The parties herein have stipulated that, if the rental income received by petitioner from the lease of real estate and trucks to Delivery does not fall within the intendment of section 543(a)(6), the petitioner was not a personal holding company for the taxable year in issue. No issue has been made1979 U.S. Tax Ct. LEXIS 99">*105 with respect to the reasonableness of the rent.

Section 543(a) sets forth various categories of income which are to be deemed "personal holding company income" and paragraph (6), which is pertinent here, provides that:

(6) Use of corporation property by shareholder. -- Amounts received as compensation (however designated and from whomsoever received) for the use of, or right to use, property of the corporation in any case where, at any time during the taxable year, 25 percent or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for an individual entitled to the use of the property; whether such right is obtained directly from the corporation or by means of a sublease or other arrangement. * * *

Respondent contends that use of the corporate structure constitutes an "other arrangement" that gives their identical shareholder a right to use the leased property. In Minnesota Mortuaries, Inc. v. Commissioner, 4 T.C. 280">4 T.C. 280, 4 T.C. 280">284 (1944), this Court held that the statute ¹ referred to an "actual use rather than a use imputed to an individual from the activities or rights of a corporation in which he owns stock." 1979 U.S. Tax Ct. LEXIS 99">*106 Our opinion made reference to H. Rept. 1546, 75th Cong., 1st Sess. (1937), 1939-1 C.B. (Part 2) 704, 707-708, which explained the purpose of the section as follows:

Subsection (f) includes in personal holding company income amounts received as compensation for the use of, or the right to use, the property of the corporation. However, this rule only applies where during the taxable year of the corporation, 25 percent or more in value of its outstanding stock is owned, directly or indirectly, by an individual leasing or otherwise entitled to the use of the property. It makes no difference whether the right to use the property is obtained by the individual directly from the corporation or by means of a sublease or other arrangement. Since under existing law, this type of compensation is not now included for the purposes of determining whether the corporation meets the 80 per cent test, the taxpayer may fix such compensation in an amount sufficient to bring its other investment income below the 80 per cent test. It has been shown to the committee that this device has been 72 T.C. 515">*518 employed by taxpayers who had incorporated their yachts, city residences, 1979 U.S. Tax Ct. LEXIS 99">*107 or country houses and had paid sufficient rent to give the corporations enough income from their service to take them out of present section 351. By including this type of income in the definition of personal holding company income, your committee removes this method of tax avoidance.

We also noted that the doctrine of corporate entity is well established in tax law. Thereunder, the acts of a corporation are not imputed to the shareholders so long as there exists a business nexus. New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. 435, 292 U.S. 435">442 (1934).

We reiterated our interpretation of the statute ² in 320 E. 47th Street Corp. v. Commissioner, 26 T.C. 545">26 T.C. 545, 26 T.C. 545">549 (1956). That opinion was reversed and remanded by the Second Circuit (243 F.2d 894">243 F.2d 894, 243 F.2d 894">899 (2d Cir. 1957)). 320 E. 47th Street Corp. 1979 U.S. Tax Ct. LEXIS 99">*108 was a corporate taxpayer which, due to fortuitous circumstances, had received "unusual income" for the taxable year in issue in the form of interest on a condemnation award in the amount of $ 20,728.81. Such amount comprised 77.14 percent of the corporation's gross income. The remainder of the corporation's gross income consisted of $ 6,000 rent received from a corporation having identical shareholders and $ 143.04 miscellaneous income. For the year here in issue, section 501(a)(1), I.R.C. 1939, defined the term personal holding company, with respect to the 320 E. 47th Street Corp., as any corporation whose gross income included personal holding company income of 80 percent or more. The section defining personal holding company income relevant to the case was section 502, specifically subsections (a), (f), and (g), I.R.C. 1939, thereof. These subsections provided, in pertinent part, that:

SEC. 502. PERSONAL HOLDING COMPANY INCOME.

For the purposes of this subchapter the term "personal holding company income" means the portion of the gross income which consists of:

(a) * * * interest * * *

* * * *

(f) Use of Corporation Property by Shareholder. -- Amounts received as compensation1979 U.S. Tax Ct. LEXIS 99">*109 (however designated and from whomsoever received) for the use of, or right to use, property of the corporation in any case, where, at any time during the taxable year, 25 per centum or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for an individual 72 T.C. 515">*519 entitled to the use of the property; whether such right is obtained directly from the corporation or by means of a sublease or other arrangement.

(g) Rents. -- Rents, unless constituting 50 per centum or more of the gross income. For the purposes of this subsection the term "rents" means compensation, however designated, for the use of, or right to use, property * * * but does not include amounts constituting personal holding company income under subsection (f).

Section 223, Revenue Act of 1950, implies an amendment to section 502(f) as follows:

Section 223. Personal Holding Company Income. -- Section 502(f) of the Internal Revenue Code * * * shall not apply with respect to rents received during taxable years ending after December 31, 1945, and before January 1, 1950, if such rents were received for the use by the lessee, in the operation of a bona fide commercial, industrial, 1979 U.S. Tax Ct. LEXIS 99">*110 or mining enterprise, of property of the taxpayer.

Its application was extended to cover the year in issue. H. Rept. 1353, 84th Cong., 1st Sess. (1955), 1955-2 C.B. 844, and S. Rept. 1242, 84th Cong., 1st Sess. (1955), 1955-2 C.B. 845. Our application of the statute to the facts of that case interpreted the interest on the condemnation award to fall within the definition of personal holding company income under section 502(a) and the rent to fall within that definition under section 502(g). The result of our interpretation was that the corporation, a bona fide lessor of property used by the lessee in a commercial enterprise, was subject to tax as a personal holding company.

The Second Circuit pierced the corporate veil and imputed use of the lessor's property to the lessee's shareholders. Because the two sets of shareholders were identical, that court found that the lessor's shareholders, by use of an "other arrangement," had1979 U.S. Tax Ct. LEXIS 99">*111 the use of the property under 502(f). The court then applied the amendment of section 223, Revenue Act of 1950, and found 320 E. 47th Street Corp. to have received rents for the use of its property by a lessee in the operation of a bona fide commercial enterprise. It concluded, at page 899, that the amendment literally excluded the rent from inclusion in the definition of personal holding company income under subsection (f) and that:

It was the plain intention of the Congress for the period in question to exempt from personal holding company income rents from shareholders in the situation of these two individuals, who leased taxpayer's property through a wholly owned corporation through which they used it to carry on a bona fide commercial or industrial enterprise.

Therefore, the court also excluded the rent from subsection (g) 72 T.C. 515">*520 income. The net result was that the court found the taxpayer was not subject to the personal holding company tax. Subsequently, the Second Circuit Court's opinion in 320 E. 47th Street Corp. was interpreted in Rev. Rul. 65-259, 1965-2 C.B. 174, as finding that shareholders of the lessee corporation1979 U.S. Tax Ct. LEXIS 99">*112 will be imputed as having use of the lessor corporation's property through an "other arrangement."

Respondent now asks the Court to consider Minnesota Mortuaries, Inc., in light of the Second Circuit's opinion in 320 E. 47th Street Corp. and to impute to the shareholder of the lessee corporation the use of the lessor corporation's property. It can be argued that the language on which respondent relies constitutes dicta in the Second Circuit's opinion. However, no matter what its characterization, we respectfully decline to follow it. We have carefully reconsidered our position and have concluded that we should reaffirm our holding in Minnesota Mortuaries, Inc., which recognized the lessee's corporate identity.

Respondent is obviously offended by the fact that a majority of petitioner's assets consisted of cash or investments in stocks and bonds and the further fact that it had some half a million dollars in unappropriated retained earnings. Respondent goes on to argue that:

This evidence coupled with the fact that petitioner's sole-shareholder owned and/or controlled numerous other entities performing limited services or functions is indicative of a tax avoidance purpose. 1979 U.S. Tax Ct. LEXIS 99">*113 The petitioner has offered no evidence indicative of a legitimate corporate function aside from tax avoidance.

Thus, petitioner fits in with the spirit of the personal holding company provisions of section 541 et.seq. The issue before this Court is whether petitioner fits into the letter of the personal holding company provisions.

While we agree with respondent that spirituality alone does not tax, our reaction to the facts of this case is that petitioner does not fall even within the spirit of the personal holding company provisions. It is manifest from the legislative history quoted above, and duplicated in section 1.543-1(b)(9), Income Tax Regs., that subsection 543(a)(6) was enacted with personal, nonbusiness type use of corporate property by a shareholder in mind. We are not dealing here with rental of yachts or hunting lodges to shareholders but rather with rental of trucks and real estate used by the lessee in its corporate business. The common shareholder, Mr. Wasserman, did not use the real estate and 72 T.C. 515">*521 trucks leased by petitioner to Delivery except as such use could be imputed through the corporate structure under respondent's interpretation of section 543(a)(6).

1979 U.S. Tax Ct. LEXIS 99">*114 Accordingly, our reaction to the facts herein does not motivate us to seek a broadened meaning to section 543(a)(6). We will not impute Delivery's use of business property leased from petitioner to Mr. Wasserman without specifically drawn congressional guidelines.

Decision will be entered for the petitioner.