TOLERTON AND WARFIELD COMPANY v. COMMISSIONER OF INTERNAL REVENUE

• Decision Date: 29 June 1931
• Docket Number: Docket No. 45320.
• Citation: 23 BTA 892
• Parties: TOLERTON AND WARFIELD COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

23 B.T.A. 892 (1931)

TOLERTON AND WARFIELD COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 45320.

Board of Tax Appeals.

Promulgated June 29, 1931.

Allen G. Gartner, Esq., for the petitioner.

Eugene Meacham, Esq., for the respondent.

Proceeding for the redetermination of deficiencies of $10,070.63 and $1,339.82 in income taxes for the period April 26, 1924, to December 31, 1924, and the calendar year 1925, respectively. The issue is whether net losses sustained during the fiscal year ended January 31, 1924, and the period from February 1, 1924, to April 26, 1924, by two affiliated corporations with which petitioner was affiliated after April 26, 1924, may be allowed as deductions in computing net income of the affiliated group during the taxable periods. The facts were stipulated.

FINDINGS OF FACT.

For the fiscal year ended January 31, 1924, the William Tackaberry Company, hereinafter called the Tackaberry Company, and the Tackaberry Allen Realty Company, hereinafter called the Realty Company, the former being the owner of all of the capital stock of the latter, filed separate returns. The respective returns showed statutory net losses of $29,025.60 and $679.75. For the period from February 1, 1924, to April 26, 1924, they filed a consolidated return in which the Tackaberry Company showed a net loss of $45,792.28 and the Realty Company net income of $2,447.33, resulting in a consolidated net loss of $43,344.95. No part of the net losses sustained by the two corporations during the fiscal year ended January 31, 1924, was used in computing the consolidated net loss of $43,344.95.

The petitioner acquired all of the capital stock of the Tackaberry Company on April 25, 1924, and thereafter the three corporations were affiliated. This affiliated group filed consolidated returns for the calendar years 1924 and 1925. The return filed for 1924 reported petitioner's income for the entire year and that of the two remaining corporations for the period from April 26, 1924, to December 31, 1924.

Of the net losses sustained in the year ending January 31, 1924, and the period February 1 to April 26, 1924, amounting to $73,050.30, the affiliated group deducted $65,031.65 in computing their consolidated net income for 1924, resulting in a return of no net income. The balance of the net loss, amounting to $8,018.67, was deducted by the group in computing consolidated net income for 1925. The Tackaberry Company surrendered its charter in November, 1925.

The three corporations had separate accounting systems prior to April 26, 1924. Subsequent to that date they were consolidated.

The respondent determined that the petitioner sustained a net loss of $17,906.60 for the period from January 1, 1924, to April 26, 1924, and that thereafter in 1924, the three corporations had net taxable income of $80,565.02. In computing the consolidated net income of the three corporations for the period from April 26, 1924, to December 31, 1924, he disallowed this net loss as a deduction. In determining the proposed deficiencies the respondent disallowed the net losses sustained by the Tackaberry Company and the Realty Company prior to April 26, 1924, as deductions, on the ground that they were sustained prior to the affiliation of the three corporations.

OPINION.

ARUNDELL:

Although the Tackaberry Company owned 100 per cent of the stock of the Realty Company, each filed separate returns for the fiscal year ended January 31, 1924. For the period from February 1 to April 26, 1924, these two companies filed consolidated returns and while this action is not explained it is not contested. On April 26, 1924, the petitioner acquired 100 per cent of the stock of the Tackaberry Company, thus making possible the filing of...