Popular Price T. Co. v. Commissioner of Internal Revenue

• Decision Date: 21 February 1929
• Docket Number: No. 4098.,4098.
• Parties: POPULAR PRICE TAILORING CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Seventh Circuit

33 F.2d 464 (1929)

POPULAR PRICE TAILORING CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 4098.

Circuit Court of Appeals, Seventh Circuit.

February 21, 1929.

George Maurice Morris, of Washington, D. C., for petitioner.

Shelby S. Faulkner, of Washington, D. C., for respondent.

Before ALSCHULER, PAGE, and ANDERSON, Circuit Judges.

PAGE, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals (called Board), finding a deficiency tax due from petitioner.

H. A. Elman & Co. (called Elman) and petitioner, claiming to be affiliated corporations, made a consolidated return of income for the first half of the year 1920. The tax was assessed thereon, paid by Elman, and accepted by the government.

Five years later, October 17, 1925, the Commissioner wrote to petitioner that an examination of its income and profits tax return and books and records showed an additional tax of $9,960.18, "as outlined in the attached statement." That statement involved the business of petitioner only, and reads in part as follows: "Your protest, dated April 18, 1925, has been considered, and the only question involved was affiliation with H. A. Elman & Co. * * * The bureau holds that your company was not affiliated from January 1 to June 30, 1920. Therefore, there are no unadjusted differences." Neither the consolidated return, nor the protest of April 18, 1925, is in the record.

Petitioner appealed to the Board, and in its petition said that the Commissioner had erroneously ruled that petitioner and Elman were not affiliated, and that the tax contained in the deficiency letter was based on that error. The Commissioner's answer denies that there was any error in that ruling. Other denials in that answer tend to raise only the question of ownership of stock, that would show affiliation. The proposition of law, shown by the answer to be involved, pertains solely to the question of affiliation.

The evidence before the Board and the finding of fact in the opinion relate solely to the question of affiliation. The opinion begins: "This appeal is from the refusal of the respondent" (the Commissioner) "to allow the claim of the petitioner for affiliation with another company. * * *"

The conclusion upon the facts, as stated in the opinion, is: "The petitioner and H. A. Elman & Co. were affiliated during the taxable year. Judgment will be entered for the petitioner on 15 days' notice, under rule 50."

Petitioner moved for a judgment in accordance with that opinion. The Commissioner's alternative proposition was not based upon the contention that petitioner and Elman were not affiliated, but it was an attempt to show by five pages of figures, then presented for the first time, that Elman and petitioner, under the consolidated return, owed the tax shown by the new figures, and that each should pay in proportion to its net income. Petitioner's part of the tax was shown to be $4,683.89. Section 240 (a) of the Revenue Act of 1918 (40 Stat. p. 1082) relates to the computation and assessment of the tax under consolidated returns, and, in part, reads:

"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."

The Commissioner's new...