Rev. Rul. 55-596

The Internal Revenue Service has been requested to state its position with respect to the application of section 5414 of the Internal Revenue Code of 1954 and section 245.210 of the Beer Regulations, in the case of two breweries of the same corporate name, having substantially the same officers and directors, one being a wholly-owned subsidiary of the other, but which are incorporated in different States.

Section 5414 of the Internal Revenue Code of 1954 provides that beer may be removed from one brewery to another brewery belonging to the same brewer , without payment of tax, and may be mingled with the beer of the second brewery. Section 245.9 of the Beer Regulations defines a brewer as a person who brews or produces beer for sale. Section 245.21 defines person as meaning, among other things, a corporation.

In the case of Moline Properties, Inc. v. Commissioner of Internal Revenue , 319 U.S. 436, Ct. D. 1584, C.B. 1943, 1011, the court said that the doctrine of corporate entity fills a useful purpose in business life. Whether the purpose be to gain an advantage under the law of the State of incorporation or to avoid or to comply with the demands of creditors or to serve the creator's personal or undisclosed convenience, so long as that purpose is the equivalent of business activity or is followed by the carrying on of business by the corporation, the corporation remains a separate taxable entity. In the case of Schenley Distillers Corporation v. United States , 326 U.S. 432, the court stated that while corporate entities may be disregarded where they are made the implement for avoiding a clear legislative purpose, they will not be disregarded where those in control have deliberately adopted the corporate form in order to secure its advantages and where no violence to the legislative purpose is done by treating the corporate entity as a separate legal person. One who has created a corporate arrangement, chosen as a means of carrying out his business purposes, does not have the choice of disregarding the corporate entity in order to avoid the obligations which the statute lays upon it for the protection of the public.

In view of the principles stated herein, it is held that two breweries, each of which is operated by a separate corporation incorporated under the laws of different States, may not be considered as being operated by the same brewer for the purpose of transferring beer from one such brewery to the other under section 5414 of the Internal Revenue Code of 1954