White Oak Transp. Co. v. Commissioner , 24 B.T.A. 307 ( 1931 )

WHITE OAK TRANSPORTATION COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

SEACONNET COAL COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

NORTHERN COAL COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

C. H. SPRAGUE & SON COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

White Oak Transp. Co. v. Commissioner

Docket Nos. 18088, 18089, 34945, 34946.

United States Board of Tax Appeals

24 B.T.A. 307; 1931 BTA LEXIS 1659;

October 9, 1931, Promulgated

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1. At the close of the year taxpayer had outstanding contracts to purchase coal, which was undelivered. Upon its books, it set up as losses the difference between the contract price and the market price and deducted such alleged losses upon its income-tax returns. Held, that title to such coal not delivered or loaded on cars for shipment to the taxpayer had not passed at the close of the year, that such coal could not be included in inventory, and that no deduction could be taken.

2. A taxpayer corporation should be permitted to include in its inventory as of December 31, 1920, that portion of coal which had during the year 1920 and on or prior to December 31, 1920, been actually loaded on cars for shipment to it and as to which shipment had already commenced.

3. A taxpayer corporation keeping its books on the accrual basis should be permitted to accrue as a liability for the year 1929 an amount representing the difference between the contract price of coal which it failed to take when tendered to it by the selling company and the price at which such coal was sold in the open market by such selling company.

4. A consent in writing entered into between the parties after the period of limitations had expired and subsequent to the passage of the Revenue Act of 1926 and prior to the Revenue Act of 1928, is ineffective because section 1106 of the 1926 Act not only barred the remedy but extinguished the liability.

5. An agreement entered into by two of the affiliated corporations which had filed a consolidated return through one of the other affiliated corporations at a time when their liability for 1920 taxes had been extinguished by section 1106 of the Revenue Act of 1926, authorizing the assessment and collection of any of their deficiencies for 1920 from such other corporation, is ineffective to give the Commissioner the right to assess and collect such deficiencies, the liability for which had already been extinguished by section 1106 of the Revenue Act of 1926.

William Williams, Esq., and Edmund B. Quiggle, Esq., for the petitioners.

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

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BLACK

This proceeding involves four related cases which were consolidated for the purpose of hearing. They come before the Board on petitions to review determinations of the Commissioner of Internal Revenue of deficiencies in the income and profits taxes of Seaconnet Coal Company, Northern Coal Company, and C. H. Sprague & Son Company for the year 1920, and the White Oak Transportation Company for the years 1920 and 1921. The dates of the notices of deficiencies and the deficiencies alleged therein for each of the periods involved are as follows:

Name of	Date of notice	Period	Deficiency
corporation			alleged
Seaconnet Coal Co	May 7, 1926	Jan. 1 to	$228,752.64
		Nov. 21, 1920
		Nov. 22 to	32,814.18
		Dec. 31, 1920
White Oak	May 7, 1926	Nov. 22 to	2,031.88
		Dec. 31, 1920
Transportation Co		1921	80,155.22
Northern Coal Co	Dec. 31, 1927	1920	203,862.68
C. H. Sprague &	Dec. 31, 1927	do	30,820.03
Son Co

Consolidated income and profits-tax returns for the calendar years 1920 and 1921 were filed on the basis of the affiliation of Seaconnet Coal Company, Northern Coal Company, Penobscot Coal & Wharf Company, White Oak Transportation Company, and C. H. Sprague & Son Company for each of those years, together with the Sprague Corporation from June 1, 1920, to December 31, 1920, and throughout the year 1921. In sending out the notices of deficiency to Seaconnet Coal Company and White Oak Transportation Company on May 7, 1926, the respondent recognized said affiliation for the period January 1 to November 21, 1920. However, for the period from November 22 to December 31, 1920, the respondent treated the Seaconnet Coal Company, Northern Coal Company and Penobscot Coal and Wharf Company as one affiliated group and charged the alleged deficiency thereof against the Seaconnet Coal Company, and treated the White Oak Transportation Company and C. H. Sprague & Son Company as another group and charged the alleged deficiency thereof against the White Oak Transportation Company. For the year 1921 the respondent likewise treated the White Oak Transportation Company and C. H. Sprague & Son Company as an affiliated group and charged the alleged deficiency thereof against White Oak Transportation Company. In the notices of deficiency sent to the Northern Coal Company and C. H. Sprague & Son Company under date of December 31, 1927, the respondent recognized the affiliation of the different corporations for the year 1920 as shown on the consolidated income and profits-tax return, and charged Northern Coal Company and C. H. Sprague & Son Company with their proportionate part of the tax allocated on the basis of net income.

Four issues were raised by the pleadings, as follows: (1) Affiliation; (2) inventories; (3) the right of the petitioners to have their profits taxes determined by special assessment on the basis of representative corporations; and (4) the statute of limitations.

By stipulation filed herein the respondent has conceded petitioner's contentions regarding affiliation. The issue of special assessment has been abandoned by the petitioners. Therefore, only two issues are left in the case, namely, inventories and the statute of limitations as to the deficiencies asserted against the Northern Coal Company and C. H. Sprague & Son Company. These are important only with respect to the year 1920, as by affiliating all of the corporations as agreed to in the stipulation, the proposed deficiency for the year 1921 asserted against White Oak Transportation Company is eliminated.

FINDINGS OF FACT.

At the hearing the parties filed with the Board an agreed statement of facts as follows:

1. Throughout the years 1920 and 1921 the Seaconnet Coal Co., Northern Coal Co., Penobscot Coal & Wharf Co., White Oak Transportation Co. and C. H. Sprague & Son Co. were affiliated within the meaning of the Revenue Act of 1918; and from June 1, 1920 to December 31, 1920, and throughout the year 1921, the Sprague Corporation was affiliated with such group. A consolidated income and profits tax return of such affiliated companies was filed for the year 1920 and for the year 1921.

2. Under date of June 23, 1920, Seaconnet Coal Co. entered into a contract with the White Oak Coal Co. of Macdonald, West Va. A copy of said contract is attached hereto and marked Exhibit A. Due to increased labor cost at the mine, effective August 16, 1920, the price of $5.00 per net ton of coal f.o.b. mines, as mentioned in said contract, was increased to $5.30 per net ton. The Seaconnet Coal Co. estimated that on December 31, 1920, there remained 54,887 gross tons of coal that had not been physically delivered to it under said contract. Said company kept its inventory as of December 31, 1920, on the basis of cost or market, whichever is lower, and included therein as of that date the said 54,887 tons of coal at the market price of $2.75 per ton, thereby showing a loss of $139,961.85, or $2.55 per ton representing the difference between the contract price of $5.30 per ton and the said market price of $2.75 per ton. Said amount of $139,961.85 was claimed as a loss by the company in the consolidated income and profits tax return filed by it for the calendar year 1920. The respondent in determining the deficiency involved in this proceeding excluded said coal from the inventory of Seaconnet Coal Co. as of December 31, 1920, and disallowed the said loss.

3. Under date of April 1, 1920, C. H. Sprague & Son Co. entered into a contract with Boone County Coal Corporation of Sharples, West Virginia. A copy of said contract is attached hereto and marked Exhibit B. Due to increased labor cost at the mines, the price of $4.00 per net ton of coal, as mentioned in said contract, was increased to $4.80 per ton from August 16, 1920. After the contract was entered into, the parties agreed to reduce the amount of coal to be delivered thereunder to 3,500 net tons per month from January 15, 1921 to May 15, 1921. C. H. Sprague & Son Co. estimated that on December 31, 1920 there remained 15,750 net tons, on the basis of 3,500 tons per month for the remaining period of the contract, that had not been physically delivered to it thereunder. Said company kept its inventory as of December 31, 1920 on the basis of cost or market, whichever is lower, and included therein as of that date the said 15,750 tons of coal at the market price of $2.75 per ton, thereby showing a loss of $32,287.50, or $2.05 per ton, representing the difference between the contract price of $4.80 per ton and the said market price of $2.75 per ton. Said amount of $32,287.50 was claimed as a loss in the consolidated income and profits tax return filed as aforesaid for the calendar year 1920. The respondent, in determining the deficiency involved in this proceeding, excluded said coal from the inventory of C. H. Sprague & Son Co. as of December 31, 1920 and disallowed said loss.

Of said amount of 15,750 tons excluded from the inventory of the company of December 31, 1920, as aforesaid, the parties hereto agree that 4,516.79 net tons, for which C. H. Sprague & Son Co. paid $21,680.59 were actually loaded on cars for shipment to it by the Boone County Coal Corporation in the year 1920, prior to December 31st thereof, and shipment thereof to C. H. Sprague & Son Co. had commenced on or prior to December 31, 1920.

4. Under date of April 12, 1920, C. H. Sprague & Son Co. entered into a contract with Quemahoning Creek Coal Co. of Somerset, Penna. A copy of said contract is attached hereto and marked Exhibit C. Due to increased labor cost at the mines, effective August 16, 1920, the price of $4.75 net per ton of coal f.o.b. mines, as mentioned in said contract, was increased to $5.05 per net ton. C. H. Sprague & Son Co. estimated that on December 31, 1920, there remained 26,478 tons, on the basis of 8,826 tons per month for the three remaining months of the contract, that had not been physically delivered to it thereunder. Said company included in its inventory as of December 31, 1920, the said 26,478 net tons at the market price of $3.05 per ton, thereby showing a loss of $52,956.00, or $2 per ton, representing the difference between the contract price of $5.05 per ton and the said market price of $3.05 per ton. Said amount of $52,956.00 was claimed as a loss in the consolidated income and profits tax return filed as aforesaid for the year 1920. The respondent in determining the deficiency involved in this proceeding, excluded said coal from the inventory of C. H. Sprague & Son Co. as of December 31, 1920, and disallowed said loss.

During the month of December 1920, Quemahoning Creek Coal Co. sold in the market for the sum of $10,716.35 the amount of 3,073.25 tons of coal which C. H. Sprague & Son Co. had failed to take under said contract, and billed C. H. Sprague & Son Co. on December 31, 1920, for $4,803.56, representing the difference between the contract price of said coal of $15,519.91 and the price of $10,716.35 at which it was sold. The respondent disallowed said amount of $4,803.56 as a deduction in the year 1920.

5. Under date of April 10, 1920, Northern Coal Company entered into two contracts with Raleigh Smokeless Coal Co. of Beckley, West Virginia. Copies of said contracts are attached hereto and market Exhibit D. and Exhibit E, respectively. Due to increased labor cost at the mines, effective August 16, 1920, and commissions, the price of $4.65 per net ton of coal f.o.b. mines, as mentioned in said contract, was increased to $5.52 per net ton. The Northern Coal Co. estimated that on December 31, 1920, there remained 26,650 net tons, on the basis of 1150 tons per week under the one contract and 900 tons per week under the other contract for the remaining period thereof, that had not been physically delivered to it thereunder. The said company kept its said inventory as of December 31, 1920, on the basis of cost or market, whichever is lower, and included therein, as of that date, the said 26,650 tons of coal at the market price of $2.75 per ton, thereby showing a loss of $73,820.50, or $2.77 per ton, representing the difference between the contract price of $5.52 per ton and the said market price of $2.75 per ton. Said amount of $73,820.50 was claimed as a loss by the company in the consolidated income and profits tax return filed as aforesaid for the year 1920. The respondent, in determining the deficiency involved in this proceeding, excluded said coal from the inventory of Northern Coal Co. as of December 31, 1920, and disallowed said loss.

Of the said amount of 26,650 tons excluded from the inventory of the company as of December 31, 1920, as aforesaid the parties hereto agree that 415.42 net tons, for which Northern Coal Co. paid $2,139.42, were actually loaded on cars for shipment to it by Raleigh Smokeless Coal Co. in the year 1920 prior to December 31st thereof, and shipment thereof to Northern Coal Company had commenced on or prior to December 31, 1920.

6. On or about March 8, 1920, the Northern Coal Co. entered into a contract with Gulf Smokeless Coal Company, Texas, West Va., under which the Northern Coal Co. agreed to take and pay one-third of the output of the mine at $4.90 per net ton at the mines for shipments from September 1, 1920 to April 1, 1921. Copies of two telegrams exchanged between the companies in reference to said contract are hereto attached and marked Exhibits F and G.

Northern Coal Company estimated that on December 31, 1920 there remained 98,556 net tons of coal that had not been physically delivered to it under said contract, and included the said 98,556 tons in its inventory as of December 31, 1920, at the market price of $2.75 per ton, thereby showing a loss of $211,895.40, or $2.15 per ton, representing the difference between the contract price of $4.90 per ton and said market price of $2.75 per ton. Said amount of $211,895.40 was claimed as a loss in the consolidated income and profits tax return filed as aforesaid for the year 1920. The respondent, in determining the deficiency involved in this proceeding, excluded said coal from the inventory of Northern Coal Co. as of December 31, 1920, and disallowed said loss.

7. There is attached hereto and marked Exhibit H, a statement showing the computation of the income and profits taxes of the Northern Coal Company and C. H. Sprague & Son Co. for the year 1920 as made by the respondent as a basis for the deficiency letters of December 31, 1927 addressed to said companies.

Exhibit D attached to the agreed statement of facts is typical of the other exhibits and reads in part as follows:

MEMORANDUM OF AGREEMENT.

between Northern Coal Company (for convenience hereinafter referred to as the buyer), and the RALEIGH SMOKELESS FUEL COMPANY, (for convenience hereinafter referred to as the seller) under the terms and conditions of which the buyer hereby purchases and agrees to receive and pay for and the seller hereby sells and agrees to ship from the mines represented by it in the New River Field the quantity and grade of coal hereinafter stated upon the terms and conditions stated below, to-wit:

QUANTITY Fifty-five thousand tons of 2000 lbs.

* * *

PRICE Four dollars sixty five cents ($4.65) per ton of 2000 lbs. f.o.b. mines DELIVERY (Approximately) Eleven hundred fifty TONS PER WEEK

* * *

SHIPMENTS TO COMMENCE May 1st 1920 and end March 31st 1921

* * *

TERMS.

Cash, on or before the 10th of each month, for all coal shipped during the preceding month. Failure of the buyer to comply with the terms of payment shall give the seller the right to cancel this contract, but waiver of this right, in any instance, shall not prevent the subsequent exercise of it by the seller. The right is especially reserved by the seller to cancel this contract whenever the seller has reason to believe the credit of the buyer is impaired.

* * *

CONDITIONS.

If this contract specified an approximate tonnage, or an approximate rate of delivery, deliveries above or below the amount specified and not varying more than (10) ten per cent from such amount shall be deemed to be fulfillment of the obligations of the seller.

* * *

The seller reserves the right to execute contracts for the sale of the entire estimated product of the mine, or mines represented by the seller, and if the total actual output shall, at anytime, for any cause, be less than the sum total of the deliveries called for by all of the sellers' contracts then in force, the total available tonnage shall be applied, pro rata, on all of said contracts alike, upon the basis of the percentage the total tonnage available bears the total tonnage contracted.

* * *

This contract is subject to cancellation in case of breach of any of its terms or conditions.

In addition to the foregoing agreed statement of facts, certain evidence was introduced at the hearing by petitioners and respondent, from which we make the following additional findings of fact.

There were actually delivered to the Northern Coal Company under its contract with the Gulf Smokeless Coal Company to take and pay for one-third of the output of the mine, during the period from January 1 to April 1, 1921, 112,126.75 net tons of coal.

The prices stated in the agreed statement of facts as having been used in the inventory as of December 31, 1920, were the market prices of the coal on that date.

Under date of November 16, 1925, the Seaconnet Coal Company, White Oak Transportation Company, Northern Coal Company and C. H. Sprague & Son Company filed waivers extending the time for the assessment of income and profits taxes for the year 1920 to December 31, 1926. Under date of May 7, 1926, notices of deficiency were sent to the Seaconnet Coal Company and White Oak Transportation Company. Under date of April 12, 1927, after expiration of the waivers filed on November 16, 1925, the Northern Coal Company and C. H. Sprague & Son Company filed additional waivers purporting to extend the period for the assessment of the 1920 taxes to December 31, 1927. Under date of June 3, 1927, a letter signed by the different corporations in the affiliated group was filed with the respondent, reading as follows:

Reference is made to the matter of the tax liability of the Seaconnet Coal Company and its affiliated corporations for the years 1920 and 1921.

It is respectfully requested that in a recomputation of the tax liability of the said corporations the entire amount, if any, be allocated to the Seaconnet Coal Company, Boston, Massachusetts, and that any deficiency in said tax as finally determined be assessed against the Seaconnet Coal Company and any overassessment credited to it.

Respectfully,

SEACONNET COAL COMPANY,

BY GEO. A. BUTMAN, Treasurer.

C. H. SPRAGUE & SON CO.,

By GEO. A. BUTMAN, Treasurer.

WHITE OAK TRANSPORTATION COMPANY,

BY GEO. A. BUTMAN, Treasurer.

NORTHERN COAL COMPANY,

By GEO. A. BUTMAN, Treasurer.

PENOBSCOT COAL & WHARF COMPANY,

BY GEO. A. BUTMAN, Treasurer.

THE SPRAGUE CORPORATION,

By GEO. A. BUTMAN, Treasurer.

Notices of deficiency were sent to the Northern Coal Company and C. H. Sprague & Son Company under date of December 31, 1927.

There was no agreement between the different corporations by which the income and profits taxes of the affiliated group, or of any other member of the group, for the year 1920 could be assessed against the Seaconnet Coal Company or White Oak Transportation Company prior to June 3, 1927, when the letter above mentioned was signed and filed with the respondent.

The consolidated income and profits-tax return for the calendar year 1920 was filed on April 12, 1921, by the Seaconnet Coal Company on behalf of itself and affiliated companies. It was accompanied by complete schedules showing the gross income and expenses for 1920 of the respective corporations included in the return and giving all information needed to compute the respective net incomes of the several corporations. On this original return a tax of $48,850.12 was shown to be due and was paid by the Seaconnet Coal Company. It was agreed by the parties at the hearing that the respective corporations reimbursed the Seaconnet Coal Company for the amounts considered as attributable to each as follows:

Northern Coal Company	$39,815.00
White Oak Transportation Company	1,432.00
C. H. Sprague & Son Company	619.12

The balance of the $48,850.12 tax liability shown on the return, amounting to $6,984.00, was attributable to the Seaconnet Coal Company and paid by it.

For the calendar year 1920 each of the affiliated corporations filed on March 15, 1921, with the collector of internal revenue, third district of Massachusetts, "Information Return of Subsidiary or Affiliated Corporation" on Form 1122. On Form 1122, among other information requested, is that included in paragraph 7, which reads as follows:

The department prefers that the entire tax shown on a consolidated return be paid by the parent or principal reporting corporation, instead of being apportioned among the corporations composing the affiliated group.

If apportionment is made, state the amount of income and profits taxes for the taxable period to be assessed against the subsidiary or affiliated corporation making this return.

The answer to the question contained in paragraph 7 was left blank by each of the reporting corporations involved in this proceeding. On the consolidated return filed April 12, 1921, by the Seaconnet Coal Company for itself and affiliated corporations for the calendar year 1920, under the heading "Basis of Return," appeared the following:

Is this return made on the basis of actual receipts and disbursements? No.

If not, describe fully what other basis or method was used in computing net income.

Book method - prepayments and accruals.

OPINION.

BLACK: By the agreed statement of facts which was filed in this proceeding at the hearing, all issues have been eliminated except those which relate to inventories and the statute of limitations. As to these last named issues petitioners make five contentions which we shall discuss and rule upon in their order.

1

It is contended that in computing the net income of the Seaconnet Coal Company, C. H. Sprague & Son Company, and Northern Coal Company for the year 1920, they should be permitted to include in their inventories as of December 31, 1920, at its market price on that date, the coal remaining to be delivered under their respective outstanding contracts of purchase. Respondent has disallowed this on the ground that title to the coal to be delivered petitioners in 1921 on their contracts had not passed and could not be properly included in inventories as of December 31, 1920; that the losses claimed were not true losses but only anticipated losses.

Petitioners and respondent, in support of their respective contentions, cite two leading cases of the Board. Petitioners cite Amalgamated Sugar Co.,4 B.T.A. 568">4 B.T.A. 568, and respondent cites Haas Bros.,3 B.T.A. 113">3 B.T.A. 113, affirmed by the Circuit Court of Appeals, Ninth Circuit, Haas Bros. v. McLaughlin, 39 Fed.(2d) 381.

We think the facts in the instant case bring it within the rule announced by this Board in Haas Bros., supra.Clearly, the question of inventories is involved in the settlement of the issue now under discussion. In fact the question of what could properly be included in petitioners' inventories as of December 31, 1920, is the main question which we must decide in ruling upon petitioners' point No. 1. Concerning the subject of inventories, the court said in Haas Bros. v. McLaughlin, supra, as follows:

* * * At the time the contracts were a live issue, Regulation 45, article 1581 (Revenue Act of 1918, promulgated Jan. 28, 1921; amended March 3, 1922, Treasury Decision 3296, vol. 24, 1922) applicable at the time, which has the force of law, provided: "A purchaser should include in inventory merchandise purchased, title to which has passed to him, although such merchandise is in transit or for other reasons has not been reduced to physical possession, but should not include goods ordered for future delivery, transfer of title to which has not yet been effected."

Claiming losses on property in income tax returns, when not supported by inventory as required by law, is not persuasive. The appellant may not "blow hot and cold" at the same time. Its conduct is in harmony with the last provision of Regulation 45, supra, and corroborates the record, that the merchandise was not identified, nor were the goods set apart to, or used by, appellant at any time during 1919 and 1920, respectively. The fact that appellant paid storage and insurance for December, 1920, in view of the record, is of no importance.

In Amalgamated Sugar Co., supra, urged by petitioners as the principal authority in support of their contention, the main question involved was in what year the taxpayer should accrue income on its books from sales contracts of sugar which had actually been made. The controlling factor in that case was that the taxpayer had for years consistently kept its books on the basis of accruing as income, sales of sugar already in its warehouses, just as soon as sold, although actual delivery of the sugar might not take place until some time thereafter, in some cases running into the following year.

The question is different in the instant case. We think the distinction between Amalgamated Sugar Co., supra, and the facts such as we have before us in the instant case was properly stated by the Board in Barde Steel Products Corporation,14 B.T.A. 209">14 B.T.A. 209, at pages 221 and 222 of the printed report. Cf. Adams-Roth Baking Co.,8 B.T.A. 458">8 B.T.A. 458.

2

Petitioners' next contention is that, in any event, C. H. Sprague & Son Company should be permitted to include in its inventory as of December 31, 1920, that portion of said coal, to wit, 4,516.79 net tons, which, during the year 1920 and on or prior to December 31 thereof, had been actually loaded on cars for shipment to it by the Boone County Coal Corporation, and as to which shipment had already commenced; and that the Northern Coal Company should be permitted to include in its inventory as of December 31, 1920, that amount of the coal disallowed as part of its inventory as aforesaid, to wit, 415.42 net tons, which was actually loaded on cars for shipment to it by the Raleigh Smokeless Coal Company in the year 1920, and as to which shipment had commenced on or prior to December 31 thereof. We think petitioners are correct in this contention and we sustain them. The contracts under which said coal was delivered called for delivery f.o.b. at the mines. Therefore, as soon as the coal was loaded on the cars for the account of the purchasers, the title passed to them. Lamson v. Hibbs,120 Va. 693">120 Va. 693; 91 S.E. 750">91 S.E. 750; Dentzel v. Island Park Association,229 Pa. 403">229 Pa. 403. As a general rule, whenever title to goods which have been identified has passed to the buyer, he is entitled to include them in his inventory. Haas Bros., supra; Amalgamated Sugar Co., supra;Adams-Roth Baking Co., supra;Barde Steel Products Corporation, supra.

3

Petitioners next contend that C. H. Sprague & Son Company should be permitted to deduct as an accrued liability for the year 1920 the amount of $4,803.56, representing the difference between the contract price of the coal which it failed to take when tendered to it by Quemahoning Creek Coal Company and the price at which such coal was sold in the open market by Quemahoning Creek Coal Company. We sustain petitioners in this contention. The evidence shows that the petitioner C. H. Sprague & Son Company kept its books on the accrual system. The liability was one which petitioner admitted and accrued as a liability on its books and respondent erred in disallowing it. Lucas v. American Code Co.,280 U.S. 445">280 U.S. 445.

4

Petitioners in their fourth point ask that it be held that no additional assessment of income and profits taxes for the year 1920 can be made against either Northern Coal Company or C. H. Sprague & Son Company on account of the tolling of the statute of limitations. We think this contention must be sustained.

The consolidated return for the affiliated corporations for the year 1920 was filed by the Seaconnet Coal Company April 12, 1921, and under the statute of limitations applicable to the year 1920, the period of limitation as to this return in ordinary course would expire April 12, 1926.

The return contained elaborate schedules showing the separate income and expenses of each one of the affiliated corporations from which its net income could be calculated and the amount of taxes allocable to each determined. Under these circumstances the return acted as a return for each of the separate corporations and the statute of limitations applicable thereto began to run just as if a separate return had been filed by each of the several corporations. Stetson & Ellison,11 B.T.A. 397">11 B.T.A. 397; affirmed on review, 43 Fed.(2d) 553. No claim is made that the statute of limitations has run against the assessment and collection of so much of the deficiencies as is properly chargeable to petitioners Seaconnet Coal Company and White Oak Transportation Company, but that it has run against the assessment and collection of deficiencies against the Northern Coal Company and C. H. Sprague & Son Company.

The facts with reference to the execution and filing of waivers by these two last named petitioners have been fully stated in our findings of fact. The first waivers signed extended the time in which the Commissioner might make assessment and collection of any additional tax due for 1920 to December 31, 1926. If the deficiency notices to petitioners Northern Coal Company and C. H. Sprague & Son Company had been mailed within that time, they would have been timely. But this was not done and the statute of limitations had run in favor of these two petitioners prior to the time the next waivers were executed, to wit, April 12, 1927.

Prior to this time, February 26, 1926, the Revenue Act of 1926 was passed, which contained section 1106, which not only barred the remedy but extinguished the liability. Therefore the waivers executed on April 12, 1927, by the Northern Coal Company and C. H. Sprague & Son Company were ineffective. The deficiency notices which were mailed to them on December 31, 1927, on the strength of these waivers were too late. Steiner Mfg. Co.,18 B.T.A. 740">18 B.T.A. 740; United States Refractories Corporation,23 B.T.A. 872">23 B.T.A. 872; Knight-Campbell Music Co.,23 B.T.A. 1233">23 B.T.A. 1233.

5

Petitioners' fifth and last contention is that the Seaconnet Coal Company and White Oak Transportation Company are liable only for their proportional share of the income and profits taxes of the affiliated group for the year 1920, computed on the basis of their respective net incomes. We think this contention must be sustained.

Respondent contends that even though the statute of limitations has run against the assessment and collection of any deficiency against either Northern Coal Company or C. H. Sprague & Son Company, nevertheless the letter which they signed dated June 3, 1927, directing the Commissioner of Internal Revenue that any deficiency in their tax as finally determined be assessed against the Seaconnet Coal Company, is effective to give the Commissioner the right to assess and collect from the Seaconnet Coal Company any deficiency for 1920 due by Northern Coal Company and C. H. Sprague & Son Company. We do not think so.

If, because of section 1106 of the Revenue Act of 1926, the waivers executed by these two petitioners on April 12, 1927, were ineffective to revive any liability against petitioners for the tax, we think that for the same reason any statement in the letter dated June 3, 1927, authorizing the Commissioner to collect from the Seaconnet Coal Company was ineffective to give the Commissioner any right to assess and collect from Seaconnet Coal Company taxes computed against Northern Coal Company and C. H. Sprague & Son Company which had already been extinguished by section 1106 of the Revenue Act of 1926. The letter could not revive them.

It may be stated in this connection that the letter dated June 3, 1927, was the first and only agreement entered into by the Northern Coal Company and C. H. Sprague & Son Company that their taxes for 1920 should be assessed and collected from the Seaconnet Coal Company. There had been no implied agreement that this should be done. The testimony at the hearing was to the definite and positive effect that the only agreement that this should be done was the written agreement dated June 3, 1927, introduced at the hearing by respondent.

Reviewed by the Board.

Decision will be entered for petitioner Northern Coal Company in Docket No. 34945, and for petitioner C. H. Sprague & Son Company in Docket No. 34946. As to petitioner Seaconnet Coal Company, Docket No. 18089, and petitioner White Oak Transportation Company, Docket No. 18088, decision will be entered under Rule 50.

SMITH and ARUNDELL dissent on the fourth and fifth points.