Cincinnati Mining Co. v. Commissioner , 8 B.T.A. 79 ( 1927 )

OPINION. .

Littleton:

Since the consolidated net income lor the fiscal year ended March 31,1920, is less than the credit allowed by section 236 (c) of the Revenue Act of 1918, for the purpose of computing the income tax, and less than the specific exemptions provided by sections 311 and 312, of the same Act, for the purpose of computing the excess and war-profits taxes, there is no liability for taxes for that year, and, therefore, no deficiency.

As to the assessment of the tax based upon a consolidated return, section 240 (b) of the Revenue Act of 1921 provides as follows:

In any case in which a tax is assessed upon the basis of a consolidated return, the total tax shall be computed in the first instance as a unit and shall then be assessed upon the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any such agreement, then on the basis of the net income properly assignable to each.

No agreement was ever had between the petitioner and the Luhrig Collieries Co. as to the apportionment of the tax to be assessed upon the basis of their consolidated return, nor did the petitioner agree to assume the tax liability of the Luhrig Collieries Co., and in the absence of such agreement, it is mandatory upon respondent to assess the tax upon the basis of the net income properly assignable to each. Petitioner suffered a net loss for the fiscal year 1921, all of the consolidated net income for' that year having been earned by the Luhrig Collieries Co., and under the provisions of the statute above quoted petitioner is not liable for any part of the tax based upon the consolidated return, and there can be no deficiency in its case. Respondent argues that the returns did not contain the data necessary to the determination of the net income of the separate companies, and that failure to submit such data was equivalent of notice of an agreement that the principal company was to be assessed,the entire tax. The answer to that is that it could not be regarded as notice of an agreement as to an apportionment of the tax any more than a notice that the tax was to be assessed upon the basis of the net income properly assignable to each of the affiliated corporations. It seems to us that a more logical view, in the absence of specific notice of an agreement for the apportionment of the tax, would be that there was no such agreement and that the tax was to be assessed upon the basis of the net income of the separate companies; especially so when respondent’s regulations require that there shall be attached to the return “ a schedule showing the proportionate amount of the total tax which it is agreed among them is to be assessed upon each affiliated corporation.” (See article 632, Regulations 62.) As we interpret the statute, it is incumbent upon the respondent to ascertain the proper parties against whom the tax is to be assessed, through inquiry, if necessary, as to any agreement or lack of agreement as to apportionment of the tax. If there be no such agreement the tax must be assessed upon the basis of the net income of the separate companies. In this proceeding, respondent has neither apportioned the tax in accordance with an agreement between the companies, for there was none, nor upon the basis of the net income properly assignable to each. This petitioner had no net income for 1921 and the Commissioner erred in determining and proposing to assess any deficiency against it.

Respondent argues that should the Board find that the tax should have been apportioned upon the basis of the net income assignable to each of the affiliated companies, it should, upon final redetermination, allocate the entire deficiency against the Luhrig Collieries Co. As to that proposition we have no jurisdiction, since the Luhrig Collieries Co. is not a party to these proceedings.

Reviewed by the Board.

Judgment will be entered for the petitioner on 15 days’ notice, u/nder Rule 50.