Appeal of Block Street Wharf & Warehouse Co.

OPINION.

Ivins:

Counsel for the taxpayer base their entire claim upon the proposition that the Corporate Financing Co. through its ownership and the ownership and control of J. Monroe Holland, its president, controlled all the stock of the taxpayer, their theory being that the president of the Corporate Financing Co. was necessarily a closely affiliated interest within the meaning of the language of section 240 (b) of the Revenue Act of 1918. Their contentions are that here is a so-called “ Class A” affiliation, the parent company controlling substantially all the stock of the subsidiary. But whether or not J. Monroe Holland is a “ closely affiliated interest ” with the Corporate Financing Co., there is no evidence that the Corporate Financing Co. controlled him, or his stock, or the stock owned by the partnership in which he was an equal partner with his brother. If anything, the evidence tends to show that Holland controlled the stock owned by the Corporate Financing Co. He always voted it; the evidence shows that he was allowed to run the taxpayer without interference on the part of the Corporate Financing Co. or on the part of his brother. A tail does not necessarily control a dog because closely affiliated with it. If the taxpayer’s theory were correct, the fact that Holland was president of the Corporate Financing Co. would put the Corporate Financing Co. in control of the taxpayer, even if the Corporate Financing Co. held only 3 per cent of the stock of the taxpayer and Holland held the other 97. It is easy to conceive many absurdities which would result from a holding in consonance with the taxpayer’s reasoning.

Can the two corporations be deemed to constitute a “ Class B ” affiliation — one where substantially all the stock of both corporations was controlled by the same interests ? Taking the tabulation of stock ownership given in the findings and redistributing it so as to attribute to every individual his equitable as well as Ms direct' ownership in each corporaton, we have the following table of holdings:

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The holdings are so out of balance that we are unable to rule that the stock of the two companies is controlled by the same interests. If there were intercorporate transactions with arbitrary assignment of profits or of capital between the two companies, there might be a basis for holding that, although the stock ownership varied, the management of the business indicated that the interests of all the stockholders were uniform. But here we have two corporations which have no business relations with each other, which in no sense constitute an economic unit and which can only be affiliated upon the theory that their stockholders are substantially identical. We think that there is too great a divergence in the stockholdings to permit of such a conclusion.