Court Opinion

ID: 4622256
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:48:59.890183+00
Date Added: 2024-06-11T07:56:09.216571
License: Public Domain

ICE SERVICE CO., INC., AND NATIONAL ICE & COAL CO., PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Ice Service Co. v. CommissionerDocket No. 8930.United States Board of Tax Appeals9 B.T.A. 386; 1927 BTA LEXIS 2604; November 28, 1927, Promulgated *2604  The petitioning corporations were not affiliated during the year 1921, within the meaning of section 240(c) of the Revenue Act of 1921.  Harry Schwartz, Esq., and Theodore R. Benson, Esq., for the petitioners.  J. Harry Byrne, Esq., for the respondent.  MURDOCK *386  This is a proceeding for the redetermination of a deficiency in income and excess-profits taxes for the calendar year 1921, in the total amount of $17,711.94, the Commissioner having determined a deficiency of the Ice Service Co., Inc., in the sum of $9,699.47 and a deficiency of the National Ice & Coal Co. in the sum of $8,012.47.  The error alleged is the failure to allow the petitioners to file a consolidated return as affiliated companies.  All the facts in the case were stipulated.  *387  FINDINGS OF FACT.  The Ice Service Co., Inc., is a Delaware corporation with principal offices at 152 West 42nd Street, New York City, and the National Ice & Coal Co. in a New York corporation having its principal offices at the same address.  On January 10, 1921, the Ice Service Co., Inc., purchased 25,500 shares of the common voting stock of the National Ice & Coal Co.  At the*2605  time of this purchase the total number of outstanding shares of common stock of the latter company was 37,500.  During the remainder of the year 2,764 additional shares of this stock were acquired by the Ice Service Co., Inc., so that on December 31, 1921, it held 28,264 shares.  The remaining 9,236 shares of stock of the National Ice & Coal Co. were held by about 200 different stockholders.  On January 10, 1921, a meeting of the board of directors of the National Ice & Coal Co. was held, at which the resignations of all the officers of the company and all but three of the directors were tendered and accepted and new officers and directors were elected in their places.  At this meeting William H. Dohrman, one of the vice presidents of the Ice Service Co., Inc., was elected president of the National Ice & Coal Co., and James Pringle, vice president of the Ice Service Co., Inc., was elected vice president of the National Ice & Coal Co.; also the general counsel of the Ice Service Co., Inc., was made general counsel of the National Ice & Coal Co.  At the meeting of the board of directors of the Ice Service Co., Inc., held January 25, 1921, a resolution was passed to the effect that*2606  all purchases made by the National Ice & Coal Co., should be made through a purchasing agent named in the resolution, said resolution reading as follows: RESOLVED, That all purchases of every kind should be made on behalf of this company and all of its subsidiary companies by Vice-President Wells, who is hereby appointed purchasing agent of the company.  On February 14, 1921, pursuant to a resolution of the board of directors of the Ice Service Co., Inc., it purchased from the York Manufacturing Co. and the Shipley Construction & Supply Co. certain promissory notes given by the National Ice & Coal Co., and also all rights which these two companies had under certain contracts with the National Ice & Coal Co.  The total amount paid to the York Manufacturing Co. for the notes and contract held by it was $145,017.46, $8,017.46 being paid in cash and $137,000 in stock of the Ice Service Co., Inc., and the amount paid to the Shipley Construction & Supply Co. consisted of certain cash and $36,700 in stock of the Ice Service Co., Inc.  Subsequently, during the months of February and March, 1921, pursuant to resolutions of its board of directors, the Ice *388  Service Co. endorsed*2607  three notes of the National Ice & Coal Co. in the respective sums of $40,000, $20,000, and $5,625.  These notes were secured by certain bonds and stocks owned by the maker and deposited with the payee.  OPINION.  MURDOCK: The petitioners allege that the Commissioner erred in refusing to permit them to make a consolidated return as affiliated corporations within the meaning of section 240(c) of the Revenue Act of 1921.  The section in question prescribes the requirements for affiliation as follows: SEC. 240. (c) For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all of the stock of the other or others, or (2) if substantially all of the stock of two or more corporations is owned or controlled by the same interests.  In interpreting the statute and its kindred provision of the Revenue Act of 1918, it has been held that there must be full and complete control of substantially all the stock and that this control must be a genuine one actually exercised. *2608 ; ; . Control of the business of a corporation is not control of its stock, within the meaning of the statute, and where there is control of a corporation's business, but there are quiescent stockholders present, representing a sizeable minority, such business control does not amount to the control of substantially all of the stock. . After January 10, 1921, the Ice Service Co., Inc., owned approximately 68 per cent of the stock of the National Ice & Coal Co. but we have frequently held that this fact, standing alone, is not sufficient to constitute statutory ownership or control of substantially all the stock.  ; ; . By the end of the year the Ice Service Co., Inc., had increased its ownership*2609  in the other company to 75.3 per cent, but we do not know the dates when the additional shares were acquired. The petitioners assert, nevertheless, that the minority stock was controlled by the Ice Service Co. Inc., due to the fact that by purchase *389  of claims against the National Ice & Coal Co. and by endorsement of its notes a total indebtedness from the latter company to the former was created in the sum of $247,342.46, and that as a creditor in such a large amount and because the minority stock was owned by scattered stockholders, the Ice Service Co. Inc., could control the payment of dividends to the minority stockholders and render the voting rights of their stock of no effect.  We do not think that the above facts warrant the conclusions which the petitioners attempt to draw therefrom.  The Ice Service Co. by its purchase of claims and endorsement of notes was a creditor of the National Ice & Coal Co. in a large amount, but it does not follow that for this reason it could control the payment of dividends upon the corporation stock to a greater extent than any other creditor possessing a similar claim but not a stockholder.  And even assuming that the position*2610  of a creditor permits one to press his claim and thus possibly to defeat the right of a stockholder to receive dividends, this does not constitute control of a minority stockholders' stock.  He still has the right to vote his stock and thus oppose the wishes of the majority if he so desires.  True, the votes of the minority will not determine the policies of the corporation when the majority of the voting shares is held by one individual or corporation, but such control of the policies and financial affairs of the corporation as an entity does not amount to control of the individual stockholder or his stock.  There must be a control of the voting rights.  ; . The petitioners also rely upon the facts that two of the officers of the Ice Service Co. were elected president and vice president, respectively, of the National Ice & Coal Co. soon after the stock purchase; that each company had the same general counsel; and that a purchasing agent was appointed by the Ice Service Co. board to act for that corporation and its subsidiaries.  It does not appear*2611  whether the purchasing agent did, in fact, act for the National Ice & Coal Co., or whether the resolution intended that he should do so, but even supposing that he did purchase for both companies, still the fact that certain officers of the one company were officers of the other, standing by itself, does not show control of minority stock either by the Ice Service Co., or by the same interests.  Judgment will be entered for the respondent.Considered by MORRIS and SIEFKIN.