Wright Cake Co. v. Commissioner

APPEAL OF WRIGHT CAKE CO.

Wright Cake Co. v. Commissioner

Docket No. 1197.

United States Board of Tax Appeals

2 B.T.A. 58; 1925 BTA LEXIS 2566;

June 12, 1925, Decided Submitted May 6, 1925.

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On the evidence submitted, held, that the taxpayer was affiliated with the L. C. Wright Baking Co., Inc., during the calendar year 1918.

Irving Zion, Esq., for the taxpayer.

P. S. Crewe, Esq., for the Commissioner.

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LANSDON

Before STERNHAGEN, LANSDON, GREEN, and LOVE.

This appeal is from a determination of the Commissioner of a deficiency in income and profits taxes for the calendar year 1918 in the amount of $11,442.12, of which only the amount of $5,241.47 is in controversy. The only issue involved in whether the taxpayer was, as determined by the Commissioner, affiliated with the L. C. Wright Baking Co., Inc., during the year in question. From stipulations of counsel, and the allegations of the petition admitted by the Commissioner, the Board makes the following

FINDINGS OF FACT.

1. The taxpayer is a New York corporation with its principal office located at No. 44 Wallabout Market, Brooklyn, N.Y., where it is engaged in the baking business. During the calendar year 1918 its issued common capital stock consisted of 170 shares, which were held as follows: William M. Wright, 165 shares; Howard J. Wright, 1 share; Letitia C. Wright, 3 shares; Frederick W. Houston, 1 share.

2. On February 16, 1918, the L. C. Wright Baking Co., Inc., previously incorporated under the laws of New York, acquired the assets and business of the Steel Drake Baking Co., a bankrupt, from Letitia C. Wright, who had theretofore bought such business and assets from trustees under an order of sale made by the United States District Court for the Eastern District Of New York on January 10, 1918. For the assets and business so acquired the L. C. Wright Baking Co., Inc., paid to Letitia C. Wright 240 shares of its preferred stock and 160 shares of its common stock, each of the par value of $100. Thereafter, and for the remainder of the year in question, the issued shares of common stock of the L. C. Wright Baking Co., Inc., were transferred and held as follows: William M. Wright, 100 shares; Howard J. Wright, 30 shares; Letitia C. Wright, 30 shares.

3. During the calendar year ended December 31, 1918, the stockholdings and voting rights of the stockholders of the taxpayers and of L. C. Wright Baking Co., Inc., were as follows: William M. Wright owned 165 shares, or 97.06 per cent of the voting stock of the taxpayer, and 100 shares, or 62.5 per cent, of the voting stock of L. C. Wright Baking Co., Inc.; Howard J. Wright owned 1 share, or 0.59 per cent, of the voting stock of the taxpayer, and 30 shares, or 18.75 per cent, of the voting stock of L. C. Wright Baking Co., Inc.; Letitia C. Wright, 3 shares, or 1.76 per cent, of the voting stock of the taxpayer, and 30 shares, or 18.75 per cent, of the voting stock of L. C. Wright Baking Co., Inc.; Frederick W. Houston owned 1 share, or 0.59 per cent, of the voting stock of the taxpayer. All the issued preferred stock of L. C. Wright Baking Co., Inc., with no voting privileges, was owned by Letitia C. Wright.

4. William M. Wright and Letitia C. Wright are husband and wife and Howard J. Wright is their son, but maintains his own household.

5. The taxpayer and L. C. Wright Baking Co., Inc., each filed a Federal income and profits-tax return for the year 1918. Upon audit of such returns the Commissioner held that the two companies were affiliated and should make a consolidated return for the years in question, and so notified the taxpayer by a letter registered and mailed on November 8, 1924. From that part of the asserted deficiency resulting from computation of tax liability on the basis of a consolidated return the taxpayer appeals.

DECISION.

The determination of the Commissioner is approved.

OPINION.

LANSDON: In the light of the evidence the Board is of the opinion that the taxpayer and L. C. Wright Baking Co., Inc., constituted a business unit during the year 1918. Substantially all the stock of the two corporations was owned by the same interests. The determination of the Commissioner requiring the two corporations involved to make a consolidated income and profits-tax return for the calendar year 1918 under the provisions of section 240(b) of the Revenue Act of 1918, retroactive to January 1 of that year, is approved.