, 489 F.2d 957 (2d Cir. 1973). · cites it 5× “§ 482 , which allows the Commissioner to allocate income among affiliated companies more properly to reflect the earning of income, 1 and pursuant to *959 26 U.S.C. § 269 , which permits the Commissioner to deny tax exemptions and deductions where an affiliated company was…”
Long Term Capital Holdings v. United States, 330 F. Supp. 2d 122 (D. Conn. 2004). “Notably absent from the memorandum is any analysis of the step transaction doctrine, 26 U.S.C. § 269 , whether B & B and OTC were alter egos, and sham transaction theories.”
Victor Borge, Sanna Borge, & Danica Enter., Inc. v. Comm'r of Internal Revenue, 405 F.2d 673 (2d Cir. 1968). · cites it 3× “, Borge’s wholly owned corporation, for services performed by Borge as an entertainer, and the Commissioner’s disallowance, under Section 269 of the Internal Revenue Code of 1954, 26 U.S.C. § 269 (1964), of Danica’s deduction of losses from its rock cornish hen business in…”
Frank Sawyer Trust of May 1992 v. Comm'r of Internal Reven, 712 F.3d 597 (1st Cir. 2013). “26 U.S.C. § 269 (a) (if “principal purpose” for acquisition of corporation is to “secur[e] the benefit of a deduction” that acquirer would not otherwise enjoy, IRS may disallow deduction); Briarcliff Candy Corp.”
In Re Washington Mut., Inc., 461 B.R. 200 (Bankr. D. Del. 2011). “” 26 U.S.C. § 269 (a)(1). For the principal purpose of a transaction to be tax avoidance, the purpose of tax evasion or avoidance has to be more significant, more important, or more prominent than any other purpose; it can be one of the purposes but not the principal purpose.”
Allis-Chalmers Corp. v. Goldberg (In Re Hartman Material Handling Sys., Inc.), 141 B.R. 802 (Bankr. S.D.N.Y. 1992). · cites it 2× “A-C seeks interpretation of this Court’s confirmation order in the former debtor’s bankruptcy case and declaratory relief on the retroactive effect of Internal Revenue Service (“IRS”) regulations interpreting 26 U.S.C. § 269 enacted on January 6, 1992 (the “Regulations” 1 ).”
Textron, Inc. v. United States, 561 F.2d 1023 (1st Cir. 1977). · cites it 2× “The shell together with the losses could not be marketed to others, 26 U.S.C. §§ 269 & 382, see infra.; and while it was within Textron’s power to rehabilitate the subsidiary, and, if profits were generated, deduct the tax losses on future tax returns, this contingency first…”
Vulcan Materials Co. v. United States, 446 F.2d 690 (5th Cir. 1971). · cites it 2× “If appellant did not satisfy this burden, it is conceded that net operating loss carryovers were properly disallowed under 26 U.S.C. § 269 (a) (2). A stipulation of facts with accompanying documentary exhibits constituted the sole evidence at trial.”
Wells Fargo & Co. v. United States, 143 F. Supp. 3d 827 (D. Minnesota 2015). · cites it 3× “Specifically, the Court grants Wells Fargo’s motion for partial summary judgment that 26 U.S.C. § 269 does not apply to the STARS transaction and denies the remainder of Wells Fargo’s motions.”
Se. Canteen Co. & Canteen Serv. Co. Of Toledo, on Review v. Comm'r of Internal Revenue, on Review, 410 F.2d 615 (6th Cir. 1969). · cites it 2× “with the principal purpose of securing the surtax exemption of $25,000 of its earnings, contrary to Section 269 of the Internal Revenue Code of 1954, 26 U.S.C. § 269 . We agree with the Tax Court’s affirmance of the Commissioner’s disallowance of amounts claimed as rent and…”
Urban Redevelopment Corp. v. Comm'r of Internal Revenue, 294 F.2d 328 (4th Cir. 1961). “Code of 1954, § 269, 26 U. S.C.A. § 269). These sections provide that if, on or after October 8, 1940, any person or persons acquire control of a corporation and the principal purpose for such acquisition is evasion or avoidance of federal income tax by securing the benefit of a…”
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