Pittsburgh & West Virginia Railway Co. v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 14 February 1935 |
| Docket Number | 72158.,Docket No. 72157 |
| Parties | THE PITTSBURGH & WEST VIRGINIA RAILWAY COMPANY, AS SUCCESSOR TO WEST SIDE BELT RAILROAD COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. THE PITTSBURGH & WEST VIRGINIA RAILWAY COMPANY, AS SUCCESSOR TO WABASH-PITTSBURGH TERMINAL RAILWAY COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
C. F. Taplin, Esq., and Leo H. Hoffman, Esq., for the petitioner.
Allin H. Pierce, Esq., and Irving M. Tullar, Esq., for the respondent.
This is a reconsideration of our Division report promulgated May 31, 1934 (30 B. T. A. 843), which involved proceedings that grew out of proceedings originally commenced at Docket No. 8349. The caption of the petition in Docket No. 8349 was "Appeal of The Pittsburgh & West Virginia Railway Company and Affiliated Companies Hereinafter Mentioned", and in the opening paragraph the petition recited in part as follows:
The above named taxpayer, The Pittsburgh & West Virginia Railway Company, its predecessor company, the Wabash Pittsburgh Terminal Railway Company, and its affiliated companies, the Pittsburgh Terminal Coal Corporation (formerly Pittsburgh Terminal Coal Company, and prior thereto Pittsburgh Terminal Railroad & Coal Company), West Side Belt Railroad Company, Mutual Supply Company, Pittsburgh Terminal Clay Manufacturing Company, and Pittsburgh Terminal Land Company, hereby appeal from the determination of the Commissioner of Internal Revenue set forth in his deficiency letters * * * dated August 26, 1925 * * *.
The Commissioner determined deficiencies as follows:
Period January 1, 1917, to March 31, 1917
Wabash-Pittsburgh Terminal Railway Co ________ $2,199.57 Income tax only
West Side Belt Railroad Co ___________________ 1,789.48 Income tax only
Mutual Supply Co _____________________________ 103.24 Income tax only
Pittsburgh Terminal Railroad & Coal Co _______ 59,034.70 Income and excess
profits
taxes
Period April 1, 1917, to December 31, 1917
Pittsburgh Terminal Railroad & Coal Co _____ $228,923.63 Income and excess
profits
taxes
The respondent in arriving at the above mentioned deficiencies had determined that the Wabash-Pittsburgh Terminal Railway Co. (hereinafter called the Wabash Co.) was the parent company of the affiliated group for the three-month period and that the petitioner, the Pittsburgh & West Virginia Railway Co., was the parent company of the affiliated group for the nine-month period, the petitioner having taken over the major properties of the Wabash Co. at midnight on March 31, 1917. In his determinations of August 26, 1925, the respondent allocated to the Pittsburgh Terminal Railroad & Coal Co. all of the excess profits taxes due on the consolidated net income of the two affiliated groups.
On March 20, 1931, a report was promulgated (see 22 B. T. A. 876) holding that an order should be entered dismissing the petition "as to the Pittsburgh Terminal Coal Corporation" for lack of jurisdiction, on the ground that the Pittsburgh Terminal Coal Corporation was an entirely separate and distinct corporate entity from the Pittsburgh Terminal Railroad & Coal Co.
On September 19, 1931, the respondent filed in Docket No. 8349 a petition for review in the United States Circuit Court of Appeals as a result of our report promulgated and published at 22 B. T. A. 876, supra. This appeal was dismissed by the Third Circuit on April 19, 1933.
On April 11, 1933, an order was entered in Docket No. 8349, reading in part as follows:
After due consideration permission is hereby granted to Pittsburgh & West Virginia Railway Company, as successor to the Wabash-Pittsburgh Terminal Railway Company, to West Side Belt Railroad Company, and to the Mutual Supply Company, each, to file on or before May 10, 1933, at a new docket number, a separate amended petition based upon the notice of deficiency received by it, for the period January 1, to March 31, 1917, in accordance with the Revenue Acts and the Board's Rules of Practice. If any petitioner fails to take proper or timely advantage of the permission thus granted, the respondent may move for dismissal or for such relief as he deems appropriate. If proper amended petitions are timely filed, the respondent may have the usual time within which to answer or otherwise move with respect thereto.
On April 18, 1933, a written stipulation was entered into in Docket No. 8349, paragraph 2 of which is as follows:
That the Board may determine a deficiency against the Mutual Supply Company for the fiscal period January 1, 1917, to March 31, 1917, in the amount of $103.24; and that it may dismiss the proceeding so far as it relates to the Mutual Supply Company for the period April 1, 1917, to December 31, 1917, for the reason that no deficiency was asserted against said company for that period, and that the Board, therefore, is without jurisdiction.
On April 25, 1933, we entered a decision in Docket No. 8349 in accordance with the stipulation referred to in the preceding paragraph. Thus there was left for our further consideration and determination only the tax liabilities of the Wabash Co. and the West Side Belt Railroad Co. (hereinafter referred to as the West Side Belt) for the period January 1 to March 31, 1917. In accordance with our order entered April 11, 1933, petitioner, on May 9, 1933, filed a separate petition for itself "as successor to" each of these two remaining companies, which petitions were docketed as Nos. 72157 and 72158.
Subsequent to the Board's dismissal of the proceeding against the Pittsburgh Terminal Coal Corporation, already referred to herein, the tax liability of the Pittsburgh Terminal Railroad & Coal Co. was settled for an amount less than the deficiencies originally determined. As has already been pointed out, respondent, in his determination of deficiencies for the taxable periods, allocated all excess profits taxes to the Pittsburgh Terminal Railroad & Coal Co.
However, in his amended answers filed in Docket Nos. 72157 and 72158, respondent affirmatively pleaded that there was no intercompany agreement requiring that all the excess profits tax should be allocated to Pittsburgh Terminal Railroad & Coal Co. and that in conformity with the law this excess profits tax should be allocated to each member of the affiliated group in proportion to its net income, and he moved to increase the deficiencies against petitioner in the respective amounts of $3,269.29 and $4,018.53 on account of excess profits tax properly allocable to petitioner.
These issues raised in Docket Nos. 72157 and 72158 were made the subject of our division report promulgated May 31, 1934 (30 B. T. A. 843), and it is this report we now have under reconsideration.
Petitioner's motion for reconsideration challenges our division report promulgated May 31, 1934, on eight separate grounds. For reasons which will appear later in this opinion it will be necessary for us to consider only two of such grounds, which, as stated by petitioner, are as follows:
A. The Board of Tax Appeals does not have jurisdiction where the deficiency letters cover the fractional portion of the year, namely, from January 1, 1917, to March 31, 1917, inclusive, instead of the whole year 1917. Therefore, since the letters cover the improper period, orders of no deficiency should be entered.
* * * * * * *
D. Assuming that affiliation were proper, the determination of invested capital for the period January 1, 1917, to March 31, 1917, inclusive, was incorrect in the following particulars:
* * * * * * *
3. Refusal to allow the full average invested capital of the alleged affiliated group for the three-month period begun January 1, 1917, and ended March 31, 1917.
Under assignment of error (A) petitioner contends that if any one of the corporations included in the affiliation for the period January 1 to March 31, 1917, was in existence beyond March 31, 1917, the deficiency notice in question, being for only a three-month period, as to it, would be for an improper period; and that the Board would be deprived of jurisdiction of any period beyond March 31, 1917, citing Sweets Co. of America, Inc., 12 B. T. A. 1285, after our first decision (entered July 17, 1928) in that case had been reversed and remanded by the Second Circuit in Sweets Co. of America, Inc. v. Commissioner, 40 Fed. (2d) 436.
In the Sweets Co. case the respondent had determined a deficiency against the petitioners for the six-month period ending June 30, 1919, which deficiency we originally approved. Upon appeal the Second Circuit held that the correct taxable period was a ten-month period ending October 31, 1919, and remanded the cause for further proceedings. Further proceedings were had pursuant to the court's decree, and in our final decision we decided that there was no deficiency for the period January 1 to June 30, 1919 (the only period before us), and that the Board never acquired jurisdiction over the four months from July 1 to October 31, 1919, because no deficiency had been determined for that period.
Under section 240 of the Revenue Act of 1918, corporations which were affiliated were required to file consolidated returns "for the purposes of this title and Title III", that is, for "Income Tax" purposes and also for "War-Profits and Excess-Profits Tax" purposes. Under the Revenue Acts of 1916 and 1917, corporations, whether or not affiliated, were required to file separate returns for income tax purposes, and, if affiliated, were required, by virtue of section 1331 of the Revenue Act of 1921, relating to consolidated returns for the year 1917, to file a consolidated return only for...
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