APPEAL OF CLEVELAND, PAINESVILLE & EASTERN RR CO.
| Decision Date | 31 July 1926 |
| Docket Number | Docket No. 4927. |
| Citation | 4 BTA 637 |
| Parties | APPEAL OF CLEVELAND, PAINESVILLE & EASTERN R. R. CO. AND CLEVELAND, PAINESVILLE & ASHTABULA R. R. CO. |
| Court | U.S. Board of Tax Appeals |
Arthur B. Foye, C. P. A., for the petitioners.
M. N. Fisher, Esq., for the Commissioner.
Before GRAUPNER,1 TRAMMELL and PHILLIPS.
PHILLIPS:
This is an appeal from the determination of a deficiency in income and profits taxes of the Cleveland, Painesville & Eastern R. R. Co. for 1917, 1918, and 1919, in the amount of $11,351.37. The deficiency arises from the fact that the Commissioner refused to permit the petitioning corporations to file a consolidated return.
FINDINGS OF FACT.
The Cleveland, Painesville & Eastern R. R. Co., hereinafter referred to as the Eastern Company, and the Cleveland, Painesville & Ashtabula R. R. Co., hereinafter referred to as the Ashtabula Company, are Ohio corporations, operating an electric interurban railway between Cleveland, Painesville and Ashtabula. The railroad of the Eastern Company extended from Cleveland to Painesville, a distance of 30 miles, and the railroad of the Ashtabula Company extends from Painesville to Ashtabula, a distance of 26 miles, but trains are operated from Cleveland through to Ashtabula over the tracks of the two companies. The operation of the entire service is from the offices of the Eastern Company at Willoughby, Ohio. The Eastern Company owned and operated repair shops at which repairs were made on the property of both companies, furnished the power which operated the trains of the Ashtabula Company, purchased all supplies and materials for that company, did its bookkeeping, financing and banking, and superintended its operation. At the end of each month there was an adjustment made by billing direct to the Ashtabula Company for all services, material and supplies, office help, etc. The Ashtabula Company paid for nothing direct. Everything was done through the Eastern Company and adjustments made monthly. The Ashtabula Company had no offices, shops or power plant.
During the years involved, the Ashtabula Company was indebted to the Eastern Company in the amount of $240,309.02 on a demand note dated January 1, 1914. The Eastern Company also owned $150,000 of the bonds of the Ashtabula Company of a total issue of $1,000,000, on which interest was in default during 1917, 1918 and 1919. No dividends have been paid by either company.
The balance sheets of the Ashtabula Company for December 31, 1916, and December of each of the taxable years involved, were as follows:
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| 1916. | 1917. | 1918. | 1919
-------------------------------------------------|--------------|--------------|--------------|-------------
ASSETS. | | | |
| | | |
Cash ___________________________________________ | $579.00 | $3,083.50 | $3,337.77 | $3,637.48
U. S. Certs. of Indebtedness ___________________ | ____________ | ____________ | ____________ | 60,000.00
Funds __________________________________________ | ____________ | 2,193.29 | ____________ | ____________
Accounts receivable ____________________________ | 1,454.36 | 3,311.51 | 3,715.77 | 2,266.28
Notes receivable _______________________________ | ____________ | ____________ | 14,969.54 | ____________
Prepaid accounts _______________________________ | 75.20 | 106.13 | ____________ | ____________
Deferred assets ________________________________ | ____________ | 3,000.00 | 1,157.20 | 5,361.21
Investment in road and equipment _______________ | 2,019,523.97 | 2,021,183.20 | 2,024,314.85 | 2,021,350.92
Deficit ________________________________________ | 330,653.16 | 386,404.86 | 452,578.90 | 508,236.27
|______________|______________|______________|_____________
Total ____________________________________ | 2,352,285.69 | 2,419,282.49 |
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