Court Opinion

ID: 6805516
Source: CourtListenerOpinion
Date Created: 2022-07-23 18:46:30.344787+00
Date Added: 2024-06-11T16:03:25.722110
License: Public Domain

*668OPINION.
Lansdon:
The issues to be determined are fully set forth in our preliminary statement, and will be considered and decided in the order stated. The evidence is conclusive, that the Realty Company was the creature of the Store Company, which had caused it to be incorporated solely for the purpose of acting as its agent in converting fixed assets into liquid working capital for use in its business. During the taxable years the Store Company owned all the common stock of the Realty Company. Such stock had one-half the voting power. Considerable percentages of the preferred stock of the Realty Company were owned by the officers and directors of the Store Company, and much of the remainder by its employees, the relatives, and close personal friends of the principal stockholders. Only an inconsiderable amount was in the hands of persons who properly may be regarded as outside interests. The circumstances under which the stock of the petitioners was held are very similar *669to the facts in Appeals of Midland Refining Co., 2 B. T. A. 292 and 296.
The conditions in the instant proceeding are almost exactly on all fours with the facts in Appeal of Abattoir Realty Co., 3 B. T. A. 415, in which we said:
The facts set forth disclose a complete unity of the enterprise, which was inherent in the creation of the Realty Co. and has remained so since. The Cincinnati Co. lias assumed the material responsibilities of the Realty Co. and dominates it completely. It owns all the common stock and its stockholders own two-thirds of the preferred. The directors are such persons as the Cincinnati Co. selects. The right of preferred stockholders to elect a majority of the directors is controlled by the Cincinnati Co. and its stockholders. The remaining preferred stockholders, even were they hostile to the Cincinnati Co. and its interests and were to vote or act in unison, could not be effectively adverse to the Cincinnati Co. But, so far as this record shows, there is no diversity of interest. Taking all the circumstances together, we are of opinion that the two corporations were affiliated within the taxable years in question.
In the light of all the evidence, and upon authority of our opinions cited, supra, we must hold that the petitioners were affiliated during the taxable years.
The parties have agreed and stipulated that the amount of $125,000 shall be included in the invested capital of the John Shillito Co. for each of the fiscal years ended January 31,1919, and January 31, 1920, respectively, as representing the value of intangibles acquired from its predecessor in 1882. This amount, therefore, should be included in the statutory invested capital of such company for each of the taxable years, subject to the limitations of section 326(a) (4) of the Bevenue Act of 1918.
The parties stipulate that the Store Company took no deduction for taxes paid on account of the Bealty Company for the years 1919 and 1920, in the respective amounts of $4,320 and $1,020. The respondent, therefore, erred in adding such amounts to the income of the Store Company.
The John Shillito Co. owned depreciable store fixtures and furniture during the taxable years in the amounts set forth in our findings of fact. The petitioners admit that an annual depreciation rate of 5 per cent on the cost of this property is reasonable and we find, therefore, that deductions from income for the years involved should be computed at that rate on costs as set forth in our findings of fact.
The evidence discloses that the store building owned by the Bealty Company was constructed about 1818, and was continuously kept in good repair. We have found that the value of this building at March 1, 1913, was $350,000, and that between that date and the first of the taxable years, it was remodeled at a cost of $206,516.21. As the remodeled parts are inseparable from the original structure, we are of the opinion that such additions can have no longer useful life *670than the building of which they are a part. The evidence convinces us that the entire building, even after it was remodeled, was far from modern and that, as a whole, its useful life could not be more than 20 years from March 1, 1913. The petitioners are entitled to depreciate the 1913 value of this building and the cost of remodeling on the basis of a term of useful life ending not later than March 1, 1933.

Judgment will be entered on 10 days' notice, under Rule 50.