MEMORANDUM OPINION

WILES, Judge: Respondent determined deficiencies in petitioners' income taxes as follows:

The deficiencies involved herein are based solely upon respondent's disallowance of a full $25,000 surtax exemption to each petitioner during each taxable year at issue, pursuant to sections 11(d) and 1561. ² Respondent allowed each petitioner only a partial surtax exemption as follows:

1976 Tax Ct. Memo LEXIS 182">*184 The only issue is whether petitioners were component members of a controlled group, thereby making the provisions of section 1561 applicable.

This case was fully stipulated pursuant to Rule 122, Tax Court Rules of Practice and Procedure.

Petitioner Hunt Dry Goods Co., Inc. (hereinafter Hunt1976 Tax Ct. Memo LEXIS 182">*185 Dry Goods) is an Arkansas corporation with its principal place of business in Fort Smith, Arkansas. Its corporate income tax returns for the taxable years ending January 31, 1973, and January 31, 1974, were filed with the Director, Internal Revenue Service Center, Austin, Texas.

Hunt Dry Goods was incorporated on March 26, 1946, with 1,000 shares of $100.00 par value, common, voting shares authorized, of which 323 shares were issued and outstanding during the years in question. These shares were owned as follows:

On November 17, 1972, the1976 Tax Ct. Memo LEXIS 182">*186 First National Bank, Trustee of the T. L. Hunt and Irene M. Hunt Trust, dated September 30, 1961, transferred its 4.70 shares of Hunt Dry Goods stock to Steven Hauert, a beneficiary of the trust, who reached his 21st birthday on October 3, 1972. Under the Trust provisions, he was entitled to own these shares outright upon reaching his 21st birthday.

Hunt Dry Goods was engaged in a retail business operation in Fort Smith, Arkansas. Its type of business is generally characterized as a "junior department store" dealing in soft goods only; furniture, appliances, hardware and similar goods are excluded.

Petitioner Hunt's Grand Plaza, Inc. (hereinafter Hunt's Grand Plaza) is an Arkansas corporation with its principal place of business in Fort Smith, Arkansas. Its corporate income tax returns for the taxable years ending January 31, 1973, and January 31, 1974, were filed with the Director, Internal Revenue Service Center, Austin, Texas.

Hunt's Grand Plaza, Inc. was incorporated on February 2, 1959, with 2,000 shares of $25 per value, common, voting shares authorized, of which 60 shares were issued and outstanding during the years in question. These shares were owned as follows: 1976 Tax Ct. Memo LEXIS 182">*187

Hunt's Grand Plaza, Inc. was engaged in a retail business operation in Fort Smith, Arkansas. Its type of business is generally characterized as a "junior department store" dealing in soft goods only; furniture, appliances, hardware and similar goods are excluded.

Petitioner T. L. Hunt, Inc. of Texas (hereinafter T. L. Hunt) is a Texas corporation with its principal place of business in Gainesville, Texas. Its corporate income tax returns for the taxable years ending January 31, 1973, and January 31, 1974, were filed with the Director, Internal Revenue Service Center, Austin, Texas.

T. L. Hunt was incorporated on December 11, 1951, with 120 shares of $500 par value, common, voting stock authorized, of which 90 shares were issued and outstanding during the years in question. These shares were owned as follows:

1976 Tax Ct. Memo LEXIS 182">*188 T. L. Hunt was engaged in a retail business operation in Gainesville, Texas. Its type of business is generally characterized as a "junior department store" dealing in soft goods only; furniture, appliances, hardware and similar goods are excluded.

Respondent, in separate statutory notices, determined that Hunt Dry Goods, Hunt's Grand Plaza, and T. L. Hunt were component members of a controlled group of three brother-sister corporations.

Petitioner Chester Patterson, Inc. (hereinafter Chester Patterson) is a Missouri corporation, with its principal place of business in Moberly, Missouri. Its corporate income tax returns for the taxable years ending January 31, 1973, and January 31, 1974, were filed with the Director, Internal Revenue Service Center, Kansas City, Missouri.

Chester Patterson was incorporated on May 14, 1946, with 1,000 shares of no par, common, voting stock authorized, of which the entire 1,000 shares of stock were issued and outstanding during the years in question. These shares were owned as follows:

1976 Tax Ct. Memo LEXIS 182">*189 Chester Patterson was engaged in a retail business operation in Moberly, Missouri. Its type of business is generally characterized as a "junior department store" dealing in soft goods only; furniture, appliances, hardware, and similar goods are excluded. Although Chester Patterson had a furniture department at one time, this business activity was in the process of being phased out during the years in question.

Hunt'sVillage Store, Inc. (hereinafter Hunt's Village Store) is an Arkansas corporation, incorporated on February 14, 1966, with 100,000 shares of $1 par value, common, voting stock authorized, of which 35,000 shares were issued and outstanding during the years in question. These shares were owned as follows:

Hunt's Village Store was engaged in a retail business operation in a town near Fort Smith, Arkansas. Its type of business is1976 Tax Ct. Memo LEXIS 182">*190 generally characterized as a "junior department store" dealing in soft goods only; furniture, appliances, hardware and similar goods are excluded.

Respondent, in a statutory notice of deficiency, determined petitioner Chester Patterson to be a component member of a controlled group of two brother-sister corporations, including Chester Patterson and Hunt's Village Store.

Petitioner Hunt's of Phoenix Village, Inc. (hereinafter Hunt's of Phoenix Village) is an Arkansas corporation, with its principal place of business in Fort Smith, Arkansas. Its corporate income tax returns for the taxable years ending January 31, 1973, and January 31, 1974, were filed with the Director, Internal Revenue Service Center, Austin, Texas.

Hunt's of Phoenix Village was incorporated on May 25, 1965, with 10,000 shares of $1 par value, common, voting stock authorized, all of which was issued and outstanding during the years in question. These shares were owned as follows:

1976 Tax Ct. Memo LEXIS 182">*191 Hunt's of Phoenix Village was engaged in a retail business operation in and near Fort Smith, Arkansas. Its type of business is generally characterized as a "junior department store" dealing in soft goods only; furniture, appliances, hardware and similar goods are excluded.

Hunt's of Pocahontas, Inc. (hereinafter Hunt's of Pocahontas) is an Arkansas business corporation, incorporated on April 14, 1969, with 1,000 shares of $100 par value, common, voting stock authorized, of which 100 shares were issued and outstanding during the years in question. These shares were owned as follows:

Hunt's of Pocahontas was engaged in a retail business operation in Pocahontas, Arkansas. Its type of business is generally characterized as a "junior department store" dealing in soft goods only; furniture, appliances, hardware and similar goods are excluded.

Respondent, in a statutory notice of deficiency, determined Hunt's of Phoenix Village1976 Tax Ct. Memo LEXIS 182">*192 to be a component member of a controlled group of two brother-sister corporations, including Hunt's of Phoenix Village and Hunt's of Pocahontas.

The parties agree that the reference to the ownership of the various corporations means legal ownership and not as determined by the application of the attribution rules of section 1563.

The shareholders of the various petitioners were related as follows:

None of the petitioners herein adopted or filed an apportionment plan under the provisions of section 1561.

During the years in question, the officers of Hunt Dry Goods were Byron C. Cravens, president, and Linda Cravens, secretary-treasurer.

During the years in question, the officers of Hunt's Grand Plaza were Byron C. Cravens, president, and R. H. Gregg, secretary-treasurer.

During the years in question, the officers of T. L. Hunt were T. L. Hunt, president, and R. Ware McMurtrey, secretary-treasurer.

During the years in question, the officers of Chester Patterson were T. L. Hunt, president, and Byron C. Cravens, secretary-treasurer.

During the years in question, the officers of Hunt's Village Store were Byron C. Cravens, president, and Linda Cravens, secretary-treasurer.

During the years in question, the officers of Hunt's of Phoenix Village were Bryon C. Cravens, president, 1976 Tax Ct. Memo LEXIS 182">*194 and C. E. Higgins, secretary-treasurer.

During the years in question, the officers of Hunt's of Pocahontas were Byron C. Cravens, president, and C. E. Higgins, secretary-treasurer.

With respect to petitioners Hunt Dry Goods, Hunt's Grand Plaza, and T. L. Hunt, respondent, by application of the attribution rules of section 1563, determined those petitioners to be members of a controlled group of brother-sister corporations as follows:

With respect to petitioner Chester Patterson, respondent, by application of the attribution rules of section 1563, determined the petitioners to be a member of a controlled group of brother-sister corporations as follows:

1976 Tax Ct. Memo LEXIS 182">*195 With respect to petitioner Hunt's of Phoenix Village, respondent, by application of the attribution rules of section 1563, determined the petitioners to be a member of a controlled group of brother-sister corporations as follows:

Respondent contends that the pattern of ownership of petitioners' stock brings petitioners within the definition of a brother-sister controlled group as set out in section 1563(a)(2) of the Code. Section 1563(a)(2) provides:

(a) Controlled Group of Corporations.--For purposes of this part, the term "controlled group of corporations" means any group of--

* * *

(2) Brother-sister controlled group.--Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2) stock possessing--[Emphasis1976 Tax Ct. Memo LEXIS 182">*196 added.]

(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of the stock of each corporation; and

(B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation.

In support of his contention, respondent relies upon section 1.1563-1(a)(3), Income Tax Regs., which defines a brother-sister controlled group as two or more corporations if,

the same five or fewer persons * * * own * * * singly or in combination, stock possessing--[Emphasis added.]

(a) At least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of all shares of all classes of the stock of each corporation; and

(b) More than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent1976 Tax Ct. Memo LEXIS 182">*197 of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation.

Petitioners contend that the 80 percent test contained in section 1563(a)(2)(A) has not been met, and this renders moot the isse as to whether the 50 percent test set forth in section 1563(a)(2)(B) is met. Petitioners insist that a person's stock ownership cannot be taken into account for the purpose of the 80 percent test unless that person owns stock in each corporation involved. Although petitioners agree that the ownership pattern in the instant cases falls within the definition set forth in respondent's regulation, they insist that the regulation constitutes a totally unwarranted extension of both the statutory language of section 1563(a)(2) and the underlying congressional intent.

In Fairfax Auto Parts of No. Va., Inc.,65 T.C. 798">65 T.C. 798, 65 T.C. 798">803 (1976), on appeal (4th Cir. April 26, 1976), we held "that for a person's stock ownership to be taken into account for purposes of the 80 percent test that person must own stock in eachmember1976 Tax Ct. Memo LEXIS 182">*198 of the brother-sister controlled group." [Emphasis added.] We further held that respondent's regulations were invalid to the extent they advanced a contrary interpretation. If we apply Fairfax in the present case, it is clear that the 80 percent test of section 1563(a)(2)(A) has not been met. The situation of petitioner Chester Patterson serves as an apt example. As already noted, respondent, by application of the attribution rules of section 1563, determined that Chester Patterson was a member of a controlled group as follows:

Respondent candidly admits on brief that if we continue to follow Fairfax, an opinion reviewed by the Court, petitioners will prevail. He asks, of course, that we re-examine our position and, in effect, overrule Fairfax. Although Fairfax was promulgated only a few months ago, we have carefully reviewed it. We remain impressed by its cogent reasoning. Accordingly,

Decisions will be entered for the petitioners.