Commissioner of Internal Revenue v. Richfield Oil Co.

• Decision Date: 07 July 1930
• Docket Number: No. 6108.,6108.
• Citation: 42 F.2d 360
• Parties: COMMISSIONER OF INTERNAL REVENUE v. RICHFIELD OIL CO.
• Court: U.S. Court of Appeals — Ninth Circuit

42 F.2d 360 (1930)

COMMISSIONER OF INTERNAL REVENUE v. RICHFIELD OIL CO.

No. 6108.

Circuit Court of Appeals, Ninth Circuit.

July 7, 1930.

G. A. Youngquist, Asst. Atty. Gen., and J. Louis Monarch and John Vaughan Groner, Sp. Assts. to Atty. Gen. (C. M. Charest Gen. Counsel, Frank M. Thompson, Sp. Atty., Bureau of Int. Revenue, both of Washington, D. C.), for petitioner.

Claude I. Parker and Ralph W. Smith, both of Los Angeles, Cal., for respondent.

Before RUDKIN, DIETRICH, and WILBUR, Circuit Judges.

RUDKIN, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals. The facts as found by the Board are substantially as follows: The Richfield Oil Company and the Olinda Gasoline Company are California corporations, with their principal offices at Los Angeles. The Olinda Company was a producing company, organized in 1913. The Richfield Company was a distributing company, organized shortly before the Olinda Company. The Olinda Company was promoted and organized by J. F. Vordermark, who was a practical and experienced gasoline man. The stock of the Olinda Company was issued to him and his associates for leases and for cash. For business reasons, the 94 shares to which he became entitled were issued one share to him and 93 shares to Miss R. E. Harper, who later became his wife. The remaining 406 shares became the property of the stockholders of the Richfield Company, with the exception of 5 shares acquired by one Sawyer. The Richfield Company furnished four of the directors of the Olinda Company, and Vordermark, the fifth director became president and general manager from the time of its organization until 1925, at a salary of from $150 to $200 per month. By contract between the two companies, the entire output of the Olinda Company was sold to the Richfield Company at from 2 to 7 cents per gallon below the market price, averaging about 4 cents below during the entire period, the Richfield Company fixing the price and terms of contracts. The business policy of the Olinda Company, its expenditures and management, were at all times under the complete domination and control of the majority interest represented by stockholders in the Richfield Company, who owned 80.2 per cent. of the Olinda Company stock and furnished four of its five directors, as already stated. The 93 shares of Olinda Company stock standing in the name of Mrs. Vordermark were never voted, nor were the 5 shares held by Sawyer. Vordermark voted his I share in accordance with the wishes and plans of the majority, as he considered that his position and salary depended on their will. There was no outstanding adverse interest, and every stockholder actively aided in the unanimous control of the business and capital stock of the Olinda Company or was agreeable thereto. Substantially all of the stock of the Richfield Company and the Olinda Company was owned or controlled by the same interests during the years 1918 and 1919; they were affiliated during those years and were entitled to file consolidated returns. The Commissioner of Internal Revenue had determined that the Richfield Company and the Olinda Company were not affiliated during the years 1918 and 1919, but on appeal the Board of Tax Appeals reversed the determination of the Commissioner and held that the two companies were affiliated, within the meaning of the law. The question of affiliation is therefore the only question with which we are concerned.

Section 240(b) of the Revenue Act of 1918 (40 Stat. 1057) provided that two or more domestic corporations should be deemed to be affiliated if substantially all the stock of two or more corporations was owned or controlled by the same interests. Article 633 of Treasury Regulation 45 provided that corporations should be deemed to be affiliated when one domestic corporation owned directly or controlled through closely affiliated interests, or by a nominee or nominees, substantially all the stock of the other or others, or when substantially all of the stock of two or more domestic...