Court Opinion

ID: 4489865
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:04.324335+00
Date Added: 2024-06-11T15:03:55.651077
License: Public Domain

Phillips:
The Commissioner determined deficiencies of $1,784.08, $668.63, and $1,970.76 to be due from petitioner for the years 1920, 1921, and 1922, respectively, and notified petitioner thereof. Petitioner filed its petition for a redetermination of the deficiencies set out in such notice. This proceeding is designated by Docket No. 26571. The Commissioner also determined a deficiency of $665.54 for 1923, for the redetermination of which petitioner duly filed its petition. That proceeding is known as Docket No. 29140. No error was assigned in the determination of the deficiency for 1920. Three errors assigned with respect to the computation of income for the years 1921 and 1922 have been settled by stipulation of the parties and require no further attention from us in this opinion.
The sole remaining question arises out of the action of the Commissioner in determining that the tax liability of petitioner for *8771922 and 1923 should be determined by including the Ashburton Apartment Co. in a group of affiliated corporations of which petitioner was one. The following facts were stipulated:
1. The petitioner is a corporation organized and existing under the laws of the State of Maryland with its principal office at 601 Morris Building, Baltimore, Maryland.
2. The years in controversy are the calendar years 1922 and 1923.
3. During each of the years 1922 and 1923 the petitioner owned substantially all of the stock of the University Homes Company, Consolidated Apartment House Company and the Ashburton Apartment Company, also corporations organized and existing under the laws of the State of Maryland.
4. For each of the years in question a consolidated return was filed on behalf of the petitioner, the University Homes Company and the Consolidated Apartment House Company.
5. A separate return was filed by the Ashburton Apartment Company for each of the years in question.
The applicable provision of the Eevenue Act of 1921 reads:
Sec. 240. (a) That corporations which are affiliated within the meaning of this section may, for any taxable year beginning on or after January 1, 1922, make separate returns or, under regulations prescribed by the Commissioner with the approval of the Secretary, make a consolidated return of net income for the purpose of this title, in which case the taxes thereunder shall be computed and determined upon the basis of such return. If return is made on either of such bases, all returns thereafter made shall be upon the same basis unless permission to change the basis is granted by the Commissioner.
The Commissioner contends that corporations which are affiliated may file for 1922 either separate returns or' a consolidated return, but that some of the affiliated corporations may not file a consolidated return while others file separate returns. Petitioner contends that each corporation may elect whether it will file a separate return. We are of the opinion that both positions are well taken. Each corporation is a taxable entity under the law. Alabama By-Products Corporation et al., 16 B. T. A. 1073. The normal method is to lay a tax upon the income of each. Sections 230 and 239, Revenue Act of 1921. Provision for consolidating the income and capital of several corporations to determine the tax of each was an abnormal condition devised for use during the period of the excess-profits tax. With the repeal of that tax at the close of 1921, the statute made consolidated returns by affiliated corporations optional and not mandatory. There was restored to each corporation the right to have its tax computed upon its income without regard to the income, losses, or tax of those corporations with which it was affiliated. It follows that any corporation might, for 1922, file a separate return.
It does not follow, however, that if one corporation of an affiliated group elects to file a separate return, the remaining corporations may file a consolidated return of their income. Such a return is *878not a consolidated return of net income of the affiliated corporations, for a part of the whole is missing. The consolidated return is to be that of the affiliated corporations, not merely of some of them. Affiliated corporations may file separate returns or one return for all; there exists in the statute no right to combine these two methods of returning income.
It is pertinent to note that this interpretation is in accord with the regulations issued by the Commissioner with the approval of the Secretary. Article 632, Regulations 62. Such regulations are not only authorized by this section of the law but, after their promulgation, the language of the statute under consideration was reenacted in the Revenue Act of 1924. If there be doubt as to the proper interpretation of the statute, consideration must be given to such regulations. Old Colony Trust Co. v. Blair, 279 U. S. 716.
We conclude that either separate returns or a consolidated return may be filed by affiliated corporations. We also conclude that any one of the affiliated corporations may elect to file a separate return. It can not be deprived of this privilege by any one or more of the corporations with which it is affiliated. It follows that if any one of the affiliated corporations insists upon its right to file a separate return, no consolidated return can be filed for the affiliated group; it is only where all of the affiliated corporations join in the filing of a consolidated return for 1922 that such a return can be said to have been filed.
For 1922 and 1923, the Ashburton Apartment Corporation filed separate returns. There is nothing to indicate that this was due to inadvertence or to any doubt that it was affiliated with petitioner and entitled to join in filing a consolidated return. The statute gives it the right to make its election. The Commissioner was in error in adding the income of that corporation to the income of the petitioner.
No error is assigned by either party by reason of the consolidation of the income of University Homes Co. and Consolidated Apartment House Corporation with that of the petitioner; wherefore we refrain from passing upon the propriety of such action.
Reviewed by the Board.

Decision will be entered under Rude 60.

Smith, GreeN, and Love dissent.