Fire Companies Building Corporation v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 48296.

• Decision Date: 03 June 1931
• Docket Number: Docket No. 48296.
• Citation: 23 BTA 550
• Parties: THE FIRE COMPANIES BUILDING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

23 B.T.A. 550 (1931)

THE FIRE COMPANIES BUILDING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 48296.

Board of Tax Appeals.

Promulgated June 3, 1931.

James L. Fort, Esq., for the petitioner.

John W. Edwards, Esq., for the respondent.

This proceeding is for the redetermination of a deficiency in tax of $69,271.71 for the calendar year 1926 growing out of the alleged erroneous exclusion of the loss of the American Eagle Fire Insurance Company from the consolidated net income for tax purposes.

FINDINGS OF FACT.

The petitioner is a corporation organized in 1910 under the laws of the State of New York and has its principal office in New York City, where it is engaged in the management of the real estate and the investment and disposition of the income from the assets enumerated in the stipulation filed.

During the year 1926 petitioner owned all of the capital stock of the American Eagle Investing Company, a corporation organized in 1915 under the laws of the State of New York, and the American Eagle Investing Company owned 99.35 per cent of the capital stock of the American Eagle Fire Insurance Company, a corporation organized in 1915 under the laws of the State of New York relating to the formation of domestic fire insurance companies.

The petitioner filed a consolidated income-tax return for the year 1926 and included therein American Eagle Investment Company and the American Eagle Fire Insurance Company.

The principal business of the American Eagle Investing Company is the ownership of its shares of stock in the American Eagle Fire Insurance Company and its income during 1926 was derived from dividends declared on such shares of stock and interest on various types of securities as more particularly appears in the schedule of income and deductions.

The American Eagle Fire Insurance Company is engaged in the fire insurance business, which includes domestic fire, marine, automobile and allied lines of insurance.

Of its gross income of $7,597,329.60 the sum of $7,217,162.58 was derived from premiums on such insurance.

The respondent's deficiency notice sets forth a deficiency of $69,271.71 in income tax against the petitioner for the calendar year 1926, such deficiency having been determined solely by reason of excluding from the consolidated return the American Eagle Fire Insurance Company, although in determining the tax liability for all prior years, these three corporations were included in a consolidated return.

In addition to the foregoing stipulated facts the parties have stipulated that, "If the petitioner and the American Eagle Investing Company are not entitled to affiliation under the statute with the American Eagle Fire Insurance Company, then the deficiency in income tax determined against this petitioner for the year 1926, $69,271.71, is correct, but if the American Eagle Fire Insurance Company should be affiliated with the two other corporations, then there is no deficiency in income tax against any of these three corporations."

OPINION.

TRAMMELL:

The question is whether a fire insurance company may be included in a consolidated return with an ordinary corporation not engaged in the insurance business, within the meaning of section 240 of the Revenue Act of 1926, which reads as follows:

SEC. 240. (a) Corporations which are affiliated within the meaning of this section may, for any taxable year, make separate returns or, under regulations prescribed by the Commissioner with the approval of the Secretary, make a consolidated return of net income for the purpose of this title, in which case the taxes thereunder shall be computed and determined upon the basis of such return. If return is made on either of such bases, all returns thereafter made shall be upon the same basis unless permission to change the basis is granted by the Commissioner.

(b) In any case in which a tax is assessed upon the basis of a consolidated return, the total tax shall be computed in the first instance as a unit and shall then be assessed upon the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any such agreement, then on the basis of the net income properly assignable to each. There shall be allowed in computing the income tax only one specific credit computed as provided in subdivision (b) of section 236.

(c) For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the voting stock of the other or others, or (2) if at least 95 per centum of the voting stock of two or more corporations is owned by the same interests. This subdivision shall be applicable to the determination of affiliation for the taxable year 1925.

(d) For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the stock of the other or others, or (2) if at least 95 per centum of the stock of two or more corporations is owned by the same interests. As used in this subdivision the term "stock" does not include nonvoting stock which is limited and preferred as to dividends. This subdivision shall be applicable to the determination of affiliation for the taxable year 1926 and each taxable year thereafter.

The petitioner in his brief sets out that the statute makes two exceptions with respect to corporations which shall not be included in a consolidated return, that is, corporations organized under the China Trade Act and a corporation entitled to the benefits of section 262, and that under the rule expressio unius est exclusio alterius, the specific mention of two exceptions, that is (e) and (g) of section 240, excludes any other exception. Our attention is also called to the definition of a corporation contained in section 2 of the Act, which provides that the term "corporation" includes associations, joint stock companies and insurance companies.

The petitioner also calls our attention to the practice...