Adolph Hirsch & Co. v. Commissioner

OPINION.

GReen:

The question here is whether the petitioner should be affiliated with the Brazilian Bubber Plantation & Development Co. Affiliation, if it exists, must be based on ownership or control of substantially all the stock by the same interests.

Section 240 (b) of the Bevenue Act of 1918 is as follows:

For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all of the stock of the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests.

Adolph Hirsch and I. Henry Hirsch, brothers, owned 94.85 per cent of the stock of the Hirsch Company and they also owned 55.63 per cent of the stock in the Brazilian Company. The Brazilian Company was formed in 1906 to develop a large tract of land which Adolph Hirsch had acquired in Brazil, and the sole activity of the corporation was in this development. After its organization all advances were made directly by the Hirsch Company. No funds were supplied by the Brazilian Company for any of the operations or for any purpose whatsoever. It maintained no separate office and all of its affairs were conducted by Adolph Hirsch and I. Henry Hirsch as a department of- the Hirsch Company. The minority interests were in the hands of friends and associates of Adolph and I. Henry Hirsch, who had been induced to go into the venture on account of its speculative nature. The largest group of minority stockholders was composed of Bloomberg and his imme-díate family. Bloomberg bad been a close friend and business associate of Adolph Hirsch and I. Henry Hirsch for some thirty-five years. • He represented Adolph Hirsch & Cu. as attorney while it was a partnership and continued to act in this capacity for the successor corporation. He was also the attorney who organized the Brazilian Company and from the time of its organization served as a director and attorney. He testified that he was entirely satisfied to trust the management of the Brazilian Company to the judgment of Adolph and I. Henry Hirsch.

The intercompany transactions show that there was the closest relationship existing between the two organizations, the Brazilian Company being operated as a department of the Hirsch Company. It is a clear case of commercial and economic unity.

In Midland Refining Co., 2 B. T. A. 292, it was stated:

A careful examination of the stockholdings and the relationships existing between the various holders shows that substantially all of the slock is owned or controlled by the same individuals. It seems to follow, naturally, if a group of individuals owns or controls substantially all of the stock of both corporations, and if such ownership or control is by all exercised for one purpose, namely, the joint success of the corporations, that these individuals meet the requirements of the words “ the same interests.”

The stockholdings and conduct of the two corporations involved in this proceeding meet the above requirements.

We believe that the two corporations were affiliated.

Judgment for the petitioner upon the issue raised on 15 days' notice, under Rule 50.

Considered by AkuNdell and Sternhagen.