Moline Properties, Inc. v. Commissioner

Background

A single-owner corporation was created in 1928 by Uly O. Thompson to hold Florida real estate as a security device for loans. Thompson received almost all the shares and a creditor held voting control initially. The loans were repaid, Thompson regained control in 1933, and the corporation sold parcels in 1934, 1935, and 1936. The company did little business aside from those sales and a 1934 parking lot lease, kept no books or bank account later, and was not dissolved.

Reasoning

The central question was whether the sales gains should be taxed to the corporation or to Thompson personally. The Board of Tax Appeals had treated the company as a mere fiction and taxed the owner. The Court examined the company’s formation, its actual activities, the filing of tax returns, and the later business acts. It held that choosing and using the corporate form, and carrying on business and sales, created a distinct taxable entity. The Court recognized narrow exceptions for clear fraud or special legislative purpose but found none applied here, and therefore affirmed the lower court’s ruling for separate corporate taxation.

Real world impact

The decision means the company’s reported gains remain taxable to the corporation, not the individual owner. People who create closely held companies to hold or sell property cannot automatically treat those gains as their personal income if the corporate form was used and followed. The ruling emphasizes that inactive or single-owner corporations still have independent tax identity unless a clear statutory or fraud-based exception applies.