Woodruff Holding Corp. v. Commissioner

WOODRUFF HOLDING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Woodruff Holding Corp. v. Commissioner

Docket No. 10930.

United States Board of Tax Appeals

9 B.T.A. 1109; 1928 BTA LEXIS 4294;

January 9, 1928, Promulgated

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">*4294 The petitioner and the Woodruff Hotel Co. were not affiliated during the taxable year.

Richard E. Dwight, Esq., for the petitioner.

A. H. Fast, Esq., for the respondent.

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LANSDON

">*1109 The respondent has asserted a deficiency in income and profits taxes for the year 1921, in the amount of $259.30. The only question to be determined is whether the petitioner and the Woodruff Hotel Co. were affiliated and entitled to make a consolidated return for the taxable year involved.

FINDINGS OF FACT.

The petitioner is a New York corporation with its principal office in Watertown, N.Y. Its only business is owning and renting a hotel building to the Woodruff Hotel Co. During the taxable year there were outstanding 1,182 shares of common stock, and 2,182 shares of preferred stock.

The Woodruff Hotel Co. is a New York corporation, with its principal office in Watertown, where it is engaged in the operation ">*1110 and management of a hotel. During the taxable year there were outstanding 100 shares of common stock only.

During the taxable year, the stock of the two corporations was held as follows:

	Woodruff Holding Corporation				Woodruff Hotel Co.
Stockholder	Common stock		Preferred stock		Common stock
	Shares	Per cent	Shares	Per cent	Shares	Per cent
J. B. Taylor and wife	610	51.61	411	18.83	100	100
Local investors	572	48.39	1,771	81.17
Total	1,182	100.00	2,182	100.00	100	100

">*4295 The preferred stock of the Holding Corporation carried no voting privilege unless dividends should be passed for two consecutive years. All dividends have been paid. The corporate charter provided against cumulative voting.

J. B. Taylor organized both corporations, the Hotel Company for the purpose of operating and managing the hotel, and the Holding Corporation for the purpose of owning and renting the hotel property. The plan was adopted to procure a management for the hotel which would leave the hotel property free from liability for personal damage suits. Shares of preferred and common stock in the Holding Corporation were sold to local investors in Watertown to secure money for extensive improvements in the hotel property.

The petitioner and the Woodruff Hotel Co. made a consolidated income and profits-tax return for the year involved. The consolidation was disallowed by the respondent.

OPINION.

LANSDON: Section 240(b) of the Revenue Act of 1918 provides in part that two or more domestic corporations shall be deemed to be affiliated if substantially all the stock is owned or controlled by the same interests. Petitioner contends that ownership by J. B. Taylor">*4296 and wife of all the stock of the Woodruff Hotel Co. and 51.61 per cent of the common stock of petitioner meets the requirement of "substantially all" laid down by the Revenue Act, and that the two corporations constitute a single business unit.

In , the Board held:

The control, however, referred to in the statute, whether it be legal or otherwise, means control of the voting rights of stock.

The evidence does not indicate that J. B. Taylor controlled the voting rights of any of the stock held by the minority interests, ">*1111 representing 48.39 per cent of the total voting stock. The fact that the minority stockholders left the management of the business to him does not establish control of the stock within the meaning of the statute. . There is no doubt that these two corporations were closely related in a business under the management of J. B. Taylor, but the percentage of stock owned by J. B. Taylor in the petitioner is not sufficient to meet the requirement of "substantially all" laid down by the Revenue Act. ">*4297 ; ; ; ; ; ; .

Judgment will be entered for the respondent.

Considered by STERNHAGEN, GREEN, and ARUNDELL.