Court Opinion

ID: 4489866
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:04.331166+00
Date Added: 2024-06-11T15:03:55.652257
License: Public Domain

Littleton,
dissenting: I agree with the proposition that under the provisions of section 240 (a) of the Revenue Act of 1921, either a (one) consolidated return must be filed for all of the affiliated corporations or a separate return must be filed by each of the affiliated *879corporations, but I do not agree with the proposition that the election or insistence by one corporation that it should file a separate return can be taken as controlling for the entire group. The majority opinion seems to proceed upon the theory that with the enactment of the Eevenue Act of 1921 there was given to each affiliated corporation the right to determine for itself whether it shall have its tax determined on the basis of a separate return, whereas it is my conception that what occurred was that there was given to the group the right to exercise an election as to whether a consolidated return should be filed which would include all members of the group, or a separate return should be filed .for each member of the affiliated group. To follow the majority opinion is equivalent to saying that the independent exercise of the election by one corporation takes away from the other corporations any right of independent action and requires that these other corporations follow the elected act of the one corporation. Of course, I can.see that, where there is common control for all the corporations or where one corporation owns all of the stock of one or more corporations, the act of one corporation, in a sense, expresses the will of the controlling element in the group, since the one corporation could not take any action as against the opposition of the controlling element for the entire group, but if this is the true theory on which the case proceeds, I do not see why we should not decide it on the basis of the election by the controlling element in the group, instead of saying that each corporation has a right of election and that when one corporation elects to file a separate return all others must do likewise, regardless of their wishes in the matter. I can not see that the act of a single subsidiary corporation in filing a separate return is conclusive as evidence of an election by the controlling element that all members of the group should file separate returns.
As to what constitutes evidence of the real election by the group, this would seem to be a question of fact which would be determinable on the basis of the peculiar circumstances of each case. For example, in a so-called class A affiliation the election by the parent corporation to file a separate return would seem generally to be expressive of the will of the controlling element, and there could be no complaint because the other corporations were required to file the same land of a return, whereas in a situation often referred to as a class B affiliation, the action of a majority of the corporations in the group might be determinative, though this would not necessarily be conclusive where the corporations vary in size and relative importance. The effect of the majority opinion is to say that even in a large group of affiliated corporations, say several hundred, where one relatively insignificant member of the group filed a separate return and all of the other members were included in a consolidated return, *880the action of the one corporation will be controlling as to the election by the group and thus require separate returns for each of the several hundred members. Of course, the consolidated return of all except one member of the group is not a consolidated return of all members of the group, but much less so do I think that the act of one in electing to file a separate return is to be considered the act of all in electing to file separate returns. The exclusion of one company from, and inclusion of all other companies in, the consolidated return might have been intentional in the sense that returns were filed in this manner when the corporations were properly affiliated, but where the corporations were in error in considering that a consolidated return could be filed for some of the corporations and a separate return for one corporation, or again it might have been unintentional in the sense that there was an erroneous interpretation of the statute or application of the facts thereto in considering that the excluded corporation was not affiliated and consequently a separate return was filed therefor; and yet it would seem that under the majority opinion the action of the one affiliated corporation in filing a separate return would require that all file separate returns, regardless of the circumstances under which the separate return was made.
I think such a construction of the statute will necessarily lead to harsh and unjustifiable results which are contrary to the spirit of the statute as well as uncalled for in its logical interpretation. We are here concerned with a statute relating to affiliated corporations, a statute which often may require (as we have staked on many occasions) that the generally recognized principle of corporate identity be overridden for the purpose of reaching the correct conclusion as to the new tax status thus created. And when I come to determine what election has been exercised by this affiliated group, occupying a separate tax status, with respect to the filing of separate or consolidated returns, I do not think that the action of one member is necessarily conclusive as to the action of all members of the group.
On the basis of the foregoing, I dissent from the result reached in the majority opinion as well as the basis on which this was reached. We have here a situation in which the parent corporation and two of its subsidiaries filed a consolidated return and the other subsidiary filed a separate return. The Commissioner determined that the affiliated group had exercised an election to file on a consolidated basis and, accordingly, included the income of the one corporation, along with that of the corporations, in the consolidated return. No other facts are before us as to the exercise of the election. I fail to see wherein we are justified in reversing the Commissioner’s action.