Cavanaugh Bros. Garage v. Commissioner , 25 B.T.A. 935 ( 1932 )

CAVANAUGH BROTHERS GARAGE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Cavanaugh Bros. Garage v. Commissioner

Docket No. 41392.

United States Board of Tax Appeals

25 B.T.A. 935; 1932 BTA LEXIS 1454;

March 21, 1932, Promulgated

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Although affiliated with another corporation, the petitioner is bound by its election to file separate returns until permission is granted by the Commissioner to file consolidated returns. Section 240(a), Revenue Act of 1926.

John R. McLane, Esq., for the petitioner.

O. W. Swecker, Esq., for the respondent.

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SMITH

The Commissioner determined a deficiency of $1,177.45 in the petitioner's income tax for the nine-month period ended December 31, 1926. The only issue raised by the pleadings is whether petitioner and an affiliated corporation should have filed separate returns instead of a consolidated return for the nine-month period April 1 to December 31, 1926. The facts were stipulated.

FINDINGS OF FACT.

The petitioner was incorporated April 16, 1923, under the laws of the State of New Hampshire, with an authorized capital stock of 480 shares of no par value stock for the purpose of incorporating the business of the Ford service and sales station carried on by Cavanaugh Brothers, a partnership.

In 1927, petitioner's name was changed, under authority of the Attorney General of the State of New Hampshire, to Cavanaugh Brothers Motors.

Cavanaugh Brothers was incorporated April 19, 1923, under the laws of the State of New Hampshire, with an authorized capital of 600 shares of no par value stock, for the purpose of carrying on the sales stable business conducted by the partnership of the same name.

The capital stock of the petitioner and Cavanaugh Brothers, since incorporation, has been owned in equal proportions by six Cavanaugh brothers.

For the fiscal years ended March 31, 1924, March 31, 1925, and March 31, 1926, each corporation filed its own separate return entirely independent of the other. The petitioner's separate return for the fiscal year ended March 31, 1926, was filed on June 16, 1926.

Under date of November 16, 1926, the petitioner requested permission to change its accounting period and taxable year from the fiscal year ended March 31 to the calendar year ended December 31, and in Bureau letter dated December 1, 1926, this permission was granted by the Commissioner.

Petitioner did not request permission to change to a consolidated basis before filing its return for the period April 1, 1926, to December 31, 1926. In Bureau letter dated January 25, 1928, the petitioner was granted permission to file on the consolidated basis with Cavanaugh Brothers for the calendar year 1927, and denied permission to file on a consolidated basis for the period April 1, 1926, to December 31, 1926, since the corporations had filed separate returns for the fiscal year ended March 31, 1926.

On March 15, 1927, the petitioner and Cavanaugh Brothers filed a consolidated return for the period April 1, 1926, to December 31, 1926. The Commissioner, in the 60-day letter computing the petitioner's taxable net income on a separate basis, held that a consolidated return for the period April 1, 1926, to December 31, 1926, was not in order, for the reason that separate returns were filed for prior taxable periods and that, under the provisions of the Revenue Act of 1926, the petitioner exercised the option to continue to file separate returns by filing a separate return for the fiscal year ended March 31, 1926.

OPINION.

SMITH: With exceptions not material to our determination, Title II - Income Tax, of the Revenue Act of 1926 took effect as of January 1, 1925 (sections 286 and 1200). Consolidated returns of corporations are provided for in section 240, under Title II of that act. Subdivision (a) of section 240 is as follows:

Corporations which are affiliated within the meaning of this section may, for any taxable year, make separate returns or, under regulations prescribed by the Commissioner with the approval of the Secretary, make a consolidated return of net income for the purpose of this title, in which case the taxes thereunder shall be computed and determined upon the basis of such return. If return is made on either of such bases, all returns thereafter made shall be upon the same basis unless permission to change the basis is granted by the Commissioner.

The term "taxable year" is defined in section 200(a) as follows:

The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under section 212 or 232. The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. The term "taxable year" includes, in the case of a return made for a fractional part of a year under the provisions of this title or under regulations prescribed by the Commissioner with the approval of the Secretary, the period for which such return is made. The first taxable year, to be called the taxable year 1925, shall be the calendar year 1925 or any fiscal year ending during the calendar year 1925.

There is no dispute as to the petitioner's change from a fiscal year to a calendar year basis, resulting in the filing of a return for the nine-month period ended December 31, 1926. The respondent contends that petitioner, having filed a separate return for the fiscal year ended March 31, 1926, thereby made its election and was thereafter required to file separate returns until permission was granted to file consolidated returns. See article 63, Regulations 69.

The petitioner's "first taxable year" within the purview of the statute was its fiscal year ended March 31, 1925, for which it filed a separate return. It thereby made an election which it followed in filing a separate return for the fiscal year ended March 31, 1926. Thus, for two taxable years after the effective date of the pertinent provisions of the Revenue Act of 1926, separate returns were filed even though petitioner was affiliated with another corporation during these years. The petitioner having made its election to file separate returns, and no permission having been procured to change the basis for filing, the return for the period in controversy, a "taxable year," should have been "upon the same basis." The respondent's determination upon the basis of separate returns is sustained. ; ; ; certiorari denied, .

Judgment will be entered for the respondent.