DocketNumber： Docket No. 42080.
Citation Numbers： 22 B.T.A. 1326, 1931 BTA LEXIS 1962
Judges： Arundell
Filed Date： 4/28/1931
Status： Precedential
Modified Date： 11/20/2020
*1962 A net loss sustained in 1923 by one member of an affiliated group may not be deducted in computing net income of the other member in 1925, for which year it filed a separate return.
*1327 Proceeding for the redetermination of a deficiency of $746.47 in income tax for 1925. The question for decision is whether the return filed by petitioner in 1925 was in fact the consolidated return of petitioner and the Leopold Steiner Manufacturing Company so as to permit the deduction of a net loss of the latter in 1923 in computing the former's net income in 1925.
FINDINGS OF FACT.
The petitioner, a New York corporation organized in 1914, was engaged in the business of manufacturing surgical instruments during the taxable year. The Leopold Steiner Manufacturing Company was organized in 1920 under the laws of the State of New York to engage in the same line of business.
Prior to 1923 petitioner continuously purchased the products of the Steiner Company. Petitioner made various loans to it at times not shown by the stipulation*1963 of facts.
On or about April 21, 1923, all of the outstanding capital stock of the Steiner Company, consisting of 140 shares of common stock, each of the par value of $100, was acquired by petitioner for $3,125. All of such stock was issued to nominees of petitioner, as follows: John Sklar, 84 shares; E. J. Sovatkin, 28 shares; Max H. Sklar, 17 1/2 shares; Albert S. Sklar, 10 1/2 shares.
The officers of both corporations in 1923 were: John Sklar, president and treasurer; E. J. Sovatkin, secretary; Max H. Sklar, vice president.
The two corporations were thereafter operated as one, the Steiner Company being operated as a department of petitioner. On January 2, 1924, the records of the Steiner Company were merged with those of petitioner. The Steiner Company transacted no business in 1924 and 1925. In those years all of the merchandise previously handled by it was sold by and charged on the books of petitioner. The Steiner Company was not dissolved until June, 1928.
For the year 1923 petitioner and the Steiner Company filed a consolidated return disclosing an operating loss of $19,282.89. In his audit of the return, respondent determined that the Steiner Company had sustained*1964 a net loss of $12,053.07, and that petitioner had net income of $1,719.87. The petitioner filed a separate return for 1924 showing a net loss of $4,269.13, which amount respondent increased to $8,612.19. The separate return filed by petitioner for 1925 showed no net income. In his audit of the return respondent determined its net income to be $7,742.08, after allowing as a deduction the net loss of $8,612.19 sustained in 1924.
*1328 OPINION.
ARUNDELL: Under the provisions of section 206(e) of the Revenue Act of 1926, a taxpayer may take as a deduction in computing net income for the two succeeding taxable years a net loss sustained in 1923. The benefits of the statute, however, are available only to the taxpayer who sustained the loss. ; .
The basis for the claim being made by petitioner that it is entitled to deduct the 1923 net loss of the Steiner Company in computing its net income for 1925 is that the return filed by it for the taxable year is a consolidated return of the affiliated group, and includes the income of the Steiner Company. The contention*1965 has no foundation in the stipulated facts.
The stipulation merely shows that on January 2, 1924, the records of the Steiner Company were merged with those of petitioner and that in 1924 and 1925 the Steiner Company transacted no business. In the return petitioner filed for 1925 it stated that the return was not a consolidated return, and nothing of record discloses whether or not the Steiner Company had any income in 1925, and, if so, whether it was included in the return filed by petitioner. The fact that in 1924 and 1925 the products previously handled directly by the Steiner Company were sold by and entered on the books of petitioner, does not, in and of itself, prove that any income which may have been earned by the Steiner Company under such or other transactions was included in the return filed by petitioner. On the facts as presented to us we must conclude that the return filed by the petitioner for 1925 is not a consolidated return of income of both corporations. The respondent's refusal to deduct the net loss of the Steiner Company for 1923, in computing petitioner's net income for 1925, is sustained.