Court Opinion

ID: 4623111
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:52:14.995265+00
Date Added: 2024-06-11T07:56:18.259597
License: Public Domain

STRUTHERS-ZIEGLER COOPERAGE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Struthers-Ziegler Cooperage Co. v. CommissionerDocket No. 32884.United States Board of Tax Appeals18 B.T.A. 537; 1929 BTA LEXIS 2023; December 18, 1929, Promulgated 1929 BTA LEXIS 2023">*2023  A net loss is available to a corporation in an affiliation as a deduction from its income where the said loss was sustained by it.  W. W. Smith, Esq., for the petitioner.  A. Carnduff, Esq., for the respondent.  MORRIS18 B.T.A. 537">*537  This proceeding is for the redetermination of a deficiency in income tax of $2,000.15 for the year 1924.  The sole question urged by the petitioner is that the respondent erred in increasing the taxable income of the petitioner for the year 1924 by an amount of $11,998.35 representing its net losses for the years 1922 and 1923.  FINDINGS OF FACT.  The petitioner is a corporation organized and incorporated under the laws of Michigan and its principal office is in Detroit.  The petitioner's agents purchased certain properties in Vicksburg, Miss., in December, 1923, and on January 1, 1924, the Vicksburg Cooperage Co. was incorporated under the laws of the State of Mississippi with an authorized capitalization of $100,000, of which $80,000 par value was issued to the petitioner, its parent company, for properties.  An income-tax return was filed for the year 1924, in which the income of the petitioner and its affiliated1929 BTA LEXIS 2023">*2024  company, the Vicksburg 18 B.T.A. 537">*538  Cooperage Co. was consolidated, and the net losses of the parent Company, the petitioner here, for the years 1922 and 1923, aggregating $11,998.35, were applied in reduction of the income of the consolidated group.  The respondent disallowed this deduction in the computation of taxable income for 1924.  In disallowing the said deduction the respondent says in his deficiency notice: "Net losses of the parent company for 1922 and 1923 may not be applied to reduce the income of the consolidated group, the new group being a separate entity." OPINION.  MORRIS: This proceeding was submitted upon the pleadings.  Counsel for the respondent urges that the net income of the consolidated group for 1924, of which the petitioner is the parent, can not be reduced by net losses of said parent company sustained during 1922 and 1923 because, as the respondent states in his deficiency letter, the new group is a separate entity.  The respondent's counsel cites , and the cases therein cited, as dispositive of the question at issue.  In that case we said: 1929 BTA LEXIS 2023">*2025 During 1921, as well as 1922, the Hutt Cattle Co. sustained a net loss in the operation of its business.  Such a loss would be available to it under section 204(b) of the Revenue Act of 1921 as a deduction from its income for 1922, . It had no income but a loss for that year.  It is urged, however, that the loss in 1921 can be carried over and used as a deduction in 1922 against the income of the affiliated corporations; in substance, that the net loss of the Hutt Cattle Co. for 1921 may serve to reduce the taxable income of the Hutt Contracting Co. in 1922 because these two were affiliated in the later year.  This must be denied on the authority of our decisions in ;; ; and . In , where a similar question was considered, involving section 204(b) of the Revenue Act of 1918, which, for our purpose, is no different from the section of the Act1929 BTA LEXIS 2023">*2026  controlling the issue here, we said, after holding that each individual corporation of an affiliated group was a "taxpayer" within the meaning of the statute: We do not believe that it was the intention of Congress to deprive any taxpayer of the benefits afforded by section 204 by the statutory provision relating to consolidated returns.  In our opinion there is nothing contained in the statute, either in express terms or by necessary implication, which would deprive a corporation of the benefit of the net loss provision of the statute merely because it was affiliated with another corporation.  Since, under the statute, each member of an affiliated group is a "taxpayer" and the relief granted by section 204 is given to "any taxpayer," it is our opinion that an affiliated corporation which suffered a net loss in 1919, 18 B.T.A. 537">*539  prior to the beginning of the period of affiliation, and which net loss exceeded the amount of its net income for 1918, is entitled to deduct the excess of such net loss from its individual net income for 1920, and to that extent the consolidated net income is thus reduced.  The instant case is not one where the petitioner is seeking to reduce its own1929 BTA LEXIS 2023">*2027  net income for the taxable year by a net loss of a distinctly different corporation becoming a member of the affiliated group after the loss was sustained.  The petitioner is the parent company which sustained the loss for 1922 and 1923.  We are, therefore, of the opinion that it is entitled to deduct said net loss to the extent of its individual net income for 1924.  Decision will be entered under Rule 50.