Nachman Spring-Filled Co. v. Commissioner , 12 B.T.A. 372 ( 1928 )

NACHMAN SPRING-FILLED CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

THE NACHMAN CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Nachman Spring-Filled Co. v. Commissioner

Docket Nos. 7902, 7903.

United States Board of Tax Appeals

12 B.T.A. 372; 1928 BTA LEXIS 3548;

June 5, 1928, Promulgated

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The petitioners were, during the period from August 1, 1919, to December 31, 1919, affiliated.

Oswald D. Luby, Esq., for the petitioners.

James V. O'Callaghan, Esq., for the respondent.

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LOVE

These proceedings are for the redetermination of deficiencies in income and profits taxes for the calendar year 1919 determined in the amount of $314.66 in respect of the Nachman Spring-Filled Co., and in the amount of $406.86 in respect of the Nachman Company. The petitioners allege that the Commissioner, in determining the deficiencies, erred in holding that they were affiliated during the period from August 1, 1919, to December 31, 1919, and in computing the deficiencies on a basis of consolidated income and invested capital.

FINDINGS OF FACT.

The petitioners are Illinois corporations, with principal offices at Chicago.

The Nachman Company was organized in 1915 and was engaged in the manufacture of cushions for furniture. During the year 1919, its capital stock outstanding consisted of 250 shares of common stock and 110 shares of preferred stock, which were held and owned by the following persons:

	Shares of	Shares of
	common stock	preferred stock
F. A. Nachman	247	None.
S. H. Nachman	1	50
L. A. Suekoff	2	50
Joseph Hirsch, father of S. H. Nachman	None.	10
Total	250	110

The preferred stock was paid for in cash by the respective holders thereof, who voted it at stockholders' meetings.

S. H. Nachman, wife of F. A. Nachman, purchased with her own funds the 50 shares of preferred stock which she held. She was a director of the company and attended directors' meetings.

L. A. Suekoff was the president and principal stockholder of the Spring-Filled Products Co., which was also engaged in the manufacture of cushions for furniture. F. A. Nachman had invested some money in this business.

Prior to 1919, the Nachman Company and the Spring-Filled Products Co. sold their products in open competition. Personal differences arose between Nachman and Suekoff and, to obviate these differences, they decided to form a corporation to sell the products of the two companies, endeavoring thereby to solve the question of open competition. According to the arrangements made, each of the companies would pay to the selling corporation a certain amount of commission on sales in order to cover its operating expenses.

Accordingly, the Nachman Spring-Filled Co. was organized and during the period from August 1, 1919, to December 31, 1919 its outstanding capital stock of 150 shares was held and owned by the following persons:

	Number of shares
F. A. Nachman	137
S. H. Nachman	1
L. A. Suekoff	11
P. D. Suekoff, wife of L. A. Suekoff	1
Total	150

This arrangement did not eliminate the friction between Nachman and Suekoff and, in August, 1920, a Delaware corporation was organized and took over the assets of the two manufacturing companies and the stock of the Nachman Spring-Filled Co., pursuant to a new plan of organization.

During the year 1919, petitioners kept separate books of account and had separate pay rolls. They did, however, occupy the same offices.

During the period from August 1, 1919, to December 31, 1919, the capital stock of petitioners was held as follows:

	Nachman Company		Nachman Spring-Filled Co.
	Shares	Per cent	Shares	Per cent
F. A. Nachman	247	68.62	137	91.333
S. H. Nachman	51	14.17	1	0.667
L. A. Suekoff	52	14.44	11	7.333
P. D. Suekoff	0	0 $1	0.667
Joseph Hirsch	10	2.77	0	0
Total	360	100.00	150	100.00

The officers of the two corporations during the year 1919 were:

Nachman Company:
President	F. A. Nachman
Vice president	L. A. Suekoff
Treasurer	F. A. Nachman
Secretary	S. H. Nachman
Nachman Spring-Filled Co.:
President	F. A. Nachman
Vice president	L. A. Suekoff
Treasurer	L. A. Suekoff
Secretary	S. H. Nachman

Upon audit of the petitioners' returns for the year 1919, the Commissioner determined that they were affiliated during the period from August 1, 1919, to December 31, 1919.

OPINION.

LOVE: We are of the opinion that substantially all of the stock of the petitioners was, during the period from August 1, 1919 to December 31, 1919, owned by the same interests, within the meaning of the provisions of section 240(b) of the Revenue Act of 1918. See . The Commissioner's determination is, therefore, approved.

Judgment will be entered for the respondent.