Samuel Bell & Sons v. Commissioner ( 1931 )

SAMUEL BELL AND SONS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

MOORE BREAD COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

COMMERCIAL GARAGE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Samuel Bell & Sons v. Commissioner

Docket Nos. 38056, 41645, 41646, 41647, 45616.

United States Board of Tax Appeals

22 B.T.A. 793; 1931 BTA LEXIS 2063;

March 18, 1931, Promulgated

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Held that the companies here involved were affiliated during the taxable years in question.

W. B. Lex, Esq., Ellis N. Slack, Esq., C. J. Hepburn, Esq., Charles C. Norris, Jr., Esq., and Byron G. Carson, Esq., for the petitioners.

Eugene Meacham, Esq., and C. E. Lowery, Esq., for the respondent.

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VAN FOSSAN

These proceedings were brought to redetermine the deficiencies in income tax for the years and in the amounts as follows:

Petitioner	Docket No.	Year	Deficiency
Samuel Bell and Sons	38056	1924	$10,749.07
Samuel Bell and Sons	41647	1926	1,702.64
Samuel Bell and Sons	45616	1927	353.34
Moore Bread Company	41645	1926	1,413.29
Commercial Garage Company	41646	1926	153.62

The petitioners assert as their sole allegation of error the failure of the respondent to determine that Samuel Bell and Sons, the Quaker City Flour Mills Company, the Buffalo Flour Milling Company, the Moore Bread Company, the Acheson Bread Company and the Commercial Garage Company were affiliated corporations during the years 1924, 1926, and 1927 within the provisions of section 240(c) of the Revenue Acts of 1924 and 1926. The above proceedings were consolidated for hearing and decision.

FINDINGS OF FACT.

For many years prior to 1914 the partnership, under the firm name of Samuel Bell and Sons, had been engaged in the wholesale flour and feed business. In 1914 that partnership consisted of Samuel Bell, Jr., his son, C. Herbert Bell, and his nephew, James F. Bell, who owned 50 per cent, 25 per cent, and 25 per cent interests, respectively. The partnership owned the entire capital stock of the Moore Bread Company, the Quaker City Flour Mills, and the Commercial Garage Company. In 1914 the petitioner, Samuel Bell and Sons, was incorporated under the laws of Pennsylvania and succeeded to the business of the partnership.

The Buffalo Flour Milling Company, the Acheson Bread Company, and the Woodbury Realty Company were also corporations belonging to the group claiming affiliation. All corporations maintained their offices in Philadelphia except the Acheson Bread Company, which was located in Wilkes-Barre, Pa. The Moore Bread Company and the Acheson Bread Company operated bakeries, the Quaker City Flour Mills Company was a manufacturer of flour and feed, the Buffalo Flour Milling Company was exclusively the sales agent of the Quaker City Flour Mills Company, and the Commercial Garage Company was engaged in the business of storing and repairing automobiles and trucks belonging to all members of the group, but to no others. Samuel Bell and Sons sold to the Quaker City Flour Mills Company practically all flour sold by the latter Company to the general public but not manufactured by it. Samuel Bell and Sons sold to the Moore Bread Company and Acheson Bread Company all flour used by those companies in baking. Samuel Bell and Sons and the Commercial Garage Company occupied the same offices at 4th and Market Street, Philadelphia, and the office address of the Quaker City Flour Mills Company and the Buffalo Flour Milling Company was 3040 Market Street in that city.

So far as the record discloses, the officers of the several corporations during the years under consideration were as follows:

SAMUEL BELL AND SONS

President, Samuel Bell, Jr.

Vice president, C. Herbert Bell

Secretary, F. G. Morgan

Treasurer, F. G. Morgan

QUAKER CITY FLOUR MILLS COMPANY

President, Samuel Bell, Jr.

Vice president, C. Herbert Bell

Secretary, L. G. West

Treasurer, F. G. Morgan

ACHESON BREAD COMPANY

President, F. G. Morgan

Secretary, F. H. McCafferty

Treasurer, F. H. McCafferty

MOORE BREAD COMPANY

President, F. H. McCafferty

Secretary, C. Burgner

Treasurer, F. G. Morgan

COMMERCIAL GARAGE COMPANY

President, C. Herbert Bell

Vice president, W. H. Jones

Secretary-treasurer, R. G. Ryan

WOODBURY REALTY COMPANY

President, C. H. Bell

Secretary and treasurer, F. K. Miller

Secretary and treasurer, W. H. Jones

The following employees of Samuel Bell and Sons also served two or more companies of the group but received their entire compensation from Samuel Bell and Sons:

R. Bates, purchasing agent of all companies.

W. H. Jones, sales manager of Bell, supervising executive Moore Bread and Acheson Bread.

William Walsh, sales manager Bell and Quaker City.

L. Nathan, traffic manager of all companies.

Raymond G. Ryan, auditor of all companies.

W. O. Fehling, feed sales manager, Bell and Quaker City.

Samuel Bell and Sons was the parent company. It financed all the subsidiaries. Ledger accounts of Samuel Bell and Sons reflected many thousands of dollars supplied and advanced by it directly to the subsidiaries. Loans were made in the name of the subsidiaries and were endorsed by Samuel Bell and Sons. F. G. Morgan, treasurer of Samuel Bell and Sons, supervised all financial matters of the subsidiaries. All monies handled by them passed through the books of Samuel Bell and Sons. All drafts were honored at the Samuel Bell and Sons' office and all loans were made from that office. Samuel Bell, Jr., selected the various bank depositories of the subsidiary companies. He also determined all their policies and no unusual or material contracts and engagements on their behalf were made without his knowledge and consent. All correspondence of the subsidiaries was carried on from the office and by the employees of Samuel Bell and Sons. Each subsidiary maintained its own set of books, but Ryan, as auditor for all the companies, took off their statements or verified their monthly statements, which he submitted to Samuel Bell, Jr.

The following is a summary of the stockholders of the six companies from December 31, 1923, to December 31, 1927, inclusive:

SAMUEL BELL AND SONS
(Capital stock $400,000; 4,000 shares par value $100.)
	Dec. 31, 1923, to Dec. 31, 1926		Dec. 31, 1927
Samuel Bell, Jr., president	1,600		1,605
C. H. Bell, vice pres	840		842 1/2
James F. Bell	840		842 1/2
		3,280		3,290
F. G. Morgan, treasurer	100		100
R. Bates, buyer	50		50
W. H. Jones, sales mgr	100		100
William Walsh, sales mgr	50		50
A. H. Taylor, shipper	30		30
L. Nathan, traffic mgr	10		10
R. G. Ryan, auditor	30		30
H. N. Smith, salesman	50		50
W. S. Henderson, salesman	30		30
W. O. Fehling, dept. mgr	70		70
H. F. Becker, salesman	40		40
Geo. W. Peters, salesman	30		30
A. J. Krimm, salesman	20		20
J. R. Keane, salesman	10		10
H. L. Gandy, salesman	20		20
F. O. Peters, salesman	20		20
N. Smigelsky, salesman	20		20
H. W. Lear, salesman	20		20
W. W. Hostetter, salesman	10
H. W. Githens, bookkeeper	10	720	10	710
	720	4,000	710	4,000

QUAKER CITY FLOUR MILLS CO.
(Capital stock $300,000; 3,000 shares par value $100.)
	Dec. 31, 1923, to Dec. 31, 1926		Dec. 31, 1927
Samuel Bell, Jr., president	1,268		1,268
Samuel Bell, Jr. (trustee)	194		194
C. H. Bell, vice pres	709		709
James F. Bell	659		659
		2,830		2,830
L. G. West, sec'y and mgr	100		100
O. J. Seibert, miller	20		20
J. Weidemann, clerk	50		50
		170		170
		3,000		3,000

MOORE BREAD CO.
(Capital stock $250,000; 2,500 shares par value $100.)
	Dec. 31, 1923, to Dec. 31, 1926		Dec. 31, 1927
Samuel Bell, Jr.	1,125		1,125
Samuel Bell, Jr. (trustee)	225		225
C. H. Bell	562		562
James F. Bell	563		563
		2,475		2,475
R. G. Ryan, auditor	25		25
		25		25
		2,500		2,500

ACHESON BREAD CO.
(Capital stock $100,000; 1,000 shares par value $100.)
	Dec. 31, 1923, to Dec. 31, 1926		Dec. 31, 1927
Samuel Bell, Jr.	450		450
Samuel Bell, Jr. (trustee)	80		80
C. H. Bell	225		225
James F. Bell	225		225
		980		980
F. H. McCafferty, sec'y and treas	20		20
		20		20
		1,000		1,000

COMMERCIAL GARAGE CO.
(Capital stock $30,000; 300 shares par value $100.)
	Dec. 31, 1923, to Dec. 31, 1926		Dec. 31, 1927
Samuel Bell, Jr.		150		150
C. H. Bell, president		75		75
James F. Bell		75		75
		300		300

WOODBURY REALTY CO.
(Capital stock $45,000; 450 shares par value $100.)
	Dec. 31, 1923, to Dec. 31, 1926		Dec. 31, 1927
Samuel Bell, Jr.		224		224
C. H. Bell, president		50		50
W. H. Jones, sec'y and treas		1		1
James F. Bell		175		175
		450		450

BUFFALO FLOUR MILLING COMPANY

(Capital stock $25,000. 25 shares par value $100.)

Entire stock of the Buffalo Flour Milling Company owned by Quaker City Flour Mills Company.

In 1914, prior to the incorporation of Samuel Bell and Sons, a plan was proposed whereby a limited number of shares of stock would be offered at par to certain executives and employees as a reward for faithful services and as an incentive to further endeavors. It was expressly stipulated, however, that if they should die or sever their connection with the company the stock would be returned to and repurchased by the company. Upon the incorporation of Samuel Bell and Sons that plan was modified by permitting the purchase to be made by the remaining stockholders and an appropriate by-law to that effect was adopted. That by-law was incorporated in the stock certificate issued by Samuel Bell and Sons and also in the stock certificates of the Commerical Garage Company, the Moore Bread Company, the Quaker City Flour Mills Company and the Acheson Bread Company. It is as follows:

None of the shares of the Capital Stock of the Corporation shall be sold or transferred on its books until the holder shall have given ninety days' written notice to all stockholders of an intention so to do; and within said period said stockholders or any less number, pro rata, or any one of them in the order named, shall have the option to buy such shares at their value as shown by the books of the Corporation at the last closing thereof preceding the day of such notice with interest thereon at the rate of Five per cent. per annum from the date of said closing to payment therefor. And the remaining stockholders in the manner aforesaid shall have the option to buy within ninety days all the stock standing on the books of the Corporation in the name of any person who shall die or cease to be an officer, director or employee of the Corporation at the value shown by the books of the Corporation at the last closing thereof preceding such decease or the ending of the relation of officer, director or employee, with interest as aforesaid.

Samuel Bell, Jr., C. H. Bell, and J. F. Bell each contributed 10 per cent of his stockholdings in the Bell Company and assigned them to Samuel Bell, Jr., as trustee, to distribute as he saw fit. All stock of the Bell Company not owned by Samuel Bell, Jr., C. H. Bell, and J. F. Bell was owned under the above conditions and all stock of the employees who left the employ of the company or were discharged by it was repurchased on the same basis. A stockholding employee was subject to discharge under the same conditions as was a nonstockholder. Employee stockholders never exercised their right to vote, did not attend stockholders' meetings, and executed no proxies. Their employment was on a weekly basis.

OPINION.

VAN FOSSAN: The question in these cases is whether or not the minority stockholders, employees of the various companies, constitute the same interests as the majority stockholders. We had the same question presented on very similar facts in , and . In those cases we granted affiliation. See also . On the authority of those cases we hold the petitioning corporations were affiliated during all of the years in question, i.e., 1924, 1926, and 1927. The community of interest among the stockholders and the restrictive provisions on the stock were even stronger in the cases at bar than in the cited cases.

Judgment will be entered under Rule 50.