---
kind: "range"
citation: "26 C.F.R. §§ 1.269-2–1.269-7"
title: "26"
from: "1.269-2"
to: "1.269-7"
count: 6
url: "https://uscodex.org/cfr/26/1.269-2..1.269-7"
---

# §1.269-2. Purpose and scope of section 269.

- (a) **General.** [Section 269](/cfr/26/269.md) is designed to prevent in the instances specified therein the use of the sections of the Internal Revenue Code providing deductions, credits, or allowances in evading or avoiding Federal income tax. See [§ 1.269-3](/cfr/26/1.269-3.md).
- (b) **Disallowance of deduction, credit, or other allowance.** Under the Code, an amount otherwise constituting a deduction, credit, or other allowance becomes unavailable as such under certain circumstances. Characteristic of such circumstances are those in which the effect of the deduction, credit, or other allowance would be to distort the liability of the particular taxpayer when the essential nature of the transaction or situation is examined in the light of the basic purpose or plan which the deduction, credit, or other allowance was designed by the Congress to effectuate. The distortion may be evidenced, for example, by the fact that the transaction was not undertaken for reasons germane to the conduct of the business of the taxpayer, by the unreal nature of the transaction such as its sham character, or by the unreal or unreasonable relation which the deduction, credit, or other allowance bears to the transaction. The principle of law making an amount unavailable as a deduction, credit, or other allowance in cases in which the effect of making an amount so available would be to distort the liability of the taxpayer, has been judicially recognized and applied in several cases. Included in these cases are Gregory v. Helvering (1935) (293 U.S. 465; Ct. D. 911, C.B. XIV-1, 193); Griffiths v. Helvering (1939) (308 U.S. 355; Ct. D. 1431, C.B. 1940-1, 136); Higgins v. Smith (1940) (308 U.S. 473; Ct. D. 1434, C.B. 1940-1, 127); and J. D. & A. B. Spreckles Co. v. Commissioner (1940) (41 B.T.A. 370). In order to give effect to such principle, but not in limitation thereof, several provisions of the Code, for example, [section 267](/cfr/26/267.md) and [section 270](/cfr/26/270.md), specify with some particularity instances in which disallowance of the deduction, credit, or other allowance is required. [Section 269](/cfr/26/269.md) is also included in such provisions of the Code. The principle of law and the particular sections of the Code are not mutually exclusive and in appropriate circumstances they may operate together or they may operate separately. See, for example, [§ 1.269-6](/cfr/26/1.269-6.md).

# §1.269-3. Instances in which section 269(a) disallows a deduction, credit, or other allowance.

- (a) **Instances of disallowance.** [Section 269](/cfr/26/269.md) specifies two instances in which a deduction, credit, or other allowance is to be disallowed. These instances, described in paragraphs (1) and (2) of section 269(a), are those in which:
  - (1) Any person or persons acquire, or acquired on or after October 8, 1940, directly or indirectly, control of a corporation, or
  - (2) Any corporation acquires, or acquired on or after October 8, 1940, 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.
- (b) **Acquisition of control; transactions indicative of purpose to evade or avoid tax.** If the requisite acquisition of control within the meaning of paragraph (1) of section 269(a) exists, the transactions set forth in the following subparagraphs are among those which, in the absence of additional evidence to the contrary, ordinarily are indicative that the principal purpose for acquiring control was evasion or avoidance of Federal income tax:
  - (1) A corporation or other business enterprise (or the interest controlling such corporation or enterprise) with large profits acquires control of a corporation with current, past, or prospective credits, deductions, net operating losses, or other allowances and the acquisition is followed by such transfers or other action as is necessary to bring the deduction, credit, or other allowance into conjunction with the income (see further [§ 1.269-6](/cfr/26/1.269-6.md)). This subparagraph may be illustrated by the following example:
  - (2) A person or persons organize two or more corporations instead of a single corporation in order to secure the benefit of multiple surtax exemptions (see [section 11(c)](/cfr/26/11.md?p=c)) or multiple minimum accumulated earnings credits (see section [535(c)(2)](/cfr/26/535.md?p=c-2) and [(3)](/cfr/26/535.md?p=c-3)).
  - (3) A person or persons with high earning assets transfer them to a newly organized controlled corporation retaining assets producing net operating losses which are utilized in an attempt to secure refunds.
- (c) **Acquisition of property; transactions indicative of purpose to evade or avoid tax.** If the requisite acquisition of property within the meaning of paragraph (2) of section 269(a) exists, the transactions set forth in the following subparagraphs are among those which, in the absence of additional evidence to the contrary, ordinarily are indicative that the principal purpose for acquiring such property was evasion or avoidance of Federal income tax:
  - (1) A corporation acquires property having in its hands an aggregate carryover basis which is materially greater than its aggregate fair market value at the time of such acquisition and utilizes the property to create tax-reducing losses or deductions.
  - (2) A subsidiary corporation, which has sustained large net operating losses in the operation of business X and which has filed separate returns for the taxable years in which the losses were sustained, acquires high earning assets, comprising business Y, from its parent corporation. The acquisition occurs at a time when the parent would not succeed to the net operating loss carryovers of the subsidiary if the subsidiary were liquidated, and the profits of business Y are sufficient to offset a substantial portion of the net operating loss carryovers attributable to business X (see further Example 3 of [§ 1.269-6](/cfr/26/1.269-6.md)).
- (d) **Ownership changes to which section 382(l)(5) applies; transactions indicative of purpose to evade or avoid tax—**
  - (1) **In general.** Absent strong evidence to the contrary, a requisite acquisition of control or property in connection with an ownership change to which [section 382(l)(5)](/cfr/26/382.md?p=l-5) applies is considered to be made for the principal purpose of evasion or avoidance of Federal income tax unless the corporation carries on more than an insignificant amount of an active trade or business during and subsequent to the [title 11](/cfr/11.md) or similar case (as defined in [section 382(l)(5)(G)](/cfr/26/382.md?p=l-5-G)). The determination of whether the corporation carries on more than an insignificant amount of an active trade or business is made without regard to the continuity of business enterprise set forth in [§ 1.368-1(d)](/cfr/26/1.368-1.md?p=d). The determination is based on all the facts and circumstances, including, for example, the amount of business assets that continue to be used, or the number of employees in the work force who continue employment, in an active trade or business (although not necessarily the historic trade or business). Where the corporation continues to utilize a significant amount of its business assets or work force, the requirement of carrying on more than an insignificant amount of an active trade or business may be met even though all trade or business activities temporarily cease for a period of time in order to address business exigencies.
  - (2) **Effective date.** The presumption under [paragraph (d)](#d) of this section applies to acquisitions of control or property effected pursuant to a plan of reorganization confirmed by a court in a [title 11](/cfr/11.md) or similar case (within the meaning of [section 368(a)(3)(A)](/cfr/26/368.md?p=a-3-A)) after August 14, 1990.
- (e) **Relationship of section 269 to 11 U.S.C. 1129(d).** In determining for purposes of section 269 of the Internal Revenue Code whether an acquisition pursuant to a plan of reorganization in a case under [title 11](/cfr/11.md) of the United States Code was made for the principal purpose of evasion or avoidance of Federal income tax, the fact that a governmental unit did not seek a determination under [11 U.S.C. 1129(d)](/usc/11/1129.md?p=d) is not taken into account and any determination by a court under [11 U.S.C. 1129(d)](/usc/11/1129.md?p=d) that the principal purpose of the plan is not avoidance of taxes is not controlling.

# §1.269-4. Power of district director to allocate deduction, credit, or allowance in part.


The district director is authorized by [section 269(b)](/cfr/26/269.md?p=b) to allow a part of the amount disallowed by [section 269(a)](/cfr/26/269.md?p=a), but he may allow such part only if and to the extent that he determines that the amount allowed will not result in the evasion or avoidance of Federal income tax for which the acquisition was made. The district director is also authorized to use other methods to give effect to part of the amount disallowed under [section 269(a)](/cfr/26/269.md?p=a), but 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. Whenever appropriate to give proper effect to the deduction, credit, or other allowance, or such part of it which may be allowed, this authority includes the distribution, apportionment, or allocation of both the gross income and the deductions, credits, or other allowances the benefit of which was sought, between or among the corporations, or properties, or parts thereof, involved, and includes the disallowance of any such deduction, credit, or other allowance to any of the taxpayers involved.


# §1.269-5. Time of acquisition of control.

- (a) **In general.** For purposes of [section 269](/cfr/26/269.md), an acquisition of control occurs when one or more persons acquire beneficial 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 share of all classes of stock of the corporation.
- (b) **Application of general rule to certain creditor acquisitions.**
  - (1) For purposes of [section 269](/cfr/26/269.md), creditors of an insolvent or bankrupt corporation (by themselves or in conjunction with other persons) acquire control of the corporation when they acquire beneficial ownership of the requisite amount of stock. Although insolvency or bankruptcy may cause the interests of creditors to predominate as a practical matter, creditor interests do not constitute beneficial ownership of the corporation's stock. Solely for purposes of [section 269](/cfr/26/269.md), creditors of a bankrupt corporation are treated as acquiring beneficial ownership of stock of the corporation no earlier than the time a bankruptcy court confirms a plan of reorganization.
  - (2) **The provisions of this section are illustrated by the following example.**

# §1.269-6. Relationship of section 269 to section 382 before the Tax Reform Act of 1986.


[Section 269](/cfr/26/269.md) and [§§ 1.269-1 through 1.269-5](/cfr/26/1.269-1..1.269-5.md) may be applied to disallow a net operating loss carryover even though such carryover is not disallowed (in whole or in part) under [section 382](/cfr/26/382.md) and the regulations thereunder. This section may be illustrated by the following examples:


# §1.269-7. Relationship of section 269 to sections 382 and 383 after the Tax Reform Act of 1986.


[Section 269](/cfr/26/269.md) and [§§ 1.269-1 through 1.269-5](/cfr/26/1.269-1..1.269-5.md) may be applied to disallow a deduction, credit, or other allowance notwithstanding that the utilization or amount of a deduction, credit, or other allowance is limited or reduced under section [382](/cfr/26/382.md) or [383](/cfr/26/383.md) and the regulations thereunder. However, the fact that the amount of taxable income or tax that may be offset by a deduction, credit, or other allowance is limited under section [382(a)](/cfr/26/382.md?p=a) or [383](/cfr/26/383.md) and the regulations thereunder is relevant to the determination of whether the principal purpose of an acquisition is the evasion or avoidance of Federal income tax.