CWT Farms. Inc. is a case that appears simple, but has important implications for DISCs and their owners as much complexity lurks beneath the surface. In its most basic interpretation, CWT stands for the well- accepted propositions that demand notes cannot constitute producer's loans and that distributions of accumulated DISC income are not eligible for the dividend received deduction. Many significant issues that were raised but not resolved merit our attention as well.
Basic Facts
CWT Farms was engaged in the domestic production of poultry products.
These poultry products were sold both domestically and overseas.
The overseas sales were handled through CWT International, Inc.
International was a paper corporations and therefore without substance.
International is a wholly-owned subsidiary of Farms.
Both International and Farms use a taxable year ending September 30. International was organized on September 7, 1972 and elected DISC status on that date. DISC status was apparently not challenged for International's first three taxable years, which ended in 1972, 1973 and 1974.
ROBERT FEINSCHREIBER is a partner in the law firm of ExportDISC Management Company in New York, Philadelphia, and Miami. He is a graduate of Trinity College, Yale University Law School and Columbia Graduate Business School, and holds an LL.M. in Taxation from New York University.
1. CWT Farms, Inc., 79 TC No.5, Filed July 19, 1982 (Docket
No.16365-80, Docket No.16367-80). 2. Opinion, p. 4.
