Bowie Lumber Co. v. Commissioner

BOWIE LUMBER CO., LTD., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Bowie Lumber Co. v. Commissioner

Docket No. 36989.

United States Board of Tax Appeals

20 B.T.A. 342; 1930 BTA LEXIS 2145;

July 28, 1930, Promulgated

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Petitioner was affiliated with company A during the entire years 1922 and 1923 and with company B from August 11, 1922, to December 31, 1923. Petitioner filed a separate return for 1922. Company A filed separate returns for 1922 and 1923. Company B filed a separate return for the period August 11, 1922, to December 31, 1922. Petitioner and company B filed a consolidated return for 1923, which was rejected by the respondent. Held, petitioner and company B are not entitled to file a consolidated return for 1923.

Lawrence A. Baker, Esq., for the petitioner.

Brooks Fullerton, Esq., for the respondent.

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LOVE

This proceeding is for the redetermination of a deficiency in income taxes for the calendar year 1923 in the amount of $5,237.85. The only error assigned is the refusal of the respondent to accept the consolidated return filed by petitioner and the Bowie Oil & Gas Co. for the taxable year 1923.

FINDINGS OF FACT.

Petitioner is a corporation engaged in the business of manufacturing lumber with its principal office at New Orleans. It was incorporated under the laws of Louisiana on or about January 12, 1901.

The Iberia Cypress Co., Ltd., was incorporated under the laws of the State of Louisiana on or about January 26, 1901. Its principal business was that of holding the title to timber lands. During the years 1922 and 1923 it reported as its gross income the following items:

	1922	1923
Sales of timber	$8,115.13	$4,285.56
Rents	120.00	120.00
	8,235.13	4,405.56

The Bowie Oil & Gas Co. was incorporated under the laws of Louisiana on August 11, 1922. On or about the time of its organization it entered into a mineral lease and contract with petitioner whereby it obtained the exclusive right to drill, mine and operate on petitioner's lands for oil, gas, coal and other minerals.

On January 1, 1922, and August 11, 1922, the outstanding voting capital stock of petitioner and of the Iberia Cypress Co., Ltd., and on August 11, 1922, the outstanding voting capital stock of the Bowie Oil & Gas Co. was owned as follows:

	Petitioner		Iberia Cypress Co.		Bowie Oil & Gas
			(Ltd.)		Co.
Stockholder	Shares	Per cent	Shares	Per cent	Shares	Per cent
R. H. Downmann	1,287	25.7	624	25	30	.30
A. S. Downmann	2,475	49.5	1,250	50
V. Downmann	619	12.4	313	12.5
S. D. Downmann	619	12.4	313	12.5
Petitioner					8,517	85.17
J. W. McWilliams					201	2.01
J. W. Wiggenton					201	2.01
S. R. Ely					100	1.00
J. Blanc Monroe					126	1.26
M. M. Leman					125	1.25
Thomas Stock					500	5.00
A. C. Johns					200	2.00
Total	5,000	100.00	2,500	100.0	10,000	100.00

The stock ownership of the above corporations remained the same from August 11, 1922, throughout the year 1923, except that during the latter year 18 shares of stock (less than 1 per cent) in the Bowie Oil & Gas Co. were transferred to R. B. Thacker, a geologist.

The Downmanns were one family. A.S. was the wife of R. H. Downmann. V. and S. D. were their daughters. R. H. Downmann was the president of all three companies.

J. W. McWilliams was vice president of petitioner and secretary-treasurer of the Bowie Oil & Gas Co. J. F. Wiggenton was a director of petitioner and the Bowie Oil & Gas Co. and secretary-treasurer of the Iberia Cypress Co., Ltd. S.R. Ely was a director of petitioner. Thomas Stock was vice president of the Bowie Oil & Gas Co.

Petitioner filed a separate corporation income-tax return for the year 1922. The Iberia Cypress Co., Ltd., filed separate returns for the years 1922 and 1923. The Bowie Oil & Gas Co. filed a separate return for the period August 11, 1922, to December 31, 1922. Petitioner and the Bowie Oil & Gas Co. filed a consolidated return for the year 1923. No permission was obtained from the respondent to file the consolidated return.

The respondent determined that the three corporations abovementioned had elected, under section 240(a) of the Revenue Act of 1921, to file separate returns for 1922, and since no "permission to change the basis" had been obtained, and since only two of the corporations had filed a consolidated return for 1923, the third not joining therein, the income-tax liability of petitioner for the year 1923 must be determined upon the basis of a separate return for that year.

OPINION.

LOVE: The sole question before us is whether the respondent erred in refusing to determine the income-tax liability of petitioner upon the basis of a consolidated return of petitioner and the Bowie Oil & Gas Co.

Petitioner contends that it owned or controlled substantially all the stock of the Bowie Oil & Gas Co. from the time the latter was organized throughout the year 1923, and that in accordance with our decision in , its income-tax liability for the year 1923 should be determined upon the basis of the consolidated return filed by it and the Bowie Oil & Gas Co. for that year.

The respondent concedes in his brief that petitioner owned or controlled substantially all the stock of the Bowie Oil & Gas Co., and, with this concession, petitioner's contention would be granted were it not for the fact that petitioner was also affiliated with the Iberia Cypress Co., Ltd., during the years 1922 and 1923, as will later appear.

But petitioner further contends that the question as to whether it and the Iberia Cypress Co. were affiliated during the years 1922 and 1923, is not at issue in this proceeding, and that if at issue, we should decide, as a proposition of law, that it was not so affiliated. At the hearing, after both parties had stipulated that the stock ownership of the Bowie Lumber Co., Ltd., Bowie Oil & Gas Co., and Iberia Cypress Co., Ltd., was as we have found in our findings, counsel for petitioner moved that, due to the failure of respondent to amend his answer and affirmatively allege that petitioner was affiliated with the Iberia Cypress Co., Ltd., during the years 1922 and 1923, any evidence subsequently submitted relating to the Iberia Cypress Co., Ltd., should be stricken from the record. The respondent in a statement attached to his deficiency letter said:

Inasmuch as your corporation, the Bowie Oil & Gas Company and the Iberia Cypress Company for the taxable year 1922 elected to file separate returns, the provisions of Section 240(a) of the Revenue Act of 1921 precludes your consolidation for the taxable year 1923.

It is well settled that respondent's determination of a deficiency is prima facie correct and the burden of disproving it is upon the petitioner. ; . In view of respondent's statement in his deficiency letter, the rule of law enunciated in , and the fact that both parties, prior to the motion in question, had stipulated the stock ownership of all three companies, the petitioner's motion to strike from the record all evidence pertaining to the Iberia Cypress Co., Ltd., introduced subsequent to the stipulation, is denied. Was petitioner also affiliated with the Iberia Cypress Co., Ltd.? Section 240(c) of the Revenue Act of 1921 provides in part that:

For the purpose of this section two or more domestic corporations shall be deemed affiliated * * * if substantially all the stock of two or more corporations is owned or controlled by the same interests.

In the instant case all of the stock of both petitioner and the Iberia Cypress Co., Ltd., was owned by the same interests, namely, the Downmann family. The reason advanced by petitioner as to why it was not affiliated with the Iberia Cypress Co., Ltd., is that the latter company did practically no business during the years in question. But the statute does not make this fact one of the tests for affiliation. See . We hold that the two companies were affiliated within the meaning of the statute during the years 1922 and 1923.

Since petitioner and the Iberia Cypress Co., Ltd., were affiliated throughout the years 1922 and 1923, and all three companies were affiliated from August 11, 1922, and separate returns were filed by all of the companies for 1922, the case comes squarely within our decision in . It follows that respondent's determination should be approved.

Judgment will be entered for the respondent.