HARTIGAN, Circuit Judge.
This is an appeal by the taxpayer, R. P. Collins & Co., Inc., a Massachusetts corporation, from a judgment of the United States District Court for the District of Massachusetts in favor of the government in a tax refund action growing out of a dispute as to the deductibility of certain losses incurred by a subsidiary of the taxpayer.
R. P. Collins & Co., Inc. (hereinafter called the taxpayer) was organized in 1934 and is engaged in the wholesale buying and selling of wool and mohair. In 1942 the Collins Wool Corporation, another Massachusetts corporation, was organized as a wholly s owned subsidiary of the taxpayer and became engaged in a similar line of business as its parent corporation. Both corporations had a successful history of operation.
Priscilla Worsted Mills was a Rhode Island corporation which was organized in 1906 and whose principal business consisted in the manufacture of worsted yarns of various sizes. Priscilla had operated at a small profit in 1950, 1951 and 1952. In 1953 its operating loss amounted to $228,806 and during that year its principal stockholders decided to attempt to sell the business. However, one of Priscilla’s minority stockholders—a David Seaman—believed that the outlook for the company was optimistic. He based this opinion on recent plant improvements and because he anticipated an upturn in the textile industry after the slump which it had suffered during 1953. His efforts to secure financing from banks or to persuade other mill owners to acquire the stock of Priscilla at $200 a share were unsuccessful.
In October, 1953 Seaman met with R. Perry Collins, the president, treasurer and dominant shareholder of the taxpayer to discuss taxpayer’s possible acquisition of some Priscilla stock. At this time Collins was not interested in buying the stock. In January, 1954 Seaman again met with Collins and his attorneys. At this meeting, among other factors, they discussed the matter of Priscilla’s operating losses and also the prospect of the substantial tax loss which might stem from a quick sale of Priscilla’s assets. However, Collins still did not appear interested in acquiring an interest in Priscilla. Priscilla continued to sustain further losses in January and February, 1954. In February, after further consultation with his tax adviser, Collins offered to purchase the Priscilla stock at $175 a share subject to certain adjustments. This offer was accepted and an agreement for the purchase and sale of the stock was signed on March 1, 1954.
Incident to this agreement, on March 24, 1954, the taxpayer bought 800 shares and Collins Wool Corporation 400 shares [144]*144of Priscilla’s common stock at $170.34 a share for a total price of $204,408. Seaman owned the only other stock of Priscilla which remained outstanding—a total of 200 shares. However, taxpayer held an option on Seaman’s stock which it exercised on May 21, 1954, acquiring the remaining 200 shares for the price of $25,396.22. On March 30, 1954 Priscilla purchased from the Collins Wool Corporation 400 shares of Priscilla’s stock at $170.34 a share. The net result of these activities was that after May 21, 1954 the 1,000 outstanding shares of Priscilla were all owned by the taxpayer.
Priscilla continued to sustain substantial operating losses after March 1, 1954 despite Seaman’s efforts to improve production efficiency and reduce costs. Sometime prior to May 21, 1954 a decision was made to close the business. An agreement for the sale of Priscilla’s plant and equipment at a price of $115,000 was negotiated in June and a sale was consummated in July, 1954.
Some months after this sale Priscilla became engaged in the business of wholesaling wool and mohair—the same line of business conducted by the taxpayer and its other subsidiary, Collins Wool Corporation.
The Priscilla corporation changed its name to Collins Wool Corporation on May 26, 1955 and on December 1, 1955 qualified to do business in Massachusetts. On August 31, 1955 the original Collins Wool Corporation was liquidated and dissolved. On August 31, 1957 the successor Collins Wool Corporation (formerly Priscilla) was liquidated and dissolved.
In its amended consolidated income tax return for the fiscal year ending August 31, 1954 the taxpayer utilized the post-affiliation (May 21, 1954) losses of Priscilla amounting to $193,067.13 to fully offset the total profit of both R. P. Collins & Co., Inc. and Collins Wool Corporation.1
In its consolidated return for the fiscal year ending August 31, 1955 the taxpayer claimed a net operating loss carry-forward of Priscilla in the amount of $222,935.54 (the unused net operating loss of Priscilla for the year 1953 and the period before May 21, 1954) and $169,094.51 (the previously unused consolidated net operating loss carry-forward from the prior year which resulted from the inclusion of Priscilla’s post-affiliation losses).
The Commissioner contested this treatment concluding that the principal purpose for the acquisition of Priscilla’s stock was tax avoidance and that, therefore, Priscilla’s losses for the period after May 21, 1954 could not be used to offset the income of the other corporations for the period ending August 31, 1954. The Commissioner also disallowed the attempt to carry forward to fiscal year 1955, except to the extent of certain investment income, the $222,935.54 of operating losses for 1953 and for 1954 prior to May 21. Consistent with his disallowance of the use of the Priscilla loss in the consolidated return for the fiscal year 1954, the Commissioner disallowed the $169,004.51 of losses incurred after May 21, 1954 and not claimed in the 1954 consolidated return.
The district court sustained the determinations of the Commissioner on these points and the taxpayer appeals to this court.2
The initial question which must be answered is what was the taxpayer’s principal purpose in acquiring the Priscilla stock? Was this decision primarily actuated by legitimate business reasons, independent of tax ramifications, or was the moving force essentially a tax one? On the answers to these questions, the de[145]*145ductibility of the instant losses will largely depend.
It now appears well settled that while Section 1413 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 141, permits affiliated corporations to file consolidated returns in proper cases, the advantage of filing such a return is not open to those corporations whose consolidation derived essentially from a desire to reduce or avoid taxation. See, Elko Realty Co. v. Commissioner, 29 T.C. 1012, aff’d Per Curiam, 260 F.2d 949 (3 Cir. 1958); see also, American Pipe & Steel Corp. v. Commissioner of Int. Rev., 243 F.2d 125 (9 Cir. 1957); J. D. & A. B. Spreckels Co. v. Commissioner, 41 B.T.A. 370 (1940).
In Elko, supra, a highly successful corporation acquired the entire stock of two other corporations which had operated and continued to operate at a loss. The Tax Court denied the acquiring corporation the right to use these losses on a consolidated return to offset its post-affiliation profits.
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HARTIGAN, Circuit Judge.
This is an appeal by the taxpayer, R. P. Collins & Co., Inc., a Massachusetts corporation, from a judgment of the United States District Court for the District of Massachusetts in favor of the government in a tax refund action growing out of a dispute as to the deductibility of certain losses incurred by a subsidiary of the taxpayer.
R. P. Collins & Co., Inc. (hereinafter called the taxpayer) was organized in 1934 and is engaged in the wholesale buying and selling of wool and mohair. In 1942 the Collins Wool Corporation, another Massachusetts corporation, was organized as a wholly s owned subsidiary of the taxpayer and became engaged in a similar line of business as its parent corporation. Both corporations had a successful history of operation.
Priscilla Worsted Mills was a Rhode Island corporation which was organized in 1906 and whose principal business consisted in the manufacture of worsted yarns of various sizes. Priscilla had operated at a small profit in 1950, 1951 and 1952. In 1953 its operating loss amounted to $228,806 and during that year its principal stockholders decided to attempt to sell the business. However, one of Priscilla’s minority stockholders—a David Seaman—believed that the outlook for the company was optimistic. He based this opinion on recent plant improvements and because he anticipated an upturn in the textile industry after the slump which it had suffered during 1953. His efforts to secure financing from banks or to persuade other mill owners to acquire the stock of Priscilla at $200 a share were unsuccessful.
In October, 1953 Seaman met with R. Perry Collins, the president, treasurer and dominant shareholder of the taxpayer to discuss taxpayer’s possible acquisition of some Priscilla stock. At this time Collins was not interested in buying the stock. In January, 1954 Seaman again met with Collins and his attorneys. At this meeting, among other factors, they discussed the matter of Priscilla’s operating losses and also the prospect of the substantial tax loss which might stem from a quick sale of Priscilla’s assets. However, Collins still did not appear interested in acquiring an interest in Priscilla. Priscilla continued to sustain further losses in January and February, 1954. In February, after further consultation with his tax adviser, Collins offered to purchase the Priscilla stock at $175 a share subject to certain adjustments. This offer was accepted and an agreement for the purchase and sale of the stock was signed on March 1, 1954.
Incident to this agreement, on March 24, 1954, the taxpayer bought 800 shares and Collins Wool Corporation 400 shares [144]*144of Priscilla’s common stock at $170.34 a share for a total price of $204,408. Seaman owned the only other stock of Priscilla which remained outstanding—a total of 200 shares. However, taxpayer held an option on Seaman’s stock which it exercised on May 21, 1954, acquiring the remaining 200 shares for the price of $25,396.22. On March 30, 1954 Priscilla purchased from the Collins Wool Corporation 400 shares of Priscilla’s stock at $170.34 a share. The net result of these activities was that after May 21, 1954 the 1,000 outstanding shares of Priscilla were all owned by the taxpayer.
Priscilla continued to sustain substantial operating losses after March 1, 1954 despite Seaman’s efforts to improve production efficiency and reduce costs. Sometime prior to May 21, 1954 a decision was made to close the business. An agreement for the sale of Priscilla’s plant and equipment at a price of $115,000 was negotiated in June and a sale was consummated in July, 1954.
Some months after this sale Priscilla became engaged in the business of wholesaling wool and mohair—the same line of business conducted by the taxpayer and its other subsidiary, Collins Wool Corporation.
The Priscilla corporation changed its name to Collins Wool Corporation on May 26, 1955 and on December 1, 1955 qualified to do business in Massachusetts. On August 31, 1955 the original Collins Wool Corporation was liquidated and dissolved. On August 31, 1957 the successor Collins Wool Corporation (formerly Priscilla) was liquidated and dissolved.
In its amended consolidated income tax return for the fiscal year ending August 31, 1954 the taxpayer utilized the post-affiliation (May 21, 1954) losses of Priscilla amounting to $193,067.13 to fully offset the total profit of both R. P. Collins & Co., Inc. and Collins Wool Corporation.1
In its consolidated return for the fiscal year ending August 31, 1955 the taxpayer claimed a net operating loss carry-forward of Priscilla in the amount of $222,935.54 (the unused net operating loss of Priscilla for the year 1953 and the period before May 21, 1954) and $169,094.51 (the previously unused consolidated net operating loss carry-forward from the prior year which resulted from the inclusion of Priscilla’s post-affiliation losses).
The Commissioner contested this treatment concluding that the principal purpose for the acquisition of Priscilla’s stock was tax avoidance and that, therefore, Priscilla’s losses for the period after May 21, 1954 could not be used to offset the income of the other corporations for the period ending August 31, 1954. The Commissioner also disallowed the attempt to carry forward to fiscal year 1955, except to the extent of certain investment income, the $222,935.54 of operating losses for 1953 and for 1954 prior to May 21. Consistent with his disallowance of the use of the Priscilla loss in the consolidated return for the fiscal year 1954, the Commissioner disallowed the $169,004.51 of losses incurred after May 21, 1954 and not claimed in the 1954 consolidated return.
The district court sustained the determinations of the Commissioner on these points and the taxpayer appeals to this court.2
The initial question which must be answered is what was the taxpayer’s principal purpose in acquiring the Priscilla stock? Was this decision primarily actuated by legitimate business reasons, independent of tax ramifications, or was the moving force essentially a tax one? On the answers to these questions, the de[145]*145ductibility of the instant losses will largely depend.
It now appears well settled that while Section 1413 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 141, permits affiliated corporations to file consolidated returns in proper cases, the advantage of filing such a return is not open to those corporations whose consolidation derived essentially from a desire to reduce or avoid taxation. See, Elko Realty Co. v. Commissioner, 29 T.C. 1012, aff’d Per Curiam, 260 F.2d 949 (3 Cir. 1958); see also, American Pipe & Steel Corp. v. Commissioner of Int. Rev., 243 F.2d 125 (9 Cir. 1957); J. D. & A. B. Spreckels Co. v. Commissioner, 41 B.T.A. 370 (1940).
In Elko, supra, a highly successful corporation acquired the entire stock of two other corporations which had operated and continued to operate at a loss. The Tax Court denied the acquiring corporation the right to use these losses on a consolidated return to offset its post-affiliation profits. In sustaining this determination the Court of Appeals for the Third Circuit concluded that “the two corporations were in any event not affiliates of the taxpayer privileged to join in a consolidated return under section 141 [of the 1939 Code] since the taxpayer’s acquisition of them served no business purpose, as distinguished from a tax-reducing purpose.” 3 Cir., 260 F.2d at 950.
Moreover, Section 129 of the Internal Revenue Code of 1939 and its successor, Section 269 of the 1954 Code expressly disallows deductions or other tax benefits in a situation where tax avoidance is the principal purpose for the acquisition of control over another corporation.
In the instant case, relying on both Sections 141 and 129 of the 1939 Code, the district court upheld the Commissioner’s contention that tax avoidance was the principal purpose for taxpayer’s acquisition of Priscilla and that, apart from this motive, there was no substantial business purpose for the transfer.
Whether or not an acquisition is for the principal purpose of tax evasion or avoidance is, of course, preeminently one of fact. Elko Realty Company v. Commissioner, supra. In its opinion (D.C. 193 F.Supp. 602 (1961)), the district court carefully reviewed and analyzed the evidence upon which it predicated its findings and this evidence need not be detailed here. We need only say that our own review of the entire record convinces us that the findings of the district court are based upon substantial evidence and cannot be held to be clearly erroneous. Rule 52(a), Federal Rules of Civil Procedure, 28 U.S.C.A.; Walling v. General Industries Co., 330 U.S. 545, 550, 67 S.Ct. 883, 91 L.Ed. 1088 (1947).
One aspect of taxpayer’s argument on the question of the deductibility of losses on the fiscal 1954 return warrants comment. Between May 21, 1954 (the date on which taxpayer acquired sufficient stock ownership to become eligible to file a consolidated return) and August 31, 1954, Priscilla incurred $42,139.-45 in operating losses. Taxpayer’s argument proceeds on the basis that whatever might have been taxpayer’s “overall” purpose in the acquisition of Priscilla, it assuredly was not a principal purpose to acquire operating losses during this relevant period. This argument is grounded on the reasoning that since a “loss” is worth at most no more than 52 per cent of its amount, no one would logically have a primary purpose of losing $1 in order to save at most 52 cents in taxes. Thus, goes the argument, it follows that no one would acquire a company with a principal purpose of losing $42,000 in order to acquire a tax saving which could not exceed $21,800.
[146]*146We find this argument unpersuasive because, on the facts of this case, it unrealistically attempts to segregate into isolated segments a course of conduct which is essentially unitary both in conception and in impact. Assuming, as taxpayer would have us do, that the court could conclude that the “overall” purpose of the acquisition was to avoid taxes, viz., to obtain the capital losses resulting from the sale of the plant and equipment, then we believe that it must have been within the fair contemplation of the taxpayer that certain operating losses would necessarily be incurred before this ultimate purpose could be effectuated and, to that extent, the operating losses would be included as a necessary incident of the “overall purpose.” In effect once it is conceded that Priscilla was acquired with a view towards obtaining the tax advantages stemming from a corporate dismemberment, then we believe that all the losses which immediately precede this ultimate act are constituent elements of a course of conduct proscribed by Section 129. They are tarred by the same brush.
Thus, we believe that the district court was correct in holding that the principal purpose for the acquisition of Priscilla’s stock was to avoid taxes and that consequently Priscilla’s losses for the period after May 21, 1954 could not be used against the income of the other corporations for the period ending August 31, 1954.
We turn to the question of the correctness of the trial judge’s ruling in regard to taxpayer’s attempt to carry forward certain of the Priscilla losses to fiscal 1955.
The district court found that prior to August 31, 1954 Priscilla was engaged in the manufacture of yarn and that its losses stemmed from that activity. On the other hand, the earnings after that date against which it sought to offset these losses arose “from its operations under a new name in the entirely different business of wholesale dealings in wool .and mohair.” D.C. 193 F.Supp. at 606. Thereafter, based on this finding, which is clearly supported by the record, the court held that Priscilla’s operating losses for periods prior to the fiscal year ending August 31, 1955 could not be carried forward or utilized as an offset to the income for that year which was earned in the new business. In support of this action the district court relied, inter alia, on the decision of the Supreme Court in Libson Shops, Inc. v. Koehler, 353 U.S. 382, 77 S.Ct. 990, 1 L.Ed.2d 924 (1957) and on Section 129 of the 1939 Code. Thus, the court stated:
“Section 122 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 122, which allows the carry-forward of operating losses to be applied against income of future years, has been interpreted to apply only to the situation where there is a continuity of business enterprise, not in the sense of the continuance of the same technical corporate entity, but in the sense that the losses can be carried forward to be applied only against the earnings of a corporation engaged in substantially the same business in which the loss was incurred.” D.C. (193 F.Supp. at 606)
Taxpayer argues at length that the district judge’s reliance on Libson shops was misplaced because in that case the losses which were sought to be carried forward were pre-consolidation losses whereas here the losses were incurred after the consolidation. In effect, taxpayer contends that the change of ownership of Priscilla resulting from the stock purchase agreement of March 1, 1954 precludes the application of the Libson rule to losses incurred after that date even though all of the losses were incurred in a different business from the one in which profits were subsequently realized.
On the present facts it is unnecessary for us to decide whether Libson Shops has application to pre-consolidation as well as post-consolidation losses because here the attempted carryover is clearly barred under the terms of Section 129.
[147]*147Patently, taxpayer would not have had the opportunity to utilize the operating losses here at issue unless it had acquired the Priscilla stock. However, the district court found as a matter of fact that the principal purpose of this acquisition was tax avoidance. Since the clear purpose of Section 129 was aimed at inhibiting the acquisition of those corporations whose dominant lure lay in possession of certain tax characteristics and since this same section gave the Commissioner the power to disallow any “deduction, credit, or other allowance” which would not be enjoyed by the acquiring corporation in the absence of the acquisition, we believe these losses were properly disallowed. In sum, they were attributes which could be enjoyed by taxpayer only by contravening the statutory philosophy embodied in Section 129. See, C. I. R. v. British Motor Car Distributors, Ltd., 278 F.2d 392 (9 Cir. 1960); Mill-Ridge Coal Co. v. Patterson, 264 F.2d 713 (5 Cir. 1959), cert. denied, 361 U.S. 816, 80 S.Ct. 57, 4 L.Ed.2d 63. Cf., American Pipe & Steel Corp. v. Commissioner of Int. Rev., 243 F.2d 125 (9 Cir. 1957); Coastal Oil Storage Co. v. Commissioner of Int. Rev., 242 F.2d 396 (4 Cir. 1957).
Judgment will be entered affirming the judgment of the district court, as modified by stipulation, approved by this Court.