Court Opinion

ID: 4612652
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:51:37.862959+00
Date Added: 2024-06-11T07:54:28.768561
License: Public Domain

SAVANNAH RIVER LUMBER CO., FOR ITSELF AND ITS PREDECESSOR, SAVANNAH MERCANTILE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  SAVANNAH RIVER LUMBER CO., FOR ITSELF AND ITS PREDECESSOR, SAVANNAH TIMBER CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  SAVANNAH RIVER LUMBER CO., AS TRANSFEREE OF THE ASSETS OF THE SAVANNAH TIMBER CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Savannah River Lumber Co. v. CommissionerDocket Nos. 14354, 16130, 26936.United States Board of Tax Appeals14 B.T.A. 165; 1928 BTA LEXIS 3004; November 14, 1928, Promulgated *3004  The petitioner and allied companies held to have been affiliated for the years 1917, 1918, and 1921.  James W. Mudge, Esq., and J. B. Ely, Esq., for the petitioners.  L. C. Mitchell, Esq., and M. E. McDowell, Esq., for the respondent.  SMITH *165  These are proceedings for the redetermination of deficiencies in income and profits tax as follows: In the case of Savannah River Lumber Co., as transferee of the assets of Savannah Mercantile Co., a deficiency for the year 1917 of$125.82In the case of Savannah River Lumber Co., as transferee of the assets of Savannah Timber Co., a deficiency for the year 1918 of2,015.42And for the year 1921 of8,052.88In the case of Savannah Timber Co., a deficiency for the year 1921 of8,052.88*166  Pursuant to a motion filed by counsel for the petitioner, consented to by counsel for the respondent, the case bearing Docket No. 26936 was consolidated with the cases bearing Docket Nos. 14354 and 16130.  The hearing in Docket No. 26936 was confined to the issue raised by the allegation of error contained in paragraph (4) of the petition in that appeal, namely, *3005  the affiliation issue.  That case is to be restored to the general calendar to await decision with respect to other issues in due course.  The sole issue presented at the hearing was that of affiliation, the petitioner asserting and the respondent denying that the following corporations were affiliated during all of the taxable years in controversy: Savannah River Group:Savannah River Lumber Co.  Savannah River Sales Co.  Savannah Mercantile Co.  Savannah-New York Transportation Co.Savannah Timber Co.  Port Wentworth Lumber Co.FINDINGS OF FACT.  (1) The petitioner, the Savannah River Lumber Co., is a Georgia corporation organized April 12, 1916, with its principal place of business in Savannah.  It was the successor, through reorganization proceedings, of the Hilton-Dodge Lumber Co., a Georgia corporation organized November 8, 1911, with principal place of business in Savannah.  (2) The Savannah Timber Co. is a Georgia corporation organized May 11, 1912, with its principal place of business in Savannah, all of the stock of the Savannah Timber Co. except directors' qualifying shares being issued, at the date of organization, to the Hilton-Dodge Lumber*3006  Co.  The Timber Co. was organized for the purpose of acquiring and holding timber properties which were useful or necessary to the Hilton-Dodge Lumber Co., but which could not be acquired directly by the Hilton-Dodge Lumber Co. without being made immediately subject to the lien of that corporation's first mortgage.  From the time of its organization and through all the years 1917 to 1921, inclusive, the Savannah Timber Co. was operated as a holding company for timber lands useful or necessary to either the Hilton-Dodge Lumber Co. or to its successor, the Savannah River Lumber Co., or as a holding company for timber lands previously owned by either the Savannah River Lumber Co. or the Port Wentworth Lumber Co.  The holdings of Savannah Timber Co. were mingled territorially with the holdings of the Savannah River Lumber Co. and the Port Wentworth Lumber Co., so that economical and *167  efficient operation required that its holdings be operated with those of the Savannah River Lumber Co. and the Port Wentworth Lumber Co.  (3) Savannah River Sales Co. was a Maine corporation, organized under the name of Hilton-Dodge Sales Co., on June 21, 1913, with its principal place of business*3007  in Savannah, Ga., all of its stock except directors' qualifying shares being issued upon organization to the Hilton-Dodge Lumber Co.  The Hilton-Dodge Sales Co. was organized for the purpose of financing, carrying and selling the lumber of the Hilton-Dodge Lumber Co., the product of the latter corporation being taken over by the Sales Co. as fast as manufactured, and being carried and sold by it, the funds needed for the purpose being borrowed by the Sales Co. from the bankers (Lee, Higginson & Co. and Clark L. Poole & Co.), and from banks affiliated with Lee, Higginson & Co.  After the reorganization of the Hilton-Dodge Lumber Co. into the Savannah River Lumber Co., the Sales Co. (then under the name of Savannah River Sales Co.) operated as the sales department of both the Savannah River Lumber Co. and the Port Wentworth Lumber Co., under an agreement that the Sales Co. should make no profits from its transactions in the lumber of the two operating companies and should be protected against the incurring of any losses in such transactions.  Under this agreement between the companies the management and accounting methods of the Sales Co. were subject to the approval of the Savannah*3008  River Lumber Co., all lumber manufactured or purchased by the Lumber Co. was purchased at the same time from the Lumber Co. by the Sales Co., and all purchases of lumber by the Lumber Co. were subject to approval by the Sales Co., and the Lumber Co. agreed not to sell lumber to parties other than the Sales Co.  (4) The Savannah Mercantile Co. was a Georgia corporation organized November 29, 1913, with its principal place of business in Savannah, all of its stock with the exception of directors' qualifying shares being issued upon organization, to the Hilton-Dodge Lumber Co.  The Mercantile Co. was organized as a purchasing or commissary agency of the Hilton-Dodge Lumber Co., its activities being confined for the most part to the purchase of supplies for the Lumber Co., lumber camps and workmen, and to selling through stores located at the mills and logging camps.  Substantially all of the transactions of the Mercantile Co. were with the Hilton-Dodge Lumber Co. and its employees up to the date of the reorganization of that company into the Savannah River Lumber Co. and subsequently to that time were with the Savannah River Lumber Co. and the Port Wentworth Lumber Co. and their employees, *3009  such of its sales as were made to outsiders being purely incidental.  *168  (5) The Savannah-New York Transportation Co. was a Delaware corporation organized, under the name of the Hilton-Dodge Transportation Co., on July 30, 1913, with its principal place of business in Savannah, Ga., all of its stock except directors' qualifying shares being issued upon organization to the Hilton-Dodge Lumber Co.  The Hilton-Dodge Transportation Co. was organized as the transportation agency of the Hilton-Dodge Lumber Co., being incorporated separately in order that the acquisition of barges and tugs for transportation purposes might be financed independently of the general mortgage to which all the assets of the Hilton-Dodge Lumber Co. were subject.  Subsequent to the reorganization of the Hilton-Dodge Lumber Co. into the Savannah River Lumber Co., the Transportation Co. (then under the name of Savannah-New York Transportation Co.) functioned similarly as the transportation agency of both the Savannah River Lumber Co. and the Port Wentworth Lumber Co., its facilities being at all times at the disposal of these two lumber companies, so far as needed, and being used in transportation for other*3010  companies only when not needed by the lumber companies.  (6) Port Wentworth Lumber Co. was a Delaware corporation organized April 7, 1916, with its principal place of business in Savannah, Ga., all of its stock except directors' qualifying shares being issued at or shortly after organization to George S. Lewis, James Imbrie and I. H. Fetty, as voting trustees.  The timber holdings of the Port Wentworth Lumber Co. were so intermingled with the holdings of the Hilton-Dodge Lumber Co. (afterward the Savannah River Lumber Co.) and the Savannah Timber Co. that they could be operated successfully only in conjunction with the holdings of the two latter companies, and the promoters of the Port Wentworth Lumber Co., having recognized this fact, arranged that the properties and business of the Port Wentworth Lumber Co. should be managed by the Savannah River Lumber Co. and its executives, and in consideration for such management agreed that the stock of the Port Wentworth Lumber Co. should be issued to voting trustees (of whom the majority were affiliated with the Savannah River Lumber Co. and with Lee, Higginson & Co.), and that a majority of the voting trust certificates should be issued*3011  to the Savannah River Lumber Co. and its officers.  (7) During the years 1917 to 1921, inclusive, the record ownership of stock of the several corporations whose status with respect to affiliation is the subject matter of appeal was as follows, all the stock having voting rights: 1917-1918-1919CompanyVoting trustees, S. R. Lumber Co. voting trust agreement of 5/1/16Lee, Higginson & Co.Partners and employees of Lee, Higginson & Co.Officers of S. R. Lumber Co.S. R. Lumber Co.S. R. Sales Co.Voting trustees, Port Wentworth Lumber Co. voting trust agreementOthersSharesSharesSharesSharesSharesSharesSharesShares50,000 comS. R. Lumber Co60,000 pfd3,510 com1,490 comS. Timber1,000 pfd1 com3 com1,300 com1 com.S. R. Sales493 com1 com4 com2 com.S. Mercantile1 com3 com295 com1 com.S.-N.Y. Transp3 com12 com3,479 com6 com.P. W. Lumber9,979 com21 com.1920-192155,000 comS. R. Lumber Co60,000 pfd3,510 com1,490 com1,300 comS. Timber2,000 pfd1 com3 com9,600 1st pfd1 com.S. R. Sales493 com1 com4 com2 com.S. Mercantile1 com3 com295 com1 com.S.-N.Y. Transp6 com15 com3,479 comP. W. Lumber9,979 com21 com.*3012 *170  (8) In March, 1912, a few months after the organization of the Hilton-Dodge Lumber Co., that corporation issued $6,000,000 face value of its first mortgage 6 per cent bonds, 25 per cent of the issue being marketed by Clark L. Poole & Co., investment bankers of Chicago, Ill., and the remaining 75 per cent being marketed by Lee, Higginson & Co., investment bankers of Boston, Mass., and other cities.  Both bankers sold the bulk of the bonds marketed by them to investors who were customers of their respective houses.  (9) Within approximately a year from the date of the issue by Hilton-Dodge Lumber Co. of its $6,000,000 bond issue, that corporation became involved in financial difficulties and applied for help to the bankers who had purchased and marketed its bonds.  A preliminary effort was made by Clark L. Poole & Co. to afford the financial assistance required, but their resources proved inadequate and they took the matter up with Lee, Higginson & Co., whose financial strength and resources were much larger.  In June, 1913, advances were made by each of the bankers concerned to a substantial amount, approximately $227,000 each, in an endeavor to help the corporation*3013  through its difficulties, these advances being made through the then newly organized Sales Co.  During the next six months the financial condition of the Hilton-Dodge Lumber Co. grew worse and it became evident that substantial additional advances would have to be made.  At this time, however, Poole & Co. was itself in financial difficulties and not in a position to supply further cash.  Under these circumstances an agreement was entered into on December 10, 1913, between Poole & Co. and Lee, Higginson & Co., whereby it was arranged that Lee, Higginson & Co. should advance to the Hilton-Dodge situation such cash as it saw fit, Poole & Co. assuming liability for one-half of the cash advanced, its liability being limited, however, to a maximum amount of $150,000.  It was also specifically provided, as a term of this agreement, that "the management of the matter in all details shall be in the hands of Lee, Higginson & Co." Pursuant to this agreement, Lee, Higginson & Co. advanced during December, 1913, and the early months of 1914 an aggregate of $275,000 additional cash.  By this time (March, 1914), the financial condition of Clark L. Poole & Co. was such as to make impracticable any*3014  further cash advances by them to the Hilton-Dodge situation, and all subsequent advances were made by Lee, Higginson & Co. solely for their own account.  By April 1, 1916, the total amount advanced by the two bankers was $846,449.64, exclusive of accrued and unpaid interest, all of the cash except $227,362.32 having been advanced by Lee, Higginson & Co., although part of the cash so advanced was on joint account with Clark L. Poole & Co.*171  (10) In August, 1915, Poole & Co. borrowed from Lee, Higginson & Co. $75,000, pledging as security for this loan, and also for its obligation, on joint account, for cash advanced to the Hilton-Dodge Companies by Lee, Higginson & Co., its notes from the Sales Co. for the $227,000 advanced by Poole & Co. to the Sales Co. in June, 1913.  Poole & Co. was never thereafter in a position to repay this loan to Lee, Higginson & Co. or to pay any part of it obligation to Lee, Higginson & Co. on account of the cash advances by Lee, Higginson & Co. to the Hilton-Dodge Companies on joint account with Poole & Co., and subsequently Lee, Higginson & Co. took over from Poole & Co. the note of the Sales Co. to them.  (11) During the period from April, *3015  1916, the date of the reorganization of the Hilton-Dodge Lumber Co. into the Savannah River Lumber Co., to 1921, Lee, Higginson & Co. made additional advances to the Savannah River Lumber Co. and its subsidiaries in excess of $1,000,000 - $217,500 to the Timber Co., $180,000 to the Sales Co., $588,000 to the Savannah River Lumber Co., $35,000 to the Transportation Co., and $33,000 to the Port Wentworth Lumber Co.  These advances were entirely for the account of Lee, Higginson & Co., Clark L. Poole & Co. having no participation whatever therein.  No advances whatever were made by Clark L. Poole & Co. subsequent to the reorganization.  (12) Supplementing the advances made by the bankers, as described in the foregoing subdivisions (9) and (11), beginning in July, 1913, certain Boston banking institutions, closely affiliated with Lee, Higginson & Co., and at their request also began making advances to the Savannah River Companies on short-term notes, called countersigned notes, (given priority over the bankers' advances and limited in amount) and this practice on the part of these banks continued from that time on and during all of the years 1917 to 1921, inclusive.  As of March 31, 1916, immediately*3016  prior to the reorganization of the Hilton-Dodge Lumber Co. and the transfer of its assets to the Savannah River Lumber Co., and the issue of the stock of Savannah River Lumber Co. to voting trustees, these advances of the banks to the Savannah River Sales Co. amounted to $480,000.  These advances were made at the request of Lee, Higginson & Co. and in connection with them the banks relied exclusively upon Lee, Higginson & Co. and upon the understanding that Lee, Higginson & Co. were and would remain in control of the Hilton-Dodge Lumber Co. and its subsidiary companies and of any successor companies.  (13) In the spring of 1914, a bondholders' protective committee had been organized to represent the interest of the Hilton-Dodge Lumber Company's first mortgage bondholders in the then probable event that a reorganization of the Hilton-Dodge Lumber Co. should *172  become necessary.  This protective committee was organized by Lee, Higginson & Co. and the members of the committee acted as such at the request of Lee, Higginson & Co.  A plan for the reorganization of the Hilton-Dodge Lumber Co. was formulated by counsel for Lee, Higginson & Co. with the assistance of representatives*3017  of the bankers (Lee, Higginson & Co. and Clark L. Poole & Co.) and sent out to the bondholders by Lee, Higginson & Co. and Clark L. Poole & Co. jointly.  Ninety-eight per cent of the first mortgage bonds of the Hilton-Dodge Lumber Co. were deposited with the protective committee under the plan submitted by Lee, Higginson & Co. and Clark L. Poole & Co.  This plan provided that the stock of the reorganized company should be transferred to voting trustees and was approved and endorsed by the bondholders' protective committee.  (14) In December, 1913, substantially all of the stock of the Savannah Mercantile Co. was transferred from the Hilton-Dodge Lumber Co. to the Hilton-Dodge Sales Co. (subsequently Savannah River Sales Co.) and in the same month and year all of the stock of the Mercantile Co. was pledged with Lee, Higginson & Co. as security for advances made by Lee, Higginson & Co. and interests associated with Lee, Higginson & Co.  In December, 1913, all of the stock of the Hilton-Dodge Transportation Co. (subsequently Savannah-New York Transportation Co.) was pledged with Lee, Higginson & Co. as security for advances made by Lee, Higginson & Co. and interests associated with*3018  Lee, Higginson & Co., and in January, 1914, substantially all of the Transportation Company's stock was transferred from the Hilton-Dodge Lumber Co. to the Hilton-Dodge Sales Co. (later the Savannah River Sales Co.).  In December, 1913, substantially all of the common stock of the Savannah Timber Co. was transferred from Hilton-Dodge Lumber Co. to Hilton-Dodge Sales Co. (subsequently Savannah River Sales Co.) and in the same month and year all of the common stock of the Savannah Timber Co. was pledged to Lee, Higginson & Co. as security for advances made by Lee, Higginson & Co. and interests associated with Lee, Higginson & Co.  (15) In the fall of 1914, the Hilton-Dodge Lumber Co., having defaulted on its bonds, went into the hands of receivers.  The receivership continued until April, 1916, and at that time all the assets of the Hilton-Dodge Lumber Co. were sold on foreclosure proceedings, being bid in by a representative of the bondholders' protective committee, which had meanwhile received the deposit of 98 per cent of the Hilton-Dodge Lumber Co. first mortgage bonds.  Substantially all of the Hilton-Dodge Lumber Co.'s assets, thus acquired on behalf of the Hilton-Dodge Lumber*3019  Co. bondholders, were transferred *173  to a new corporation, the Savannah River Lumber Co., incorporated April 12, 1916, under the laws of the State of Georgia (principal place of business Savannah, Ga.) for the purpose of acquiring the assets of the Hilton-Dodge Lumber Co. and thereafter carrying on the business of that corporation, in exchange for the issuance of 60,000 shares of preferred stock and 55,000 shares of common stock.  (16) In May, 1916, substantially all the stock of the Savannah River Sales Co. was transferred, along with the other assets of the Hilton-Dodge Lumber Co., to the Savannah River Lumber Co. Shortly thereafter, however, namely, on August 1, 1916, the stock thus transferred to the Savannah River Lumber Co. was by it transferred into the name of Lee, Higginson & Co. in order that Lee, Higginson & Co. might control the operations of the Sales Company for the benefit and protection of Lee, Higginson & Co., Clark L. Poole & Co., the Boston banks which had advanced moneys on countersigned notes, and other creditors, but with an agreement on the part of Lee, Higginson & Co. that if the debts of the Sales Company were paid the Sales Company stock would be*3020  returned to the Savannah River Lumber Co.  (17) In January, 1917, substantially all of the common stock of the Savannah Timber Co. was acquired by the Savannah River Lumber Co. from the Savannah River Sales Co.  In January, 1917, 1,000 shares of preferred stock of Savannah Timber Co., par value $100,000, were acquired by Lee, Higginson & Co. in exchange for a note previously held by them having a face value of $100,000; and in January, 1920, 2,000 shares of second preferred stock of the Savannah Timber Co. (par value $200,000) were acquired by Lee, Higginson & Co., 1,000 shares in exchange for the 1,000 shares of preferred stock acquired in January, 1917, as above described, and 1,000 shares in exchange for a note previously held by Lee, Higginson & Co., having a face value of $100,000.  The said exchanges by Lee, Higginson & Co. of notes for preferred stock were made for the purpose of subordinating the claims of Lee, Higginson & Co. to those of other creditors in order to facilitate additional financing by the Savannah Timber Co.  Dividends on the preferred stock of the Savannah Timber Co. were guaranteed by the Savannah River Timber Co.  (18) Substantially all the stock of the*3021  new corporation, Savannah River Lumber Co. (namely, all of the preferred stock, 60, 000 shares, and 55,000 shares of common stock out of a total issue of 60,000 shares) was issued in May, 1916, pursuant to a provision of the reorganization plan adopted by the bondholders' protective committee, to three voting trustees under an agreement known as the Savannah River Lumber Co. voting trust agreement of May 1, 1916, *174  the voting trustees in turn issuing their certificates of beneficial interest to the old Hilton-Dodge Lumber Co. bondholders.  Of the 5,000 shares of common stock not issued to the voting trustees, 3,005 shares were issued or transferred prior to January 1, 1917, to members of the firm of Lee, Higginson & Co., 505 shares to employees of Lee, Higginson & Co., and all of the remaining common stock (less than 2 per cent of the total voting stock) was issued to persons closely associated with Lee, Higginston & Co. in the management of the Savannah River Lumber Co.  Both the preferred stock and the common stock of the Savannah River Lumber Co. issued to the voting trustees had the right to vote.  (19) At the date of the reorganization of the Hilton-Dodge Lumber Co. *3022  into the Savannah River Lumber Co. and the issue of the stock of the Savannah River Lumber Co. to the Savannah River Lumber Co. voting trustees, it was clearly understood by all parties in interest that substantial additional financial assistance would be required by the new company and its subsidiaries and that Lee, Higginson & Co., because of their connection with the original sale of a large number of the bonds to investors and their desire to protect and safeguard the interests of such investors, were prepared to furnish such assistance directly through their own resources and through the Boston banking institutions affiliated with them, and that such assistance could be obtained from no other source.  Clark L. Poole & Co., originally associated with Lee, Higginson & Co. in the sale of the Hilton-Dodge Lumber Co. bonds, was not at this time (nor for some time before) in a position to furnish any financial assistance and was in fact itself in debt to Lee, Higginson & Co.  (20) The original trustees of the Savannah River Lumber Co. voting trust were Hugh G. Levick, Charles Francis Adams, and Clark L. Poole.  Hugh G. Levick was a member of the firm of Lee, Higginson & Co., Charles*3023  Francis Adams was a nominee of Lee, Higginson & Co., and Clark L. Poole was the head of Clark L. Poole & Co., the bankers associated with Lee, Higginson & Co. in the purchase of the original bond issue, who had previously agreed that Lee, Higginson & Co. should have the "entire management of the matter." (21) The Savannah River Lumber Co. voting trust agreement of May 1, 1916, contained the following provisions: 2.  This agreement is made for the better carrying out of the reorganization of the Hilton-Dodge Lumber Company in accordance with a depositary agreement dated May 26, 1914, and a plan annexed thereto, for the protection of the parties heretofore interested in said The Hilton-Dodge Lumber Company, as bondholders, creditors and first preferred stockholders, and thereby in accordance with said plan interested as stockholders in the Savannah River Lumber Company, which company has acquired and taken over substantially all the property and the business of said The Hilton-Dodge Lumber Company, and with *175  the intent that the Trustees shall so act as to preserve unity of management in said Savannah River Lumber Company and its various subsidiaries, and to establish and*3024  maintain the credit of the various corporations, and to secure the payment of their financial obligations and the operating and liquidating of the various corporations in accordance with said plan and the agreements made in furtherance thereof.  4.  * * * The Trustees shall have all the powers incident to ownership of stock and property in their hands except as otherwise specifically provided hereunder.  Without in anyway limiting the general provisions, it is provided expressly that they shall be entitled to the sole right to vote upon the stock whether common or preferred held by them; they may vote for any or all of themselves as directors or other officers of said Savannah River Lumber Company or any of the subsidiaries thereof, and may without invalidating their own acts or the acts of said Company or its subsidiaries be interested in any way and to any extent in said corporations and in any votes or acts of said corporations, their officers or directors, and may in all respects vote and act as the absolute owners of said stock.  * * * The action of the Trustees in all matters, including voting power and granting of proxies, shall be determined by the vote or decision*3025  of a majority of the Trustees for the time being, either at a meeting of the Trustee or by writing with or without such meeting.  5.  Any Trustee may at any time resign his office by delivering to the other Trustee or to the secretary his resignation in writing, which shall take effect ten days thereafter or upon the appointment of his successor if such appointment is made earlier.  The directors of Savannah River Lumber Company may, by resolution, with the approval in writing of Lee, Higginson & Company as now or hereafter constituted, remove any trustee from office, such removal to become effective upon the filing of a certified copy of such resolution and approval with the Secretary of the Trust.  In case of resignation or of vacancy for any cause except removal, it shall be the duty of the secretary and of the other Trustees to cause notice of such vacancy to be given the President and Secretary of Savannah River Lumber Company and Lee, Higginson & Company.Upon the happening of any vacancy the remaining Trustee or Trustees hereunder shall within sixty days thereafter, appoint a successor to fill such vacancy and such appointment shall become effective upon approval*3026  in writing by Lee, Higginson & Company, as now or hereafter constituted, filed with the Secretary of the Trust.  In the event there should be no remaining Trustee, the directors of Savannah River Lumber Company may, by resolution, with the approval in writing of Lee, Higginson & Company, as now or hereafter constituted, appoint a new board of Trustees hereunder and such appointment shall become effective upon filing a certified copy of such resolution and the approval aforesaid with the Transfer Agent of the Trust.  (Italics ours.) (22) The purpose of the Hilton-Dodge bondholders, acting through their protection committee, in authorizing the issuance of the stock of the Savannah River Lumber Co. to the Savannah River Lumber Co. voting trust, with a board of trustees constituted as described in the preceding paragraph, and with provisions contained in the voting trust agreement giving the trustees all the powers of owners, and requiring the approval of Lee, Higginson & Co. for either the removal of a trustee or the appointment of a successor *176  trustee, was to give and secure permanently to Lee, Higginson & Co. the control of the entire Savannah River situation, *3027  including control of the stock of the Savannah River Lumber Co. and of the management of that company and its several subsidiaries.  Most of the holders of certificates of beneficial interest in the Savannah River Lumber Co. voting trust were originally bondholders who had purchased their bonds from the bankers, for the most part from Lee, Higginson & Co., and they depended upon Lee, Higginson & Co. to retain control of the situation and work it out for their best advantage, and desired that result.  These former bondholders, later becoming holders of beneficial interests in the Savannah River Lumber Co. voting trust, never protested or objected in any way against the domination of Lee, Higginson & Co. and their control of the Savannah River situation.  (23) The trustees of the Savannah River Lumber Co. voting trust held no meetings as trustees for purposes of consultation or otherwise, their activities consisting of giving proxies once a year for the election of directors at stockholders' meetings of the Savannah River Lumber Co.  The stock of the Savannah River Lumber Co. held by the voting trustees was invariably voted through a proxy, the proxy being selected by Lee, Higginson*3028  & Co., and the officers and directors for whose election the stock was voted were selected by Lee, Higginson & Co.  The affairs of the company were sometimes discussed by members of the firm of Lee, Higginson & Co. with Charles F. Adams, one of the trustees, but Adams invariably acquiesced in the plans, policies and procedure determined upon by Lee, Higginson & Co. Clark L. Poole, the remaining trustee, lived in Chicago Throughout the years 1917 to 1921, inclusive, and his activities as a voting trustee consisted merely in signing proxies when submitted to him by Lee, Higginson & Co. or their counsel.  (24) Of the three voting trustees of the Savannah River Lumber Co. voting trust, one was throughout the entire period involved a member of the firm of Lee, Higginson & Co., first Hugh G. Levick, and upon Levick's withdrawal from the firm of Lee, Higginson & Co., Jerome D. Greene.  As voting trustees Levick and Greene represented Lee, Higginson & Co. exclusively.  (25) Another of the three voting trustees of the Savannah River Lumber Co. voting trust was throughout the period involved Clark L. Poole.  Poole was the head of Clark L. Poole & Co., the investment house which had shared*3029  with Lee, Higginson & Co. in the original purchase and marketing of the Hilton-Dodge Lumber Co. bonds.  Although Clark L. Poole & Co. had originally been active in the financing of the Hilton-Dodge situation in cooperation with Lee, Higginson & Co., their own financial difficulties had, long prior to 1916, required complete withdrawal from any further participation, *177  and they had by formal contract agreed to leave the management of the entire matter to Lee, Higginson & Co.  There was never any diversity of interest between Poole & Co. and Lee, Higginson & Co. and the two concerns acted in complete harmony and cooperation, and Poole had entire confidence in the fairness, impartiality and efficiency of Lee, Higginson & Co.  By the time of the reorganization of April, 1916, in connection with which the Savannah River Lumber Co. succeeded the Hilton-Dodge Lumber Co., Poole had withdrawn from any practical connection with the affairs of the Savannah River Companies, except for his status as voting trustee.  Under these circumstances Poole was willing to leave, and did leave, the control of the stock of the Savannah River Lumber Co. held in part by him as one of the three voting*3030  trustees, to Lee, Higginson & Co., and acquiesced, without limitation, in the policy and procedure determined upon by Lee, Higginson & Co. in that connection.  (26) The remaining trustee of the Savannah River Lumber Co. voting trust was Charles Francis Adams.  Adams had, at the invitation of Lee, Higginson & Co., served on the protective committee representing the Hilton-Dodge Lumber Co. bondholders, and likewise at their invitation he became a trustee of the Savannah River Lumber Co. voting trust.  Adams had been associated in various connections with Lee, Higginson & Co. for a great many years and had confidence in their ability and integrity.  While Adams at various times discussed the Savannah River matters with members of the firm of Lee, Higginson & Co., he invariably acquiesced in their plans and policies.  He attended two out of seventeen meetings of the board of directors of the company during the years 1917 to 1921, inclusive, and attended no meetings of the stockholders.  (27) The only individuals who have acted as voting trustees of the Savannah River Lumber Co. voting trust in addition to the original trustees (Levick, Poole, and Adams) have been Jerome D. Greene, *3031  a partner in Lee, Higginson & Co., Francis L. Higginson, Jr., a partner in Lee, Higginson & Co., George C. Lee, a partner in Lee, Higginson & Co., and Roger Ernst, an attorney of Lee, Higginson & Co. and not otherwise connected with the matter.  (Higginson, Lee, and Ernst officiated as trustees in years subsequent to 1921, succeeding Greene and Poole.  (28) Under date of June 26, 1916 - about two months subsequent to the reorganization of the Hilton-Dodge Lumber Co. into the Savannah River Lumber Co., and the establishment of the Savannah River Lumber Co. voting trust - a general agreement was entered into between the Savannah River Lumber Co. and the Savannah River Sales Co.  "As to the Assets of the Sales Company and the Relations Between the Two Corporations," and on the same date *178  another agreement was entered into between the Lumber Company, the Sales Company, Lee, Higginson & Co., Clark L. Poole & Co. and The First National Bank of Boston, entitled "Agreement as to the Obligations of the Sales Company." Inasmuch as the capital stocks of the Savannah Timber Co., the Savannah Mercantile Co. and the Savannah-New York Transportation Co. were at that time included among*3032  the "assets of the Sales Company," these agreements constituted basic agreements governing and describing the interrelations of at least the several companies constituting the Savannah River group (i.e., all of the companies whose status is here in question except the Port Wentworth Lumber Co.) (29) The original board of directors of the Savannah River Lumber Co., elected upon the organization of the corporation in 1916, was selected in its entirety by Lee, Higginson & Co.  All changes in the board from year to year thereafter throughout the history of the company were determined upon by Lee, Higginson & Co.  (30) Meetings of the board of directors of the Savannah River Lumber Co. were ordinarily held at the New York or Boston offices of Lee, Higginson & Co.  (31) In addition to determining the directorate of the Savannah River Lumber Co., and the chief executive of all the companies, Lee, Higginson & Co. kept in constant touch with the management and policy of the companies through the attendance of their partners and employees at directors' meetings of the Savannah River Lumber Co., held in the offices of Lee, Higginson & Co. for the most part, at which meetings the policies*3033  of all companies were determined, and through frequent visits on the part of partners and employees and attorneys to Savannah, and through visits of Fetty, president of all the companies, to Boston and New York.  (32) Isaac H. Fetty, the president of all the companies where status with respect to affiliation is involved in this appeal, during the entire period 1917 to 1921, inclusive, was selected as such by Lee, Higginson & Co., and always regarded Lee, Higginson & Co. as the final authority in matters of management and policy affecting all of the companies concerned.  (33) All the executives of the Savannah River Lumber Co. and the group of corporations associated with it, and of the Port Wentworth Lumber Co., looked to Lee, Higginson & Co. and its representatives as the final authority in all matters of business policy and procedure.  Lee, Higginson & Co. was the decisive authority in all matters affecting the policy or management of the companies which it is claimed were affiliated, and no opposition ever developed from any source to the domination and control by Lee, Higginson & Co. (34) The affairs of the companies whose status with respect to affiliation is involved in*3034  this proceeding, other than the Savannah *179  River Lumber Co. itself, were discussed, and, as a practical matter, determined, at meetings of the directors of the Savannah River Lumber Co., the meetings of directors of such other companies being merely formal meetings for the purpose of carrying out the action decided upon at meetings of directors of the Savannah River Lumber Co.  To a substantial extent the same individuals who were directors of the Savannah River Lumber Co. were also directors of the companies subsidiary to that company.  (35) Port Wentworth Lumber Co. was organized as a Delaware corporation on April 7, 1916, with principal place of business in Savannah, Ga.  Port Wentworth Lumber Co. was organized by certain New York financial interests through the reorganization and consolidation of two previously existing lumber companies then in the hands of receivers.  It timber holdings were intermingled with the timber holdings of the Hilton-Dodge Lumber Co. (about that time reorganized as the Savannah River Lumber Co.) and of the Savannah Timber Co., and it was clear to the promoters of the Port Wentworth Lumber Co., prior to their acquisition of the property, that*3035  the properties could be operated successfully only in conjunction with the Savannah River Lumber Co. and the Savannah Timber Co.  For the purpose of obtaining such joint operation, the Promoters of the Port Wentworth enterprise approached the Savannah River Lumber Co. interests and entered into an agreement whereby it was arranged that the chief executive of the Savannah Companies should become the chief executive of the Port Wentworth Lumber Co., Port Wentworth to be managed by the Savannah River organization and to be operated in conjunction with the operation of the Savannah River Lumber Co. and the Savannah Timber Co., and to have the same connections with the Savannah River Sales Co., the Savannah Mercantile Co. and the Savannah-New York Transportation Co. which the Savannah River Lumber Co. had, in exchange for which the Port Wentworth promoters agreed that all the stock of the Port Wentworth Lumber Co., to be organized, should be held by three specified voting trustees, of whom two were primarily representative of Lee, Higginson & Co., and that substantially one-half of the equity in the company should be transferred to the Savannah River Lumber Co.  At the time this agreement*3036  was made it was understood by the promoters of the Port Wentworth Lumber Co. that Lee, Higginson & Co. was in control of the Savannah River Companies and that management and control of the Savannah River Lumber Co. meant management and control by Lee, Higginson & Co.  This agreement was carried out, the Port Wentworth Lumber Co. was organized, Fetty, president of the Savannah River Lumber Co. and allied companies, became president of the Port Wentworth *180  Lumber Co., all of the stock of the Port Wentworth Lumber Co., except directors' qualifying shares (9,979 shares out of a total of 10,000 shares) was issued to, and throughout the years 1916 to 1921, inclusive, was held by Fetty, Lewis, and James Imbrie, as voting trustees, and somewhat more than one-half of the certificates of beneficial interest in the voting trust (5,601 shares or 56 per cent) was issued to the Savannah River Lumber Co., Fetty, Lewis, Andrews, and Levick, individuals affiliated with the Savannah River Lumber Co. and with Lee, Higginson & Co. (4,993 shares, or about 50 per cent, being issued to the Savannah River Lumber Co. itself).  The New York financial interests originally promoting the Port Wentworth*3037  Co. recognized that both Lewis and Fetty (two out of the three voting trustees) were representatives of Lee, Higginson & Co.  (36) The control and domination of the Port Wentworth Lumber Co. by the Savannah River Lumber Co. and Lee, Higginson & Co., although existing from the beginning (that is April, 1916) became more complete from year to year.  Thus, the ownership by the Savannah River Lumber Co. interests in the equity of the Port Wentworth Lumber Co. (i.e., certificates of beneficial interest in the Port Wentworth Lumber Co. voting trust) increased from 56 per cent in 1916 to over 67 per cent in July, 1918, most of this percentage in each year being held directly by the Savannah River Lumber Co., and the 67 per cent interest being retained throughout the years 1918, 1919, 1920, and 1921.  Furthermore, although in 1917 only four out of seven directors of the Port Wentworth Lumber Co. represented the Savannah River Lumber Co. and Lee, Higginson & Co., in 1919 four out of six of the directors were such representatives, and in 1921 five out of six directors were such representatives.  Finally, although in 1916, the Port Wentworth Lumber Co. was financed to only a small extent by*3038  the Savannah River Companies (its borrowings as of December 31, 1916, from the Savannah River Companies being only $40,978) on December 31, 1917, Port Wentworth's borrowings from the Savannah River Companies stood at $182,276, on December 31, 1918, at $334,439, on December 31, 1919, at $383,248, December 31, 1920, at $200,549, and on December 31, 1921, at $457,589.  (37) All parties in interest recognized that successful operation of the Port Wentworth properties required operation in conjunction with, and under the same management and control as, the Savannah River properties; the original promoters of the Port Wentworth enterprise would not have attempted the independent operation of those properties; and the executives of the Savannah River Lumber Co. and Lee, Higginson & Co. would not have undertaken the management of the Port Wentworth Lumber Co. except on the assumption that it was to be operated as an integral part of a single system and under a single control.  *181  (38) James Imbrie, the sole representative, among the voting trustees holding and controlling substantially all the stock of the Port Wentworth Lumber Co. of the original Port Wentworth Lumber Co. promoters*3039  acquiesced entirely in the management of the company by the Savannah River Lumber Co. and the control of the stock by Lee, Higginson & Co. through a majority of the voting trustees nominated by them.  (39) During this entire period the Port Wentworth Lumber Co. was managed and operated as an integral part of the Savannah River system, having a single general office in conjunction with the group of corporations constituting that system, with common general accounting, fiscal and executive officers and employees, its lumber being sold by the Savannah River Sales Co. as selling agent on a cost basis, its lumber being transported by the Savannah-New York Transportation Co., and its supplies being furnished by the Savannah Mercantile Co.  Its timber holdings were reblocked with the holdings of the Savannah River Lumber Co. and the Savannah Timber Co., equipment was used interchangeably as between it, the Savannah River Lumber Co. and the Savannah Timber Co., and numerous employees were used in common by it and by the Savannah River Lumber Co. and the Savannah Timber Co.  (40) Intercompany relationships - common officers. - The same individual, Isaac H. Fetty, was president of all*3040  the companies whose status is involved in this proceeding during all the taxable years 1917 to 1921, inclusive.  The same individual, first Carrol Dunham, 3d, and following him John Rae Gilman, was secretary of all the companies except the Port Wentworth Lumber Co. during all the taxable years 1917 to 1921, inclusive, and during the same taxable years Edwin Shaw was assistant secretary of all the companies except the Port Wentworth Lumber Co. and was secretary of the Port Wentworth Lumber Co.  The same individual, first Carrol Dunham, 3d, and following him Edwin Shaw, was the treasurer of all the companies involved except the Port Wentworth Lumber Co. during all the taxable years 1917 to 1921, inclusive, and during the years 1918 (part) and 1919 to 1921, inclusive, Edwin Shaw was also treasurer of the Port Wentworth Lumber Co.  The same individual, first Edwin Shaw and later E. E. Porter, was assistant treasurer of all the companies whose status is involved in this proceeding during the years 1917 to 1921, inclusive.  Many of the same individuals were on the boards of directors of the various companies.  (41) Intercompany relationships - identity of offices and certain employees.*3041   - During all of the years 1917 to 1921, inclusive, there *182  was a single general executive and accounting office for all of the companies whose status is involved in this proceeding.  All treasury, auditing and accouting officers and employees functioned as such for all the companies in common, each company contributing to the compensation of such officers and employees.  The position of general superintendent for all the companies was held by the same individual.  The entire technical personnel of the timber owning and operating companies (the Savannah River Lumber Co., the Savannah Timber Co. and the Port Wentworth Lumber Co.) functioned in connon for all of those three companies, including the members of the land and timber department, timber cruisers, civil engineers, timber agents, etc.  The traffic department functioned alike for all of the companies having either incoming or outgoing traffic.  All employees of each company were available when needed for detail work in connection with any other company.  (42) Intercompany relationships - financial transactions. - The current funds of the various companies whose status is involved in this proceeding were used*3042  in common, one company temporarily in need of cash borrowing at will from another company temporarily supplied with cash.  This practice resulted in the presence of constantly fluctuating intercompany credit and debit balances in substantial amounts, ranging from a few dollars to several hundred thousand dollars, throughout the years 1917 to 1921, inclusive.  The Savannah River Lumber Co. guaranteed the payment of dividends upon all the preferred stock of the Savannah Timber Co., which preferred stock was held by Lee, Higginson & Co.  (43) Intercompany relationships - purchase and sales. - The Savannah River Lumber Co. and the Port Wentworth Lumber Co. sold all of their lumber to the Savannah River Sales Co.; the Savannah River Lumber Co. and the Port Wentworth Lumber Co. bought most of their supplies from the Savannah Mercantile Co., which company also sold supplies to the other companies involved in case of need; the several timber companies (the Savannah River Lumber Co., the Port Wentworth Lumber Co. and the Savannah Timber Co.) purchased timber from one another when one company needed timber more conveniently situated on the holdings of another company.  (44) Intercompany*3043  relationships - operating transactions other than purchases and sales. - The several timber-owning companies (Savannah River Lumber Co., Port Wentworth Lumber Co., and Savannah Timber Co.) frequently exchanged equipment.  In the full of 1919, for the purpose of reblocking the timber in order to facilitate *183  a bond issue by the Savannah Timber Co., extensive exchanges of timber took place between the several timber-owning companies.  Subsequent to this exchange, which involved the transfer by the Savannah River Lumber Co. to the Savannah Timber Co. of a mill and the accompanying lumber-manufacturing facilities, the mill and accompanying facilities, camps, etc., were leased back by the Timber Co. to the Lumber Co.  Savannah-New York Transportation Co. transported lumber to northern markets for the Savannah River Lumber Co. and the Port wentworth Lumber Co.  (45) Intercompany relationships - transactions on artificial basis. - Many transactions between the several corporations whose status with respect to affiliation is involved herein were carried out on a basis other than that of market values and prices.  Thus the Sales Company's activities as selling agent for the*3044  Savannah River Lumber Co. and the Port Wentworth Lumber Co. were conducted without profit to the Sales Co. and with protection to the Sales Co. against loss; and the Lumber Co. leased to the Sales Co. at a nominal rental all premises on which lumber was stored.  All necessary transportion facilities except tugs and vessels, controlled by the Savannah River Lumber Co. were afforded to the Transportion Co. without charge.  Store accommodations were supplied to the Savannah Mercantile Co. by the Savannah River Lumber Co. at a nominal rental.  Miscellaneous services by employees of one company for another company were performed without any adjustment of compensation.  Equipment was loaned by one of the timber-owning companies (including the Savannah River Lumber Co., Port Wentworth Lumber Co. and Savannah Timber Co.) to another without charge or compensation.  The rental charged by the Savannah Timber Co. for the lease to the Savannah River Lumber Co. of mill facilities in 1919 and following years was an arbitrary amount, calculated, without reference to the value of the leased property as sufficient to provide funds to meet the bond interest and other expenses of Savannah Timber Co.  The*3045  timber exchanges of 1919, between the Savannah River Lumber Co., the Savannah Timber Co. and the Port Wentworth Lumber Co., made for the purpose of reblocking timber holdings in such a way as to afford the basis for a bond issue by the Savannah Timber Co., were made on the basis of values fixed by the company's auditor on the basis of the investment therein, and without appraisals or reference to current market values.  (46) Lee, Higginson & Co. controlled substantially all the stock of the several corporations whose status in respect of affiliation is involved in this proceeding, such control being exercised in the manner indicated in the attached chart.  Distribution of control of stock of the several corporations whose status is the subject matter of appealLEE, HIGGINSON & CO.ThroughThroughS.R.L. Co.Through1918-19recordvoting ThroughS.R. SalesownershiptrusteesS.R.L. Co.Co.SharesSharesSharesShares50,000 comS.R.L. Co60,000 pfdS. Timber Co1,000 pfd1,300 comS.R. Sales Co493 comS. Mercantile Co295 comS. N. Y. Transp. Co3,479 comP.W. Lumber Co1920-2150,000 comS.R.L. Co60,000 pfd1,300 comS. Timber Co2,000 2d pfd9,600 1st pfdS.R. Sales Co493 comS. Mercantile Co295 comS.N.Y. Transp. Co3,479 comP. W. Lumber Co*3046 LEE HIGGINSON & CO.Through P.W.L. Co. voting trusteesThrough partners or employees of L.H. Co.1918-19S.R.L. CoSharesSharesS. Timber Co3,510 com.S.R. Sales CoS. Mercantile CoS. N. Y. Transp. CoP.W. Lumber Co1920-219,979 comS.R.L. Co3,510 com.S. Timber CoS.R. Sales CoS. Mercantile CoS.N.Y. Transp. CoP. W. Lumber Co9,979 com*184  OPINION.  SMITH: The question presented by these proceedings is that of the affiliation of the following corporations for the years 1917 to 1922, inclusive: Savannah River Lumber Co.  Savannah River Sales Co.  Savannah Mercantile Co.  Savannah-New York Transportation Co.Savannah Timber Co. (hereinafter referred to as the Savannah Group).  Port Wentworth Lumber Co.  The specific issue raised in Docket No. 14354 is the affiliation of the Savannah Mercantile Co. with the other companies for 1917, and in Docket No. 16130 of the Savannah Timber Co. with the other companies for 1921.  The statutory provisions relating to affiliation for 1917 are different from those relating*3047  to the years 1918 to 1921.  For convenience of treatment the affiliation status of the companies for the later period will be first considered.  The respondent's brief admit that he has allowed affiliation of the Savannah River Sales Co., the Savannah River Mercantile Co., and the Savannah-New York Transportation Co., for the years 1918, 1919, and 1921.  The respondent objects vigorously to the affiliation of the Savannah Timber Co. with the Savannah River Lumber Co. for the year 1921 and for the other years involved.  The respondent's brief does not cover the question of the affiliation *185  of the Port Wentworth Lumber Co. with any other company for any of these years.  In support of their contention that all of these companies were affiliated for the years 1918 to 1921, the petitioner submits and the evidence of record supports, the following: 1.  All of the corporations, with the exception of the Port Went-worth Lumber Co., constituted a single economic enterprise, the Savannah River Lumber Co. being the successor of the Hilton-Dodge Lumber Co., and the other corporations having been organized as subsidiaries of the Hilton-Dodge Lumber Co., each to conduct some department*3048  of its business, separate incorporation being merely a matter of convenience and expediency.  2.  The Port Wentworth Lumber Co., while not historically part of a single economic enterprise with the Savannah River group of corporations, was so situated in respect to its timber holdings as to constitute in fact a natural part of the same enterprise and for that reason was made part of the same enterprise by deliberate act of its promoters.  3.  All of the corporations maintained constant intercompany relationships and engaged continuously in intercompany transactions of a complicated and far-reaching character, very largely on an artificial basis independent of market standards, so that it is impracticable to determine the true net income of the several corporations involved except through consolidated returns.  4.  Substantially all the stock of the several corporations was owned or controlled by Lee, Higginson & Co., as follows: (a) Savannah River Lumber Co. - More than 99 per cent of the stock of this company was controlled by Lee, Higginson & Co., through the Savannah River Lumber Co. voting trust, established under an agreement dated May 1, 1916.  One of the three voting*3049  trustees was a partner in Lee, Higginson & Co., acting constantly as its direct representative; another was a nominee of Lee, Higginson & Co. who, in view of the circumstances and particularly the dependence of the Savannah River Lumber Co. upon Lee, Higginson & Co. for extensive financial support, left the control of the stock to Lee, Higginson & Co.; and the third was the head of the banking house associated with Lee, Higginson & Co. in the purchase and sale of the bonds, which associated banking house had bound itself by formal contract to allow Lee, Higginson & Co. to have the management of the entire Savannah River matter.  The voting trust instrument itself carefully provided that any removal of a trustee and any appointment of a successor trustee should be subject to the approval of Lee, Higginson & Co., and gave the power to remove the entire board of trustees and appoint a new board, to the directors of the *186  Savannah River Lumber Co., acting with the approval of Lee, Higginson & Co.  All of the Savannah River Lumber Co. directors were, throughout the taxable years in question, including the year 1917, selected by Lee, Higginson & Co., practically all of them being*3050  either partners, employees or attorneys of Lee, Higginson & Co., or their close business associates serving as directors at their request.  (b) Savannah Timber Co. - More than 99 per cent of the common stock of this company was owned by the Savannah River Lumber Co. and controlled by Lee, Higginson & Co. through its control of the Savannah River Lumber Co. and also through Lee, Higginson & Co.'s control of the board of directors of the Savannah River Lumber Co., all the members of which had been selected by Lee, Higginson & Co., and more than 80 per cent of whom were in every year, including 1917, closely affiliated with Lee, Higginson & Co.  Lee, Higginson & Co.'s control of the common stock of the Savannah Timber Co. was reenforced and confirmed by the circumstance that that stock was pledged with Lee, Higginson & Co. for its claims on account of its advances to the Savannah River Lumber Co. and allied companies.  All of the preferred stock of the Savannah Timber Co. was either owned by the Savannah River Lumber Co., and accordingly controlled by Lee, Higginson & Co. in the same way as the common stock of the Savannah Timber Co., or was owned directly by Lee, Higginson & Co. *3051  itself.  (c) Savannah River Sales Co. - More than 98 per cent of the stock of this company was owned by Lee, Higginson & Co. for the purpose of controlling the operations of the Sales Co., and for the benefit and protection of the holders of countersigned notes and of the endorsements or guaranties of lumber notes and receivables, and of the banks.  While Lee, Higginson & Co. had agreed that this stock should be returned to the Savannah River Lumber Co. when all of the Sales Company's debts were paid it was made entirely clear that meanwhile the control of the stock was in Lee, Higginson & Co.  This control persisted till after the close of 1921.  (d) Savannah Mercantile Co. - More than 98 per cent of the stock of this company was owned by the Savannah River Sales Co. and was controlled by Lee, Higginson & Co. through its control of the Savannah River Sales Co.  Such control through the Sales Co. was reenforced and confirmed by the circumstance that the stock of the Mercantile Co. was pledge with Lee, Higginson & Co. for its claims on account of advances to the Savannah River Lumber Co. and allied companies.  (e) Savannah-New York Transportation Co. - More than 99*3052  per cent of the stock of this company was owned by the Savannah River Sales Co. and was controlled by Lee, Higginson & Co. through its *187  control of the Savannah River Sales Co., such control through the Sales Co. being reenforced and confirmed by the circumstance that the stock of the Savannah-New York Transportation Co. was pledged with Lee, Higginson & Co. as security for its claims on account of advances to the Savannah River Lumber Co. and allied companies.  (f) Port Wentworth Lumber Co. - More than 99 per cent of the stock of this company was controlled by Lee, Higginson & Co. through the Port Wentworth Lumber Co. voting trust, two out of the three voting trustees representing Lee, Higginson & Co.  The third trustee, though not representing Lee, Higginson & Co., desired their cooperation in management and their financial assistance, and acquiesced in their policies.  Section 240(b) of the Revenue Act of 1918 and section 240(c) of the Revenue Act of 1921 provide that: * * * Two or more domestic corporations shall be deemed to be affiliated * * * if substantially all the stock * * * is owned or controlled by the same interests.  The petitioner contends that*3053  they were affiliated for the years 1918 to 1922, inclusive, upon the ground that substantially all of the stock of these corporations was "owned or controlled by the same interests." The respondent, confining his brief to the question of the affiliation of the Savannah Timber Co. with the Savannah River Lumber Co., admits that the individual stockholders of the Lumber Co. were helpless; that Lee, Higginson & Co. was the only financial hope of the Lumber Co.; that there was no reason for these stockholders through their voting trustees to interfere with or oppose Lee, Higginson & Co.'s suggestion.  He submits, however, that the stock of the Lumber Co. was owned by public stockholders, namely, the former bondholders of the Hilton-Dodge Lumber Co.; that the stock of the Timber Co. was 84 per cent owned by the Lumber Co., and 16 per cent by Lee, Higginson & Co., that the harmony between all of the stockholders of these companies was one created more by the poverty of the situation than that of friendly participation.  In  , we stated that: * * * The object sought to be accomplished by Congress, in enacting section 240 of the Revenue Act*3054  of 1918, was to tax as a business unit what really was a business unit, * * * We there laid down the proposition that the control required by the statute is actual, practical control, not legal control.  In this and in numerous other cases the Board has established the following general principles relating to the meaning of control.  (1) The control required is not legal control but actual, practical control.  (2) The control must be genuine and must be actually exercised.  *188  (3) The control required is control of the stock, not merely control of the corporate entities or businesses.  (4) Control of the corporate entities or businesses, their management and policies, while not the ultimate control referred to in the statute, is a "significant circumstance" as bearing upon the question of identity of interest to stockholding groups.  (5) Intercompany transactions and relationships, particularly on an artificial basis, and economic unity, while not in themselves decisive, have an important bearing upon the question of control, and a situation which will not constitute control in the absence of inter-company transactions and relationships may constitute control where*3055  such intercompany transactions and relationships exist, particularly if they are on an artificial basis.  The Board has decided each affiliation case which has come before it upon its own peculiar facts.  The proceedings at bar present somewhat different facts from those in any case heretofore decided by the Board.  The facts in some cases, however, present a close parallel.  In  , we held that the petitioner was affiliated with the Finance & Trading Corporation during the year 1920.  The latter corporation held two-thirds of the stock of the Stanley Insulating Co.  The remaining third of the stock of Stanley Insulating Co. was held by syndicate managers representing 14 individuals, and although the syndicate managers were largely interested in the Finance & Trading Corporation, the 14 individuals who had contributed funds of the syndicate were not interested in the Finance & Trading Corporation.  The situation there presented is not unlike the situation obtaining in the instant proceedings, with voting trustees representing holders of beneficial interests therein in place of syndicate managers representing syndicate members.  The*3056  voting rights in the stock held by the syndicate managers were legally in the syndicate managers just as in the present proceedings the voting rights held by the voting trust were legally in the voting trustees.  The syndicate agreement vested the manager with the fullest and broadest authority, just as the voting trust here vested the voting trustees with the fullest and broadest power and authority.  The Board held that the corporations were affiliated.  In  , the facts were that all of the stock of the petitioner was held by three voting trustees and the question of affiliation depended altogether upon the actual control of the stock so held.  Legal control of the stock was given by the trust instrument to the three trustees acting for the majority of their number.  One of the three voting trustees, Jones, was principal stockholder in the Finance Exploration & Development Corporation; another of the trustees, Barker, was an *189  attorney and close business associate of Jones; the third trustee, Tucker, represented other interests.  The Board held that the companies were affiliated. *3057 In  , three brothers held one-third of the stock of Grammercy Investing Co. of New York in their individual capacity (that is, as owners in their own several rights), and likewise each held 7 1/3 per cent of the stock of Huyler's in their own several rights.  The same individuals held 64 per cent of the stock of Huyler's in the capacity of trustees.  The Board held that the holdings of the three brothers, on the one hand in their own right, and on the other hand as trustees, constituted both "the same interests" and that the two corporations were affiliated.  This holding was made in spite of the fact that there was a minority interest in Huyler's of 14 per cent.  The economic unity of the Savannah River group of companies is clearly established.  The control of the stocks of these companies by Lee, Higginson & Co. during the years 1918 to 1921, inclusive, is likewise clearly established.  On behalf of the respondent it is objected that the purpose motivating Lee, Higginson & Co. in the control of these companies was the protection of its investment clientele to the extent of returning to the investors in the original Hilton-Dodge Lumber*3058  Co. bonds, which it had floated, their investments in those bonds and to repay to its friends, the lender banks, the amounts of money which the bankers had been induced by them to advance to the Savannah River situation.  We think, however, that the purpose motivating Lee, Higginson & Co. is immaterial.  The control was actually exercised by Lee, Higginson & Co.  Certainly Lee, Higginson & Co. constitutes "the same interests" referred to in the statute, since there is no other interest exercising any control.  The Savannah group of companies was, therefore, affiliated for the years 1918 and 1921.  The claim of the Port Wentworth Lumber Co. to affiliation with the Savannah River group of companies is possibly not so strong as that of the Savannah Timber Co. with the other members of the Savannah River group.  More than 99 per cent of the stock of this company was held by three trustees acting in the name of the Port Wentworth Lumber Co. voting trust.  The Port Wentworth Lumber Co.'s origin was independent of the Savannah River group and its original promoters had no connection with the other companies involved.  Because of its independent origin one of the three Port Wentworth Lumber*3059  Co. trustees was an individual wholly independent of Lee, Higginson & Co., and for the same reason the Port Wentworth Lumber Co. voting trust instrument does not contain provisions that the removal of trustees and the appointment of all *190  successor trustees shall be subject to the approval of Lee, Higginson & Co.  The evidence discloses, however, that the Port Wentworth Lumber Co. constituted an economic part of a single unity along with the Savannah River group of companies.  Two of the trustees were under the domination and control of Lee, Higginson & Co.  The third trustee, the direct representative of the original promoters, perceived the necessity of unified control and acquiesced fully in Lee, Higginson & Co.'s domination.  This is indicated by the following testimony of George Cabot Lee, a partner of Lee, Higginson & Co.: Q.  Has Mr. Imbrie ever expressed to you any dissatisfaction in respect to the domination of Lee, Higginson & Company in the affairs of the Port Wentworth Lumber Company, or any opposition to Lee, Higginson & Company in connection therewith?  A.  On the contrary, he highly approved it.  * * * Q.  * * * What has Mr. Imbrie said to you on that*3060  subject? A.  He said that he was right behind us in any actions we might take in regard to the Port Wentworth and Savannah River Lumber Company.  Q.  In view of the inter-relations between the Savannah River group of corporations, and the Port Wentworth Company, as to inter-connected timber operations, as to inter-company financing, etc., could the affairs of all of the companies have been worked out with mutual justice and advantages without common control of management and stock? A.  It would have been impossible.  Q.  Would you personally have been willing to become and remain the principal executive of the Port Wentworth Lumber Company, upon the understanding that that Company was to be managed independently of the Savannah River group, or was to be under a different control?  A.  I would not have accepted it.  The evidence shows that as time went on the Port Wentworth Lumber Co. merged completely with the Savannah River corporations, in the matter of control and management.  This is indicated by the increased extent to which the Port Wentworth Lumber Co. was financed by the Savannah River companies.  Thus, although at the end of 1916 the amount loaned to the Port Wentworth*3061  Lumber Co. by the corporations comprising the Savannah River group was only $40,978, by the end of 1918 these loans had increased to $334,439; at the end of 1919 they stood at $383,248; and on December 31, 1921, they amounted to $457,589.  The above facts we think show the affiliation of the Port Went-worth Lumber Co. with the Savannah River group of companies for the years 1918 and 1921, the two years subsequent to 1917 directly involved in these proceedings.  Section 1331(b) of the Revenue Act of 1921, construing the Revenue Act of 1917, provides as follows: For the purpose of this section a corporation or partnership was affiliated with one or more corporations or partnerships (1) when such corporation or *191  partnership owned directly or controlled through closely affiliated interests or by a nominee or nominees all or substantially all the stock of the other or others, or (2) when substantially all the stock of two or more corporations or the business of two or more partnerships was owned by the same interests: Provided, That such corporations or partnerships were engaged in the same or a closely related business, or one corporation or partnership bought from*3062  or sold to another corporation or partnership products or services at prices above or below the current market, thus effecting an artificial distribution of profits, or one corporation or partnership in any way so arranged its financial relationships with another corporation or partnership as to assign to it a disproportionate share of net income or invested capital.  * * * Under subdivision (1) of section 1331(b) the petitioners claim affiliation for 1917 covering the Savannah River Lumber Co., the Savannah River Sales Co., the Savannah Mercantile Co., and the Savannah-New York Transportation Co., this claim for affiliation being based upon the ownership by the Savannah River Lumber Co. of substantially all of the stock of the Savannah River Sales Co. coupled with ownership (conceded by the respondent) by the Savannah River Sales Co. of substantially all the stocks of the Mercantile Co. and the Transportation Co.  Under subdivision (2) of section 1331(b) the petitioner claims affiliation covering all of the six corporations involved (namely, the entire Savannah River group and the Port Wentworth Lumber Co.), this claim for affiliation being based upon the claim that Lee, Higginson*3063  & Co., the two voting trusts (Savannah River Lumber Co. voting trust and Port Wentworth Lumber Co. voting trust), the Savannah River Lumber Co., and the Savannah River Sales Co. constituted "the same interests." It is contended that the Savannah River Lumber Co. voting trustees constituted "the same interests" with Lee, Higginson & Co., because those trustees were, and were intended by all parties to be, merely an instrumentality of Lee, Higginson & Co. for the control and management of the Savannah River group of companies; and that the stock held by the trustees was controlled by Lee, Higginson & Co. in exactly the same capacity and in exactly the same way as was such stock held in the name of Lee, Higginson & Co. (for example the stock of the Sales Co.).  It is further contended that the Port Wentworth Lumber Co. voting trustees constituted "the same interests" with Lee, Higginson & Co. because of the three trustees, two of whom were actual nominees of Lee, Higginson & Co. (connected with the situation only through their connection with Lee, Higginson & Co.), looking exclusively to Lee, Higginson & Co. in all matters.  The third trustee, because of his recognition of the independence*3064  of the Port Wentworth Lumber Co. for successful development upon cooperation with the Savannah River Lumber Co. and the Savannah Timber Co., their management and financial sponsors, cooperated throughout with Lee, Higginson & Co.  It is further contended *192  that the Savannah River Lumber Co. and the Savannah River Sales Co. were both "the same interests" with Lee, Higginson & Co., the board of directors of both companies being selected and dominated by Lee, Higginson & Co., all of the stock of both corporations being controlled by Lee, Higginson & Co., and both corporations being units in the general corporate system, all elements of which were directed through Lee, Higginson & Co. toward a common object.  Considering, first, the contention of the petitioner with respect to affiliation under subdivision (2) of section 1331(b) of the Revenue Act of 1921, it is to be noted that affiliation is not made to depend upon control of the stock of the different corporations but is made to depend upon ownership. This fact is recognized by counsel for the petitioner.  He submits, however, that there can be little question that Poole & Co. and Lee, Higginson & Co. were "the same*3065  interests;" that their original connection with the Savannah River affairs arose from exactly the same facts; that their interest in the situation throughout was supported by exactly the same motives, and that Poole & Co. had, in at least two formal agreements, contracted with Lee, Higginson & Co. that they should represent them.  It is also submitted that since the legal ownership of the Savannah River Lumber Co. stock was in the voting trustees, of whom one was a partner of Lee, Higginson & Co. and another, Clark L. Poole, was president of Clark L. Poole & Co., all stock owned by those voting trustees was owned by the same interests as the stock owned by Lee, Higginson & Co.; that even the third trustee, a nominee of Lee, Higginson & Co., was almost as clearly part of "the same interests"; that all of these various individuals and corporations were working towards a common end, namely, the common good of the entire enterprise, and that the case is ruled by the decision of the Board in  , wherein the Board stated at page 233: * * * When two persons are guided in their action by a common interest (in the objective sense), they*3066  frequently constitute a single interest (in the subjective sense).  * * * On behalf of the respondent it is submitted that the ownership of the Lumber Company's stock was in the hands of many independent owners, namely, the bondholders of the Hilton-Dodge Lumber Co., most of whom had deposited their holdings with trustees under the voting trust of May 1, 1916, while the ownership of the shares of stock in the Mercantile Co. was in Lee, Higginson & Co.  It is not necessary for us to consider in this case whether the ownership referred to in the statute is the legal ownership or the equitable *193  ownership.  If the latter is referred to there is no contention made that the former bondholders of the Hilton-Dodge Lumber Co. were "the same interests" as Lee, Higginson & Co.  But if the legal ownership is referred to we think that the trustees were not the same interests as Lee, Higginson & Co.  Admittedly both were looking out for the interests of the beneficial owners of the stocks of all of the companies but clearly the trustees were required to look out for the interests of their beneficiaries against the interests of all others.  The mere fact that Lee, Higginson & Co. controlled*3067  the voting rights of the stock and had the actual management of all of these companies during the year 1917, does not in our opinion constitute the owners of the stock of the different corporations "the same interests" within the meaning of subdivision (2) of section 1331(b) of the Revenue Act of 1921.  The interests of the several actual owners of the shares of stock were divergent.  The petitioner submits, however, that if it is denied an affiliation status under subdivision (2) of the above quoted section of the statute, the Savannah River Lumber Co., the Savannah River Sales Co., the Savannah Mercantile Co., and the Savannah-New York Transportation Co. were affiliated under subdivision (1) of the section.  The evidence shows that all of the stock of the Mercantile Co. and the Transportation Co. was owned by the Savannah River Sales Co.; it further shows that the stock of the Sales Co. was owned by the Savannah River Lumber Co.  It is true that this stock was not carried in the name of the Savannah River Lumber Co. during the year 1917, it having been transferred by the Lumber Co. to Lee, Higginson & Co. in September, 1916, in order that Lee, Higginson & Co. might hold it as security*3068  for the advances made by it and by the other creditors of the Sales Co. (Poole & Co. and the banks which had made loans at the request of Lee, Higginson & Co.).  This transfer to Lee, Higginson & Co. was, however, only a transfer by way of security, the equitable ownership remaining in the Savannah Lumber Co.  The evidence further shows that the control of the stock was to accompany the ownership of Lee, Higginson & Co. rather than the equitable ownership of the Savannah River Lumber Co.  A case involving facts similar to those present in the instant case was before the Circuit Court of Appeals of the Fifth Circuit in  , wherein the court stated: * * * The statute provides for affiliation where there is unity of either ownership or control and does not require that there be unity in both.  To so hold would be to amend the statute in a vital particular.  * * * The evidence shows that the Savannah River Lumber Co. either owned directly or controlled through closely affiliated interests all of *194  the stock of the Savannah River Sales Co., the Savannah Mercantile Co., and the Savannah-New York Transportation*3069  Co. The deficiency of the Mercantile Co. for the year 1917 should be redetermined upon the basis of the affiliation of these four corporations.  Reviewed by the Board.  Judgment will be entered under Rule 50.