Commercial Shearing & Stamping Co. v. Comm'r of Internal Revenue, Docket Nos. 76778
| Decision Date | 26 May 1961 |
| Docket Number | 84338,85427.,Docket Nos. 76778 |
| Citation | 36 T.C. 433 |
| Parties | COMMERCIAL SHEARING & STAMPING COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Donald J. Lynn, Esq., and Robert G. Skinner, Esq., for the petitioner.
William O. Allen, Esq., for the respondent.
Filing by petitioner corporation and its subsidiaries of a consolidated return for its first fiscal year after enactment of 1954 Code but under applicable 1939 Code regulations, held, not to preclude new election to file separate returns for following year after promulgation of new and less favorable regulations under 1954 Code.
In these consolidated proceedings respondent determined deficiencies in petitioner's income tax for fiscal years ended October 31, 1955, 1956, and 1957, in the respective amounts of $38,419.11, $82,672.01, and $77,587.21. The deficiency notice as to fiscal 1956 was addressed to petitioner and its ‘subsidiaries,’
The subsidiaries are hereinafter referred to as Inc., Corporation, and O'Leary, respectively. Some of the adjustments made by respondent have been conceded by petitioner and the only remaining issue is whether petitioner was entitled to file separate Federal income tax returns for the respective taxable years ending on the above dates.
Some of the facts are stipulated and are so found.
Petitioner is a corporation organized under the laws of the State of Ohio, with its principal office located in Youngstown, Ohio. States of incorporation and locations of the principal offices of its affiliates are as follows:
+----------------------------------------------+
¦ ¦State of ¦Location of ¦
+-----------+---------------+------------------¦
¦Name ¦incorporation ¦principal office ¦
+-----------+---------------+------------------¦
¦Inc. ¦Delaware ¦Chicago, Illinois ¦
+-----------+---------------+------------------¦
¦Corporation¦New York ¦Youngstown, Ohio ¦
+-----------+---------------+------------------¦
¦O'Leary ¦Illinois ¦Chicago, Illinois ¦
+----------------------------------------------+
During the taxable years here involved, petitioner owned 100 percent of all the stock of Inc. and 100 percent of the voting stock of Corporation. During the same period, Inc. owned 100 percent of the voting stock of O'Leary.
On or before April 15, 1955 (after properly filing a request for an extension of time in which to file), petitioner weighed the tax advantages involved in filing a consolidated return as opposed to separate returns, and filed a consolidated Federal income tax return on behalf of itself and its affiliates, Inc., Corporation, and O'Leary, for the taxable year ended October 31, 1954, with the district director of internal revenue, Cleveland, Ohio. Attached to this return were three Forms 1122, ‘Return of Information and Authorization and Consent of Subsididary Corporation Included in a United States Consolidated Income Tax Return,‘ by which each of the aforementioned affiliated corporations consented to be bound by the applicable consolidated return regulations. The Form 1122 filed by petitioner contained the following:
The above-named subsidiary corporation hereby authorizes the above-named common parent corporation (or in the event of its failure, the Commissioner or the district director) to make a consolidated income tax return on its behalf for the taxable year for which this form is filed, and for each taxable year thereafter that a consolidated return must be made under the provisions of the consolidated income tax regulations.
The above-named subsidiary corporation, in consideration of the privilege of joining in the making of a consolidated return with the above-named common parent corporation, hereby consents to and agrees to be bound by the provisions of the above-mentioned regulations. This consent is applicable to the taxable year for which this form is filed and to each taxable year thereafter that a consolidated return must be made under the provisions of the consolidated income tax regulations.
Among the factors taken into consideration by petitioner and its affiliates, which are accrual basis taxpayers, in making the decision to file a consolidated Federal income tax return for the taxable year ended October 31, 1954, was the presence of sections 452 and 462 in the Internal Revenue Code of 1954.
In a letter dated March 16, 1956, supplemented by a subsequent letter dated April 19, 1956, petitioner requested a ruling from respondent permitting it and its affiliates, Inc., Corporation, and O'Leary, to file separate returns for the taxable year ended October 31, 1955. Under date of May 7, 1956, respondent replied denying petitioner's request. In spite of respondent's denial, on or before July 15, 1956 (after properly filing a request for an extension of time), petitioner and its affiliates, Inc., Corporation, and O'Leary, filed separate Federal income tax returns with the district directors of internal revenue as follows:
+----------------------------------+
¦ ¦Location of district ¦
+-----------+----------------------¦
¦ ¦director's office ¦
+-----------+----------------------¦
¦ ¦where separate ¦
+-----------+----------------------¦
¦ ¦Federal income tax ¦
+-----------+----------------------¦
¦Taxpayer ¦return was filed ¦
+-----------+----------------------¦
¦ ¦ ¦
+-----------+----------------------¦
¦Petitioner ¦Cleveland, Ohio ¦
+-----------+----------------------¦
¦Inc ¦Chicago, Illinois ¦
+-----------+----------------------¦
¦Corporation¦New York, New York ¦
+-----------+----------------------¦
¦O'Leary ¦Chicago, Illinois ¦
+----------------------------------+
On or before April 15, 1957 (after again properly filing a request for an extension of time), petitioner and its affiliates, Inc., Corporation, and O'Leary, filed separate Federal income tax returns for the taxable year ended October 31, 1956, with the same district directors of internal revenue as previously mentioned.
On December 6 and 7, 1956, petitioner acquired all of the outstanding stock of Industrial Engineering, Inc., hereinafter referred to as Industrial, an Ohio corporation, in order to preserve the company's corporate name for its possible future use. The total purchase price of the stock was $256.25. Industrial has at all times since December 6, 1956, been inactive, having no tangible assets and engaging in no business activities. No further contributions of capital have been made to Industrial aside from annual payments of Ohio State franchise taxes made by petitioner in behalf of Industrial in the annual amounts of $25 for 1957, 1958, and 1959, and $50 for 1960.
On May 23, 1957, petitioner organized Commercial Hydraulics, Inc., hereinafter referred to as Hydraulics, as a business corporation under the laws of the State of Ohio. At that time, petitioner acquired all of the outstanding stock of Hydraulics for $500. Hydraulics has at all times since May 23, 1957, been inactive. No further contributions of capital have been made to Hydraulics aside from the same annual payments of Ohio State franchise taxes as in the case of Industrial.
On or before April 15, 1958, petitioner and its affiliated companies timely filed separate Federal income tax returns for the taxable year ended October 31, 1957, as follows:
+-------------------------------------------------+
¦ ¦Location of district ¦
+--------------------------+----------------------¦
¦ ¦director's office ¦
+--------------------------+----------------------¦
¦ ¦where separate ¦
+--------------------------+----------------------¦
¦ ¦Federal income tax ¦
+--------------------------+----------------------¦
¦Taxpayer ¦returns were filed ¦
+--------------------------+----------------------¦
¦ ¦ ¦
+--------------------------+----------------------¦
¦Petitioner ¦Cleveland, Ohio ¦
+--------------------------+----------------------¦
¦Corporation ¦New York, New York ¦
+--------------------------+----------------------¦
¦O'Leary ¦Chicago, Illinois ¦
+--------------------------+----------------------¦
¦Commercial Hydraulics, Inc¦Cleveland, Ohio ¦
+--------------------------+----------------------¦
¦Inc ¦Chicago, Illinois ¦
+-------------------------------------------------+
On March 12, 1958, Industrial requested that it be relieved from the necessity of filing...
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