Browne, McQuaid, Probst, Inc. v. Commissioner

BROWNE, MCQUAID, PROBST, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Browne, McQuaid, Probst, Inc. v. Commissioner

Docket No. 43778.

United States Board of Tax Appeals

17 B.T.A. 1218; 1929 BTA LEXIS 2162;

November 5, 1929, Promulgated

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">*2162 The evidence failing to show that the petitioner owns at least 95 per cent of the stock of the Browne-McQuaid Co. with which affiliation is alleged, or that at least 95 per cent of the stock of both corporations is owned by the same interests. Held, such corporations are not affiliated and the determination of the Commissioner to that effect approved.

William R. Browne, Esq., for the petitioner.

Harry LeRoy Jones, Esq., for the respondent.

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LITTLETON

">*1218 The Commissioner determined a deficiency of $810.58 in income tax for the calendar year 1926. The deficiency results from the determination of the Commissioner that the petitioner and the Browne-McQuaid Co. were not entitled to have their tax liability computed on a consolidated basis for 1926.

The case is submitted on the pleadings, the answer admitting the facts alleged in the petition, but denying the errors therein assigned.

FINDINGS OF FACT.

The petitioner and the Browne-McQuaid Co. are New Jersey corporations. The former has its principal office in Closter, and the latter in Westwood, N.J.

The petitioner had 379 shares of common stock outstanding, each share of the">*2163 par value of $100.

It, in certain territory, represented Dodge Brothers and Dodge Brothers, Inc., of Detroit, Mich.

With the consent of Dodge Brothers, Inc., the Browne-McQuaid Co. was organized.

The stock of the Browne-McQuaid Co. was held in 1926 as follows:

Stockholders	Shares	Percentage
Browne, McQuaid, Probst, Inc	150	68.2
L. B. Naugle	35	15.9
. . Marshall	25	11.3
Bruce Best	10	4.5
Total	220	100.0

Marshall and Best were employees of petitioner and continued as such employees. Naugle had also been an employee of petitioner, but, when the Browne-McQuaid Co. was organized, was made manager thereof and paid thereby.

">*1219 The policies of both corporations, petitioner and Browne-McQuaid Co., were determined and controlled by the officers and employees of petitioner.

The Commissioner ruled that petitioner and the Browne-McQuaid Co. were not affiliated.

He disallowed the alleged loss incurred by Browne, McQuaid, Probst, Inc., and taken as a deduction upon the consolidated income-tax return which was filed.

The Commissioner disallowed as a deduction from net income of petitioner the alleged loss sustained by Browne-McQuaid">*2164 Co.

OPINION.

LITTLETON: The applicable law in this case is found in section 240(d) of the Revenue Act of 1926, and reads as follows:

For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the stock of the other or others, or (2) if at least 95 per centum of the stock of two or more corporations is owned by the same interests. As used in this subdivision the term "stock" does not include nonvoting stock which is limited and preferred as to dividends. This subdivision shall be applicable to the determination of affiliation for the taxable year 1926 and each taxable year thereafter.

The evidence does not disclose whether or not the Browne-McQuaid Co. issued any stock and if it did, whether the same was voting or nonvoting.

It does appear from the admissions in the answer that petitioner invested $15,000 and three of its former employees invested $7,000 in the Browne-McQuaid Co.

If such sums were invested in the stock of the Browne-McQuaid Co., as indicated in our findings of fact (which is the most favorable view of the evidence for petitioner), the petitioner could not">*2165 have owned more than 150 of a total of 220 shares, nor more than 68.2 per cent. There is no evidence adduced showing that the same interests own as much as 95 per cent of the stock of petitioner and Browne-McQuaid Co.

Before petitioner and the Browne-McQuaid Co. can be deemed affiliated the former must, under the statute own at least 95 per cent of the stock of the latter, or the same interests must own at least 95 per cent of the stock of both corporations. In this instance, the evidence fails to show either such fact to exist. The petition does not make necessary averments to entitle petitioner to the relief sought. The Commissioner is not shown to have committed any error.

Judgment will be entered for the respondent.