Court Opinion

ID: 4629456
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:05:26.49084+00
Date Added: 2024-06-11T07:57:22.876768
License: Public Domain

B. MIFFLIN HOOD BRICK CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  LEGG BRICK CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.B. Mifflin Hood Brick Co. v. CommissionerDocket Nos. 34459-34461.United States Board of Tax Appeals19 B.T.A. 785; 1930 BTA LEXIS 2321; April 30, 1930, Promulgated *2321  Where return of income was made on a separate basis for 1922 by corporations which were affiliated, returns for 1923 shall be upon the same basis where no permission to change the basis has been granted by the Commissioner.  E. St. Clair Thompson, Esq., for the petitioners.  Harry Leroy Jones, Esq., for the respondent.  BLACK *785  The petitioners seek redetermination of deficiencies in income taxes for the year 1923 as follows: in Docket No. 34459, B. Mifflin Hood Brick Co., $1,010.73; in Docket No. 34460, B. Mifflin Hood Brick Co., as transferee of the assets of Hood Pottery Clay Products Co., $2,412.10; and in Docket No. 34461, Legg Brick Co., $1,006.55.  The petitioners, including the Hood Pottery Clay Products Co., filed a consolidated return with the Georgia Brick & Tile Co. and the Rome Fireproofing Co. for the year 1923, on the theory that the five corporations were affiliated.  The respondent denied the claim for affiliation, on the ground that all five corporations filed separate returns for 1922 and that this constituted an election under the statute, and that they could not change to a consolidated affiliated return without his permission, *2322  which they had not obtained.  Computation of the income taxes on the separate returns basis resulted in the determination of the foregoing deficiencies.  Petitioners allege that they were not affiliated in 1922, but were in 1923, and that the denial of affiliation for 1923 constitutes error.  Petitioner B. Mifflin Hood Brick Co. admits its liability as transferee of the assets of Hood Pottery Clay Products Co. for whatever deficiency may be determined against the transferor.  There appears to be no order consolidating the cases for hearing and decision, but they were heard together and will be considered as though such order had been entered.  FINDINGS OF FACT.  The petitioners B. Mifflin Hood Brick Co. and Legg Brick Co. are Georgia corporations with their principal office at 686 Greenwood Avenue, N.E., Atlanta, Ga.  Prior to 1924 the B. Mifflin Hood Brick Co. was engaged in the buying and selling of brick, tile, pottery, and other earthenware, either on its own account or on *786  commission.  It did not manufacture.  The other four corporations claimed to be in the affiliation in 1923, viz., Legg Brick Co., Hood Pottery Clay Products Co., Georgia Brick & Tile Co., *2323  and Rome Fireproofing Co., were producers and disposed of their products mainly through the B. Mifflin Hood Brick Co.  The latter company, however, dealt largely in the products of other manufacturers.  B. Mifflin Hood was the largest stockholder in all of the corporations and was the dominant factor and manager of all of them.  For the year 1922 a group of five persons owned the following amounts and percentages of stock in the following: Legg Brick Co. - G. W. Keeling, 9 shares; E. S. Hood, 50 shares; C. S. Hood, 40 shares; Elizabeth S. Hood, 40 shares; B. M. Hood, 100 shares, being a total of 239 out of 250 shares, or 95 per cent.  B. M. Hood Brick Co. - G. W. Keeling, 24 shares; E. S. Hood, 200 shares; G. S. Hood, 100 shares; Elizabeth S. Hood, 100 shares; B. M. Hood, 555 shares, being a total of 979 out of 1000 shares, or 97.9 per cent.  Georgia Brick & Tile Co. - G. W. Keeling, 10 shares; E. S. Hood, 68 shares; C. S. Hood, 50 shares; Elizabeth S. Hood, 50 shares; B. M. Hood, 135 shares, being a total of 313 out of 320 shares, or 97.7 per cent.  The same group owned approximately 74.2 per cent of the Hood Pottery Clay Products Co., and B. M. Hood owned 50 per cent of the*2324  Rome Fireproofing Co.  For the year 1923 there were no substantial changes except that the holdings of the group were increased in Hood Pottery Clay Products Co. by 210 shares, and the interests of Keeling in all companies were transferred to another member of the group.  B. Mifflin Hood became the owner of the entire capital stock of the Rome Fireproofing Co.  B. Mifflin Hood was president of all five companies during 1922 and 1923, except the Rome Fireproofing Co. in 1922, when H. Woodruff was president; J. A. Hall was treasurer of all companies for both years, and G. K. Fackler was secretary of all except the Rome Fireproofing Co., which had M. R. Watson for secretary.  None of the corporations owned any stock in any of the others, and there was no agreement of any kind limiting the right of any stockholder in any of the corporations to vote or dispose of his stock as he saw fit, or that gave any person or corporation any control over it whatever.  During 1922 each corporation conducted its business separately.  For the purposes of economy, efficiency, and a more closely knit organization, the B. Mifflin Hood Brick Co. held a stockholders' meeting on December 19, 1922, at*2325  which the following occurred as shown by the minutes: *787  Meeting of stockholders, notice having been waived, a meeting of the stockholders of the B. Mifflin Hood Brick Company was called at 2:45 P.M. December 19, 1922, at the offices of the corporation at 154 Cliff Avenue, AtlantaGeorgia.  All stock outstanding was represented either in person or by proxy.  Mr. Hood was elected chairman of the meeting and Mr. Fackler presided as secretary of the meeting.  The resignation of G. W. Keeling as vice-president and treasurer of the B. Mifflin Hood Brick Company was read by Mr. Hood and accepted.  The following nominations were made by Mr. Hood for vice-presidents to hold office until the first annual meeting of 1924, or until a successor be elected.  J. B. Dunlap, in charge of traffic, to act as president in the absence of the president, U.S. Lewis, in charge of roofing tile department.  R. K. Thrower, in charge of sales.  Mr. R. Watson, in charge of the plant production, there being no other nominations the vote was taken, and each one of the four nominated was elected to act in the capacities as above stated and for the period of time above stated.  The chairman*2326  then nominated Mr. J. A. Hall for treasurer, to hold office until the first annual meeting in 1924, or until his successor is elected.  There being no other nomination, a vote was taken and Mr. J. A. Hall was declared treasurer to hold office until the first annual meeting in 1924, or until a successor is elected.  It was moved and carried that Mr. J. B. Dunlap be authorized, and is hereby authorized, to sign (and) or countersign all checks issued against the company fund.  The newly elected officers were then called the meeting and advised of their several elections.  The question of extra compensation as Christmas gifts to each employee was discussed, and the amounts to be given each employee decided upon.  There being no further business to come before the meeting it was adjourned at 4:45 P.M.  All five of the corporations filed separate returns in 1922.  OPINION.  BLACK: It is contended on behalf of the respondent that the petitioners were affiliated during the year 1922 and elected to file separate instead of consolidated returns for that year, and that, having done so, they can not file consolidated returns for 1923 without permission of respondent.  Petitioners*2327  do not claim such permission, but contend that they were not affiliated in 1922 and that their action in filing separate returns can not be deemed an election until they were actually affiliated, which they claim was in 1923.  Section 240(a), Act of 1921, after providing that affiliated corporations may make separate returns, or, under regulations prescribed by the Commissioner make a consolidated return of net income, provides: "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." *788  It has been shown here that more than 95 per cent of the capital stock of both petitioners and of the Georgia Brick & Tile Co. was owned by the same group of five persons in 1922, which was ownership of substantially all of the capital stock of each of them by the same interests resulting in affiliation and the right to file a consolidated return.  As separate returns were filed, the statute above quoted applies and separate returns should have been filed for 1923.  *2328 . Reviewed by the Board.  Judgment will be entered for the respondent.MURDOCK MURDOCK: I concur in the result reached by the prevailing opinion, although I believe that the reasoning there used to reach that result is unsound.  The fault lies in the fact that the group, alleged to be affiliated in 1923, which claims the right to file a consolidated return for that year, is not the same group which made an election in 1922.  But there are other reasons why the consolidated return may not be filed for 1923.  It is found as a fact "that the holdings of the group were increased in Hood Pottery Clay Products Co. by 210 shares." This finding is insufficient, as we still do not know when in 1923 the new shares were acquired, and we do not know to what extent the acquisition of these new shares increased the percentage of the total shares of the company owned by the group.  Furthermore, B. M. Hood owned all of the stock of the Rome Fireproofing Co. in 1923, and therefore, it was not affiliated in that year with the other companies.