Fontana Union Water Co. v. Commissioner , 21 B.T.A. 598 ( 1930 )

FONTANA UNION WATER CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Fontana Union Water Co. v. Commissioner

Docket No. 34518.

United States Board of Tax Appeals

21 B.T.A. 598; 1930 BTA LEXIS 1830;

December 9, 1930, Promulgated

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The petitioner and the Fontana Farms Co. were affiliated during the year 1922 and entitled to have their tax liability computed on the basis of a consolidated return.

Daniel E. Farr, Esq., for the petitioner.

J. Arthur Adams, Esq., for the respondent.

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MARQUETTE

This proceeding is for the redetermination of a deficiency in income tax asserted by the respondent for the year 1922 in the amount of $1,614.89. The issue presented is whether the petitioner and the Fontana Farms Co. were affiliated during that taxable year.

FINDINGS OF FACT.

The petitioner is and was during the year 1922, a California corporation, with its principal office at Fontana, Calif. During all of the year 1922, substantially all of the capital stock of the petitioner was owned directly, or controlled through closely affiliated interests, by the Fontana Farms Co., which was also a California corporation.

On June 12, 1923, the Fontana Farms Co. filed with the collector of internal revenue at Los Angeles, a corporation income-tax return for the calendar year 1922. Said return was a consolidated return and it included for the calendar year 1922 the returns of the following domestic corporations:

Fontana Farms Co. (the parent corporation)

Fontana Land Co.

Fontana Union Water Co. (the petitioner herein)

Fontana Power Co.

Fontana Citrus Association

Linden Mutual Water Co.

Said return showed a net loss of $33,103.82.

The respondent, upon audit of the said return filed by the Fontana Farms Co., determined that the petitioner and the Fontana Farms Co. were not affiliated for the year 1922, and that as to the petitioner there is a deficiency in tax in the amount of $1,614.89.

OPINION.

MARQUETTE: It appears from the deficiency letter herein that the respondent determined that the petitioner and the Fontana Farms Co. were not affiliated during the year 1922, and taxed the petitioner on its separate income, and in the petition it is alleged that the respondent erred in holding "that petitioner was not affiliated with Fontana Farms Company in 1922." All of the material allegations of the petition are denied by the respondent's answer.

At the hearing counsel for the petitioner and the respondent entered into a stipulation of fact to the effect that during the year 1922 substantially all of the capital stock of the petitioner was owned directly, or controlled through closely affiliated interests, by the Fontana Farms Co. Other facts were also stipulated, which present an issue not raised by the pleadings. No amendment to the pleadings was made at the hearing, and counsel for the respondent stated that "the only thing I see necessary to call to your attention is the error alleged in the petition reading as follows: The determination by the Commissioner that the petitioner was not affiliated with the Fontana Farms Company in 1922. That is the only issue set forth in the petition." We therefore decline to consider that part of the stipulation not pertinent to the issue raised by the pleadings.

It clearly appears from the record before us that the petitioner was affiliated with the Fontana Farms Co. during the year 1922 within the meaning of section 240 of the Revenue Act of 1921, and that their liability should be determined on the basis of a consolidated return.

Judgment will be entered under Rule 50.