Court Opinion

ID: 4616375
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:34:20.915236+00
Date Added: 2024-06-11T07:55:06.174887
License: Public Domain

NEWBLOCK OIL COMPANY OF TEXAS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Newblock Oil Co. v. CommissionerDocket No. 28045.United States Board of Tax Appeals26 B.T.A. 696; 1932 BTA LEXIS 1267; July 25, 1932, Promulgated 1932 BTA LEXIS 1267">*1267  The petitioner, incorporated under the laws of the State of Texas on April 19, 1922, became affiliated on that date with the Newblock Oil Company, a Delaware corporation, which was organized in 1920 and on April 19, 1922, acquired the entire stock of the petitioner in consideration of the transfer to it of certain Texas property which was thereafter owned and operated by the petitioner to December 31, 1922, and from which it realized a net income during said period.  The Delaware corporation operated at a net loss in 1921 and also during 1922 prior to the date of affiliation, and also from said date to December 31, 1922.  It filed a consolidated return for the calendar year 1922, including in its own operations for such year the operations of petitioner from date of its incorporation to December 31, 1922.  Held, that a single consolidated return for the calendar year 1922 was all that was required.  Held, further, since a consolidated return for the calendar year 1922 was all that is required and the net losses of the Delaware corporation in that year exceed in the aggregate the net income for said year of the petitioner (the Texas corporation), there is no consolidated net1932 BTA LEXIS 1267">*1268  income and hence no deficiency in tax.  Erwin Bruce Hallett, Esq., for the petitioner.  John D. Kiley, Esq., for the respondent.  SEAWELL26 B.T.A. 696">*696  The Commissioner determined a deficiency in income tax for the period April 19, 1922, to December 31, 1922, of $2,160.24.  The issues 26 B.T.A. 696">*697  are (1) whether the petitioner and the Newblock Oil Company of Delaware may be permitted to file a single consolidated return for the calendar year 1922 and (2) whether the net loss sustained by the said Delaware corporation between the period January 1 to April 18, 1922, prior to affiliation with petitioner, may be absorbed in the computation of the affiliated net income of the two corporations for the calendar year 1922.  FINDINGS OF FACT.  The facts are stipulated and are as follows: 1.  Newblock Oil Company (Delaware corporation) was organized prior to the year 1922 under the laws of the State of Delaware, namely, on January 6, 1920, for the general purpose of carrying on an extensive oil business in Oklahoma and Texas.  2.  Newblock Oil Company of Texas was incorporated under the laws of the State of Texas on April 19, 1922, for the purpose of taking1932 BTA LEXIS 1267">*1269  over and operating certain Texas properties, then owned and operated by Newblock Oil Company (Delaware corporation).  3.  Newblock Oil Company of Texas acquired as of April 19, 1922, from Newblock Oil Company (Delaware corporation) certain Texas properties owned and operated by Newblock Oil Company (Delaware corporation), prior to April 19, 1922, in consideration of the issuance by Newblock Oil Company of Texas to Newblock Oil Company (Delaware corporation) of its entire authorized capital stock of the total par value of $10,000.  4.  Newblock Oil Company (Delaware corporation) was the sole stockholder of the entire issued and outstanding capital stock of Newblock Oil Company of Texas from April 19, 1922 to December 31, 1922.  5.  Newblock Oil Company of Texas owned and operated from April 19, 1922 to December 31, 1922, the Texas portion of the properties owned and operated by Newblock Oil Company (Delaware corporation) during the calendar year 1921, and from January 1, 1922 to April 18, 1922.  6.  During the period January 1, 1922 to April 18, 1922, Newblock Oil Company (Delaware corporation) sustained a statutory net loss in the amount of $39,160.60.  During the period April 19, 1922 to1932 BTA LEXIS 1267">*1270  December 31, 1922, the said Newblock Oil Company (Delaware corporation) sustained a net loss in the amount of $91,374.74 and Newblock Oil Company of Texas realized a net income in the amount of $110,656.67, or a consolidated net income for the period in the amount of $19,281.93.  If material, it is further agreed and stipulated that the amount of the statutory net loss of Newblock Oil Company (Delaware corporation) for the calendar year 1921, may be redetermined under Rule 50 of the Board's Rules of Practice.  7.  Newblock Oil Company (Delaware corporation) made and filed a consolidated corporation income tax return for the entire calendar year 1922, in which was included its own operations for the full calendar year 1922, together with the operations of Newblock Oil Company of Texas, from April 19, 1922 to December 31, 1922.  8.  The Commissioner of Internal Revenue held that Newblock Oil Company of Texas was deemed to have become affiliated with Newblock Oil Company (Delaware corporation) on April 19, 1922, and determined that a separate computation of the taxes should be made for the period January 1, 1922 to April 26 B.T.A. 696">*698  18, 1922 of Newblock Oil Company (Delaware corporation), 1932 BTA LEXIS 1267">*1271  and that a separate computation should be made of the taxes of Newblock Oil Company (Delaware corporation) and Newblock Oil Company of Texas, on a consolidated basis for the period April 19, 1922 to December 31, 1922.  9.  In his final redetermination in the case, the Commissioner has refused to allow as a deduction in his computation of consolidated net income for the period April 19, 1922 to December 31, 1922, any net loss that might have been sustained by the said Newblock Oil Company (Delaware corporation) for the calendar year 1921, or the statutory net loss in the amount of $39,160.60, sustained by the said Newblock Oil Company (Delaware corporation) for the period January 1, 1922 to April 18, 1922.  10.  The consolidated net income for the period April 19, 1922 to December 31, 1922, it was held by the Commissioner of Internal Revenue, was earned by Newblock Oil Company of Texas and on that account he allocated against that company the deficiency in tax of $2160.24, under the provisions of Section 240(b) of the Revenue Act of 1921.  11.  Newblock Oil Company of Texas did not own or operate at any time between April 19, 1922 and December 31, 1922, any properties of any kind, 1932 BTA LEXIS 1267">*1272  except the properties transferred to it by Newblock Oil Company (Delaware corporation), which said properties were owned and operated by Newblock Oil Company (Delaware corporation) during the entire calendar year 1921 and up to April 18, 1922.  OPINION.  SEAWELL: The following sections of the Revenue Act of 1921 are applicable in the determination of the issues herein: SEC. 204. (b) If for any taxable year beginning after December 31, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from the net income of the taxpayer for the succeeding taxable year; and if such net loss is in excess of the net income for such succeeding taxable year, the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year; the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.  SEC. 240. (a) That corporations which are affiliated within the meaning of this section may, for any taxable year beginning on or after January 1, 1922, make separate returns or, under regulations1932 BTA LEXIS 1267">*1273  prescribed by the Commissioner with the approval of the Secretary, make a consolidated return of net income for the purpose of this title, in which case the taxes thereunder shall be computed and determined upon the basis of such return.  If return is made on either of such bases, all returns thereafter made shall be upon the same basis unless permission to change the basis is granted by the Commissioner.  The first issue is whether a single consolidated return for the entire calendar year 1922, including the operations of the Delaware corporation for the full year and those of the petitioner (the Texas corporation) from April 19 to December 31, 1922, was proper, or whether a separate return was required of the Delaware corporation for the period in that year prior to affiliation and a consolidated return 26 B.T.A. 696">*699  of the two corporations for the period of affiliation in that year.  We see no necessity for an extended discussion of the question as, in our opinion, the issue here presented has been heretofore considered and decided by this Board and by the courts, and such decisions are controlling herein.  It has been held that where a corporation had no existence or separate activity1932 BTA LEXIS 1267">*1274  prior to becoming affiliated with another corporation - as in the instant case with the petitioner - the necessity for filing separate returns disappears, a single consolidated return for the calendar year in which the corporations become affiliated being sufficient.  ; ; ; . In view of the decisions cited, we are of the opinion that in the instant case a consolidated return by the aforesaid Delaware corporation for the calendar year 1922 covering its own operations for the entire year and the operations of the petitioner (Texas corporation) for the period April 19 to December 31, 1922, the period of affiliation, was proper and all that was necessary to comply with the law and the respondent was in error in determining otherwise.  Since we have held that only one return is required for 1922 and that the operations of both corporations for 1922 would be included in such return (that is, those of the Delaware corporation for the entire calendar year1932 BTA LEXIS 1267">*1275  1922 and those of the Texas corporation from April 19, 1922, to December 31, 1922), there remains no longer the question of the application of a net lows in one period or year in determining net income in a succeeding period or year, but, in view of the fact that the losses of the Delaware corporation exceed the net income of the Texas corporation, it becomes merely a question of combining the two amounts to determine whether there is a consolidated net income.  While the losses stipulated are in terms of "net losses," apparently the losses in the ordinary sense would not be different from the net losses, or at least would exceed the net income of the Texas corporation.  It accordingly necessarily follows that since the net income of the Texas corporation for the period April 19, 1922, to December 31, 1922, is less than the losses of the Delaware corporation for the entire calendar year 1922 there is no consolidated net income for 1922 and therefore no deficiency due from the petitioner.  Judgment of no deficiency will be entered.