Court Opinion

ID: 4634368
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:15:51.784019+00
Date Added: 2024-06-11T07:58:12.454317
License: Public Domain

SAMUEL BELL AND SONS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  MOORE BREAD COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  COMMERCIAL GARAGE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Samuel Bell & Sons v. CommissionerDocket Nos. 38056, 41645, 41646, 41647, 45616.United States Board of Tax Appeals22 B.T.A. 793; 1931 BTA LEXIS 2063; March 18, 1931, Promulgated *2063 Held that the companies here involved were affiliated during the taxable years in question.  W. B. Lex, Esq., Ellis N. Slack, Esq., C. J. Hepburn, Esq., Charles C. Norris, Jr., Esq., and Byron G. Carson, Esq., for the petitioners.  Eugene Meacham, Esq., and C. E. Lowery, Esq., for the respondent.  VAN FOSSAN *793  These proceedings were brought to redetermine the deficiencies in income tax for the years and in the amounts as follows: PetitionerDocket No.YearDeficiencySamuel Bell and Sons380561924$10,749.07Samuel Bell and Sons4164719261,702.64Samuel Bell and Sons456161927353.34Moore Bread Company4164519261,413.29Commercial Garage Company416461926153.62The petitioners assert as their sole allegation of error the failure of the respondent to determine that Samuel Bell and Sons, the Quaker City Flour Mills Company, the Buffalo Flour Milling Company, the Moore Bread Company, the Acheson Bread Company and the Commercial Garage Company were affiliated corporations during the years 1924, 1926, and 1927 within the provisions of section 240(c) of the Revenue Acts of 1924 and*2064  1926.  The above proceedings were consolidated for hearing and decision.  *794  FINDINGS OF FACT.  For many years prior to 1914 the partnership, under the firm name of Samuel Bell and Sons, had been engaged in the wholesale flour and feed business.  In 1914 that partnership consisted of Samuel Bell, Jr., his son, C. Herbert Bell, and his nephew, James F. Bell, who owned 50 per cent, 25 per cent, and 25 per cent interests, respectively.  The partnership owned the entire capital stock of the Moore Bread Company, the Quaker City Flour Mills, and the Commercial Garage Company.  In 1914 the petitioner, Samuel Bell and Sons, was incorporated under the laws of Pennsylvania and succeeded to the business of the partnership.  The Buffalo Flour Milling Company, the Acheson Bread Company, and the Woodbury Realty Company were also corporations belonging to the group claiming affiliation.  All corporations maintained their offices in Philadelphia except the Acheson Bread Company, which was located in Wilkes-Barre, Pa.  The Moore Bread Company and the Acheson Bread Company operated bakeries, the Quaker City Flour Mills Company was a manufacturer of flour and feed, the Buffalo Flour Milling*2065  Company was exclusively the sales agent of the Quaker City Flour Mills Company, and the Commercial Garage Company was engaged in the business of storing and repairing automobiles and trucks belonging to all members of the group, but to no others.  Samuel Bell and Sons sold to the Quaker City Flour Mills Company practically all flour sold by the latter Company to the general public but not manufactured by it.  Samuel Bell and Sons sold to the Moore Bread Company and Acheson Bread Company all flour used by those companies in baking.  Samuel Bell and Sons and the Commercial Garage Company occupied the same offices at 4th and Market Street, Philadelphia, and the office address of the Quaker City Flour Mills Company and the Buffalo Flour Milling Company was 3040 Market Street in that city.  So far as the record discloses, the officers of the several corporations during the years under consideration were as follows: SAMUEL BELL AND SONS President, Samuel Bell, Jr. Vice president, C. Herbert Bell Secretary, F. G. Morgan Treasurer, F. G. Morgan QUAKER CITY FLOUR MILLS COMPANY President, Samuel Bell, Jr. Vice president, C. Herbert Bell Secretary, L. G. West Treasurer, *2066  F. G. Morgan ACHESON BREAD COMPANY President, F. G. Morgan Secretary, F. H. McCafferty Treasurer, F. H. McCafferty MOORE BREAD COMPANY President, F. H. McCafferty Secretary, C. Burgner Treasurer, F. G. Morgan COMMERCIAL GARAGE COMPANY President, C. Herbert Bell Vice president, W. H. Jones Secretary-treasurer, R. G. Ryan WOODBURY REALTY COMPANY President, C. H. Bell Secretary and treasurer, F. K. Miller Secretary and treasurer, W. H. Jones *795  The following employees of Samuel Bell and Sons also served two or more companies of the group but received their entire compensation from Samuel Bell and Sons: R. Bates, purchasing agent of all companies.  W. H. Jones, sales manager of Bell, supervising executive Moore Bread and Acheson Bread.  William Walsh, sales manager Bell and Quaker City.  L. Nathan, traffic manager of all companies.  Raymond G. Ryan, auditor of all companies.  W. O. Fehling, feed sales manager, Bell and Quaker City.  Samuel Bell and Sons was the parent company.  It financed all the subsidiaries.  Ledger accounts of Samuel Bell and Sons reflected many thousands of dollars supplied and advanced by it directly to the*2067  subsidiaries.  Loans were made in the name of the subsidiaries and were endorsed by Samuel Bell and Sons.  F. G. Morgan, treasurer of Samuel Bell and Sons, supervised all financial matters of the subsidiaries.  All monies handled by them passed through the books of Samuel Bell and Sons.  All drafts were honored at the Samuel Bell and Sons' office and all loans were made from that office.  Samuel Bell, Jr., selected the various bank depositories of the subsidiary companies.  He also determined all their policies and no unusual or material contracts and engagements on their behalf were made without his knowledge and consent.  All correspondence of the subsidiaries was carried on from the office and by the employees of Samuel Bell and Sons.  Each subsidiary maintained its own set of books, but Ryan, as auditor for all the companies, took off their statements or verified their monthly statements, which he submitted to Samuel Bell, Jr.  *796  The following is a summary of the stockholders of the six companies from December 31, 1923, to December 31, 1927, inclusive: SAMUEL BELL AND SONS(Capital stock $400,000; 4,000 shares par value $100.)Dec. 31, 1923, to Dec. 31, 1926Dec. 31, 1927Samuel Bell, Jr., president1,6001,605C. H. Bell, vice pres840842 1/2James F. Bell840842 1/23,2803,290F. G. Morgan, treasurer100100R. Bates, buyer5050W. H. Jones, sales mgr100100William Walsh, sales mgr5050A. H. Taylor, shipper3030L. Nathan, traffic mgr1010R. G. Ryan, auditor3030H. N. Smith, salesman5050W. S. Henderson, salesman3030W. O. Fehling, dept. mgr7070H. F. Becker, salesman4040Geo. W. Peters, salesman3030A. J. Krimm, salesman2020J. R. Keane, salesman1010H. L. Gandy, salesman2020F. O. Peters, salesman2020N. Smigelsky, salesman2020H. W. Lear, salesman2020W. W. Hostetter, salesman10H. W. Githens, bookkeeper10720107107204,0007104,000*2068 QUAKER CITY FLOUR MILLS CO.(Capital stock $300,000; 3,000 shares par value $100.)Dec. 31, 1923, to Dec. 31, 1926Dec. 31, 1927Samuel Bell, Jr., president1,2681,268Samuel Bell, Jr. (trustee)194194C. H. Bell, vice pres709709James F. Bell6596592,8302,830L. G. West, sec'y and mgr100100O. J. Seibert, miller2020J. Weidemann, clerk50501701703,0003,000MOORE BREAD CO.(Capital stock $250,000; 2,500 shares par value $100.)Dec. 31, 1923, to Dec. 31, 1926Dec. 31, 1927Samuel Bell, Jr.1,1251,125Samuel Bell, Jr. (trustee)225225C. H. Bell562562James F. Bell5635632,4752,475R. G. Ryan, auditor252525252,5002,500ACHESON BREAD CO.(Capital stock $100,000; 1,000 shares par value $100.)Dec. 31, 1923, to Dec. 31, 1926Dec. 31, 1927Samuel Bell, Jr.450450Samuel Bell, Jr. (trustee)8080C. H. Bell225225James F. Bell225225980980F. H. McCafferty, sec'y and treas202020201,0001,000*2069 COMMERCIAL GARAGE CO.(Capital stock $30,000; 300 shares par value $100.)Dec. 31, 1923, to Dec. 31, 1926Dec. 31, 1927Samuel Bell, Jr.150150C. H. Bell, president7575James F. Bell7575300300WOODBURY REALTY CO.(Capital stock $45,000; 450 shares par value $100.)Dec. 31, 1923, to Dec. 31, 1926Dec. 31, 1927Samuel Bell, Jr.224224C. H. Bell, president5050W. H. Jones, sec'y and treas11James F. Bell175175450450*797  BUFFALO FLOUR MILLING COMPANY (Capital stock $25,000.  25 shares par value $100.) Entire stock of the Buffalo Flour Milling Company owned by Quaker City Flour Mills Company.  In 1914, prior to the incorporation of Samuel Bell and Sons, a plan was proposed whereby a limited number of shares of stock would be offered at par to certain executives and employees as a reward for faithful services and as an incentive to further endeavors.  It was expressly stipulated, however, that if they should die or sever their connection with the company the stock would be returned to and repurchased by the*2070  company.  Upon the incorporation of Samuel Bell and Sons that plan was modified by permitting the purchase *798  to be made by the remaining stockholders and an appropriate by-law to that effect was adopted.  That by-law was incorporated in the stock certificate issued by Samuel Bell and Sons and also in the stock certificates of the Commerical Garage Company, the Moore Bread Company, the Quaker City Flour Mills Company and the Acheson Bread Company.  It is as follows: None of the shares of the Capital Stock of the Corporation shall be sold or transferred on its books until the holder shall have given ninety days' written notice to all stockholders of an intention so to do; and within said period said stockholders or any less number, pro rata, or any one of them in the order named, shall have the option to buy such shares at their value as shown by the books of the Corporation at the last closing thereof preceding the day of such notice with interest thereon at the rate of Five per cent. per annum from the date of said closing to payment therefor.  And the remaining stockholders in the manner aforesaid shall have the option to buy within ninety days all the stock standing on*2071  the books of the Corporation in the name of any person who shall die or cease to be an officer, director or employee of the Corporation at the value shown by the books of the Corporation at the last closing thereof preceding such decease or the ending of the relation of officer, director or employee, with interest as aforesaid.  Samuel Bell, Jr., C. H. Bell, and J. F. Bell each contributed 10 per cent of his stockholdings in the Bell Company and assigned them to Samuel Bell, Jr., as trustee, to distribute as he saw fit.  All stock of the Bell Company not owned by Samuel Bell, Jr., C. H. Bell, and J. F. Bell was owned under the above conditions and all stock of the employees who left the employ of the company or were discharged by it was repurchased on the same basis.  A stockholding employee was subject to discharge under the same conditions as was a nonstockholder.  Employee stockholders never exercised their right to vote, did not attend stockholders' meetings, and executed no proxies.  Their employment was on a weekly basis.  OPINION.  VAN FOSSAN: The question in these cases is whether or not the minority stockholders, employees of the various companies, constitute the same*2072  interests as the majority stockholders.  We had the same question presented on very similar facts in , and . In those cases we granted affiliation.  See also . On the authority of those cases we hold the petitioning corporations were affiliated during all of the years in question, i.e., 1924, 1926, and 1927.  The community of interest among the stockholders and the restrictive provisions on the stock were even stronger in the cases at bar than in the cited cases.  Judgment will be entered under Rule 50.