Harbour-Longmire Co. v. Commissioner

HARBOUR-LONGMIRE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Harbour-Longmire Co. v. Commissioner

Docket No. 6905.

United States Board of Tax Appeals

7 B.T.A. 314; 1927 BTA LEXIS 3212;

June 14, 1927, Promulgated

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C. H. Garnett, Esq., for the petitioner.

John D. Foley, Esq., for the respondent.

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MARQUETTE

MARQUETTE: This proceeding is for the redetermination of a deficiency in income and profits taxes for the year 1921 in the amount of $1,026.97. The issue presented is whether the petitioner was, during that year, affiliated with the Harbour-Longmire Co., of Enid, Okla.

FINDINGS OF FACT.

The petitioner is a corporation organized under the laws of Oklahoma in the year 1911, with its principal office at Oklahoma City, and it is and has been at all times herein mentioned, engaged in selling furniture and house furnishings at that place. During the year 1921 its capital stock outstanding consisted of 515 shares of the par value $100of each, which were held and owned by the following persons:

	Number of shares
Stockholder:
W. M. Longmire	130
Mrs. W. M. Longmire	45
W. M. Longmire as guardian for Aileen Longmire	10
W. C. Chisum, Jr	75
J. F. Harbour	100
Rose Harbour Hocker	35
Jerry Harbour	10
Lee V. Sneed	50
John S. Sneed	50
A. G. Hollis	10
Total	515

Myrtie Longmire was the wife of W. M. Longmire, Aileen Longmire was his daughter, and W. C. Chisum, Jr., was a brother of Myrtie Longmire. Rose Hocker was a sister of J. F. Harbour, Jerry Harbour was his son, and Lee V. Sneed and John S. Sneed were his stepsons. A. G. Hollis was an employee of the corporation and held the office of secretary, J. F. Harbour was president, and W. M. Longmire, vice president of the corporation.

In the year 1920, J. F. Harbour and W. M. Longmire organized the Harbour-Longmire Co. of Enid, under the laws of Oklahoma, for the purpose of putting Rose Harbour Hocker and her husband, J. P. Hocker, and E. C. Longmire, brother of W. M. Longmire, in business at that place. The corporation at the beginning of the year 1921 had outstanding 300 shares of capital stock of the par value of $100 each, which stood in the names of the following persons:

	Shares.
W. M. Longmire	75
E. C. Longmire	50
J. F. Harbour	75
Rose Harbour Hocker	25
J. P. Hocker	25
Austin Miller	25
Prentiss Price	25

W. M. Longmire was president, J. P. Hocker, vice president, and E. C. Longmire, secretary of the corporation. Austin Miller was a director in the corporation. He was also manager of the Oklahoma Furniture Manufacturing Co. All the money that went into the corporation except $5,000 paid for stock by Austin Miller and Prentiss Price, was furnished by W. M. Longmire and J. F. Harbour. The stock standing in the name of E. C. Longmire was paid for by W. M. Longmire and the certificate therefor was assigned to him in May, 1922. J. F. Harbour paid for the stock standing in the name of J. P. Hocker and actually held the certificate therefor.

On February 26, 1921, J. F. Harbour transferred 30 shares of the capital stock of the Harbour-Longmire Co. of Enid, Okla., standing in his name, to his sister, Rose Harbour Hocker. On November 17, 1921, 150 additional shares of stock were issued, of which 100 shares were issued to the Harbour-Longmire Co. of Oklahoma City, and 50 shares were issued to the Oklahoma Furniture Manufacturing Co. in settlement of a debt due that company.

The capital stock of the two corporations was on January 1, 1921, held as follows:

	Harbour-Longmire Co.		Harbour-Longmire Co. of Enid
Name	Shares	Per cent	Shares	Per cent
W. M. Longmire	130	25.24	75	25.00
Myrtie Longmire	45	8.74
W. M. Longmire as guardian	10	1.94
W. C. Chisum, Jr	75	14.56
E. C. Longmire			50	16.67
Total Longmire interests	260	50.48	125	41.67
J. F. Harbour	100	19.42	75	25.00
Rose Harbour Hocker	35	6.80	25	16.67
Jerry Harbour	10	1.94
Lee V. Sneed	50	9.71
John S. Sneed	50	9.71
J. P. Hocker			25	16.67
Total Harbour interests	245	47.58	125	41.67
Total Longmire-Harbour interests	505	98.06	250	83.34
A. G. Hollis	10	1.94
Austin Miller			25	8.33
Prentiss Price			25	8.33
Total minority interests	10	1.94	50	16.66
Total of all interests	515	100.00	300	100.00

The only change in the stockholdings in the two corporations between January 1, 1911, and November 27, 1921, was that on February 26, 1921, J. F. Harbour transferred 30 shares of his stock in the Harbour-Longmire Co. of Enid to his sister, Rose Harbour Hocker. During the period November 17, 1921, to December 31, 1921, inclusive, the capital stock of the two corporations was held as follows:

	Harbour-Longmire Co.		Harbour-Longmire Co. of Enid
	Shares	Per cent	Shares	Per cent
W. M. Longmire	130	25.24	75	16.67
Myrtie Longmire	45	8.74
W. M. Longmire, guardian	10	1.94
W. C. Chisum, Jr	75	14.56
E. C. Longmire			50	11.11
Total Longmire interests	260	50.48	125	27.78
J. F. Harbour	100	19.42	45	10.00
Rose Harbour Hocker	35	6.80	55	12.23
Jerry Harbour	10	1.94
Lee V. Sneed	50	9.71
John S. Sneed	50	9.71
J. P. Hocker			25	5.55
Total Harbour interests	245	47.58	125	27.78
Harbour-Longmire Co., of Oklahoma City			100	22.22
Total Longmire and Harbour interests	505	98.06	350	77.78
A. G. Hollis	10	1.94
Austin Miller			25	5.55
Prentiss Price			25	5.55
Oklahoma Furniture Mfg. Co			50	11.12
	10	1.94	100	22.22
Total of all interests	515	100.00	450	100.00

The operations of the two corporations were controlled and managed by W. M. Longmire and J. F. Harbour. One of them visited Enid, Okla., at least once a month. Practically all of the buying for the Enid company was done by them. A part of the goods so bought was shipped direct to the Enid company and part to the Oklahoma City company, which in turn shipped it to Enid. All of the expense of such buying and supervision was borne by the Oklahoma City company. The Enid company was also furnished a part of its merchandise by the Oklahoma City company, which billed it to the Enid company at cost regardless of the market. This practice resulted in an arbitrary shifting of profits for the reason that if the market was rising the Enid company was getting its goods at less than market, and if the market was falling, it was paying more than market price for the goods.

During the latter part of the year 1921, the market was generally declining. Because of the intercompany transactions the Enid company was, by November, 1921, indebted to the Oklahoma City company in a substantial amount, and it was in partial satisfaction of that indebtedness that 100 shares of the capital stock of the Enid company were issued to the Oklahoma City company on November 17, 1921.

The shares of stock of the Oklahoma City company held by the members of W. M. Longmire's family were voted by him and the shares of stock of that company held by the members of J. F. Harbour's family were voted by him. W. M. Longmire and J. F. Harbour, with A. G. Hollis, secretary, conducted the stockholders' meetings and controlled and directed the business of the corporation.

The meetings of the stockholders of the Enid company were held in the office of the Oklahoma City company. At these meetings E. C. Longmire and J. P. Hocker were usually present and voted the stock standing in their names, although as hereinbefore stated, the certificates representing the stock of J. P. Hocker were in the possession of J. F. Harbour. The other stock belonging to members of the Longmire and Harbour families was voted by W. M. Longmire and J. F. Harbour. The record does not show that the minority stockholders of the corporation attended the stockholders' meetings, or were represented therein. Subsequent to the year 1921 the Enid company proved to be a losing venture and its liabilities were paid and its assets taken over by the Oklahoma City company. The respondent refused to permit the two corporations to file a consolidated return of income and invested capital for the year 1921.

The petitioner and the Harbour-Longmire Co. of Enid, Okla., were affiliated during the year 1921.

Judgment will be entered on 15 days' notice, under Rule 50.