East Jersey Lumber & Timber Co. v. Commissioner , 24 B.T.A. 1047 ( 1931 )

EAST JERSEY LUMBER & TIMBER COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

East Jersey Lumber & Timber Co. v. Commissioner

Docket No. 41496.

United States Board of Tax Appeals

24 B.T.A. 1047; 1931 BTA LEXIS 1557;

November 30, 1931, Promulgated

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">*1557 Held that the petitioner has not shown error in respondent's denial of affiliation between petitioner and another corporation during the year 1925.

Edwin C. Dutton, Esq., and Don R. Hutchinson, Esq., for the petitioner.

J. M. Leinenkugel, Esq., for the respondent.

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MCMAHON

">*1047 This is a proceeding for the redetermination of an asserted deficiency in income taxes for the year 1925 in the amount of $1,006.82. It is alleged that the respondent erred in refusing to recognize, under section 240 of the Revenue Act of 1926, the affiliation of the petitioner and the East Jersey Bridge Company.

">*1048 FINDINGS OF FACT.

The petitioner is a corporation, with principal office and place of business in Perth Amboy, N.J. It was organized in 1907, its incorporators being Arthur W. Ramsey, now dead, John Brennan and Edwin G. Fraser.

The East Jersey Bridge Company, hereinafter referred to as the Bridge Company, was incorporated in 1915. It was incorporated by the incorporators of the petitioner and there were in addition two other incorporators, William H. Fraser and Carl R. Able. The petitioner and the Bridge Company had the same">*1558 officers, the same place of business and the same office employees. Originally the Bridge Company did not have a bank account but did business through the petitioner's bank account.

The Bridge Company was organized to engage in the contracting business on docks, bridges, foundations, roads and streets. The petitioner was engaged in the timber and forest products business, including operating sawmills. The products of the petitioner were used to some extent in the Bridge Company's operations. The working instruments were also used somewhat interchangeably.

Robert Fowler was issued 10 shares of stock of the Bridge Company on December 20, 1915. This stock was purchased by the petitioner in 1918. On December 20, 1915, a certificate for 10 shares of stock in the Bridge Company was issued in the name of Garrett V. Mitchell. This certificate remained in the office of the Bridge Company and the petitioner because Mitchell had not paid for it. Mitchell never did pay for this stock. It was issued to him for the reason that the Bridge Company thought Mitchell could be of service in obtaining work for the company. He was never employed by the company and was never paid anything">*1559 for services. In February, 1917, Mitchell borrowed from the First National Bank $2,775 on his personal note bearing the Bridge Company's endorsement, and this stock certificate was placed with the bank as collateral. The certificate was endorsed in blank by Mitchell on February 10, 1917. Mitchell never paid any interest or principal of the note. The interest was paid by the Bridge Company as it became due and the principal amount of the note was paid by the Bridge Company and the petitioner at some time after the year 1925. After the note was paid, the stock certificate came into the possession of the Bridge Company or the petitioner. Mitchell never voted the stock which stood in his name. The secretary and treasurer of the petitioner has not heard of Mitchell since 1918.

In 1925 the stock of the petitioner and the Bridge Company was outstanding in the following names:

Record holder	East Jersey Lumber and Timber Company	East Jersey Bridge Company
	Shares	Shares
John Brennan	15	10
Edwin G. Fraser	15	10
Edwin G. Fraser
John Brennan jointly	15
East Jersey Lumber & Timber Company		20
G. V. Mitchell		10

">*1049 The respondent">*1560 held that petitioner and the Bridge Company were not affiliated for the year 1925. The following statement appears in the deficiency letter mailed to petitioner:

The East Jersey Lumber and Timber Company and the East Jersey Bridge Company have been ruled not affiliated for the year 1925, based upon the information furnished by you stating that, during the year 1925, 20 per cent of the capital stock of the East Jersey Bridge Company is shown in the name of G. V. Mitchell who is not a stockholder in your corporation.

OPINION.

McMAHON: The sole question here presented is whether the petitioner and the Bridge Company were affiliated during the year 1925 for income-tax purposes. Section 240 of the Revenue Act of 1926 provides in part as follows:

(c) For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the voting stock of the other or others, or (2) if at least 95 per centum of the voting stock of two or more corporations is owned by the same interests. This subdivision shall be applicable to the determination of affiliation for the taxable year 1925.

The evidence discloses">*1561 that the same interests that owned all the stock of the petitioner also owned forty of the fifty shares of stock of the Bridge Company. The remaining ten shares of stock of the Bridge Company were outstanding in the name of G. V. Mitchell. Petitioner contends that this stock was also owned by the same interests which owned all the stock of the petitioner.

The evidence does show that the certificate issued in Mitchell's name for ten shares of Bridge Company stock remained in the possession of the Bridge Company until 1917, for the reason that Mitchell had not paid for it; that in that year Mitchell endorsed the certificate in blank and deposited it with a bank as collateral for a loan, Mitchell's note being endorsed by the Bridge Company; that Mitchell never paid any principal or interest of the note; that the Bridge Company paid the interest thereon; and that eventually the Bridge Company and the petitioner paid the principal amount of ">*1050 the note. However, the note was not paid until after the year in question. So far as we are able to determine from the evidence the legal title to the ten shares in question was owned by Mitchell in 1925. The Bridge Company and the">*1562 petitioner certainly did not own the ten shares of stock in question prior to the time they paid the principal amount of the note for which the stock was pledged as security. ; affd., ; affd., . Furthermore, there is nothing in the evidence to show that the ten shares of stock in question were not "voting stock" within the meaning of section 240(c), supra. The fact that Mitchell did not, in fact, vote the stock has no bearing upon the question of whether the stock was "voting stock."

We conclude that the evidence does not establish that at least 95 per centum of the stock of the petitioner and the Bridge Company was owned by the same interests. The respondent's holding of nonaffiliation is approved.

Judgment will be entered for the respondent.