*294OPINION.
Green:Cases of this class require the closest scrutiny of facts which in most legal controversies would be considered as collateral or immaterial. This is necessarily so because of the general terms used in the statute.
Section 240 (b) of the Eevenue Act of 1918 reads as follows:
(b) For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially *295all the stock oí the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests.
“ Controlled ” as that word is, used in the statute can not have a precise and definite meaning. We'have held that “the control * * * referred to in the statute, whether it be legal or otherwise, means control of the voting rights of stock.” Appeal of Canyon Lumber Co., 1 B. T. A. 473. We have also held that—
* * * The object sought to be accomplished by Congress, in enacting section 240 of the Revenue Act of 1918, was to tax as a business unit what really was a business unit, and to prevent the component parts thereof from evading taxation by means of inter-company transactions. Since Congress intended to require two or more corporations, where substantially’ all their stock “ is owned or controlled by the same interests,” to file a consolidated return in order to prevent them from evading income tax, we can find no reason for holding that the “control” contemplated by the statute'means only legal control; that is, control enforceable by legal means, for control not arising or flowing from means legally enforceable may be just as effective in evading taxation as if founded on the most formal and readily enforceable legal instrument. There is no authority in the section of law referred to or in its context, so far as we can see, for assuming that Congress intended to use the word “ control ” in other than its ordinary and accepted sense. On the other hand, we believe that a proper construction of the statute, if it is to serve the purpose for which it was intended, requires us to hold that the “ control ” mentioned therein means actual control, regardless of whether or not it is based upon legally enforceable means. The control, however, must be shown to be a genuine and real control actually exercised, and it cannot be established by mere assertions or agreements between majority and minority stockholders unsupported by facts. Potential control of stock is not sufficient in itself to justify consolidation. No definite rule, applicable to all cases, can be laid down for recognizing control. Bach case must, therefore, be considered and decided upon its own facts and surrounding circumstances. Appeal of Isse Koch & Co., 1 B. T. A. 624.
If we had only the word “ controlled ” to interpret and apply, the solution would be greatly simplified, but we must consider it in connection with the words “ substantially all ” and “ the same interests.” While the extreme cases may be determined upon mathematical proportions, we must in the vast majority of cases look to all the facts and circumstances surrounding the organization and operation of the companies and to the result accomplished. Under such conditions it is extremely difficult, if not impossible, to enunciate rules of general application. Each case is a separate problem.
It appears from the record that prior to the organization of the Inland and the Midland companies it was the plan of the organizers that the two companies should be owned and operated to the same effect as if they were in fact one company. The division of the activities and properties was made upon the advice of counsel and because it was believed that greater earnings would result therefrom. *296Immediately after the organization of the companies Osborne and Skelly owned 90 per cent of the stock of the Midland and 78.26 per cent of the stock of the Inland. A part of this stock was sold to employees, business associates, and close personal friends of the two men named. From the evidence it is clear that these two individuals so disposed of their stock as to assure themselves of the actual control and domination of both companies. The evidence convinces us that they were entirely successful in their effort to get and retain during the years in question the actual control and domination. Skelly, Osborne, and Pielsticker were practically the only stockholders who ever attended meetings. They owned 62.71 per cent of the stock of the Midland and 51.07 per cent of the stock of the Inland. At these meetings they voted by proxy all stock not standing in their own names.
The intercompany transactions show that there was the closest cooperation between the two organizations, and that no effort was made to allocate between the companies the cost of materials, services, or labor furnished by the one to the other. It is a clear case of commercial and economic unity.
Approximately 80 per cent of the stock of each company was held by persons owning stock in both companies. It is apparent that the two companies were, in fact, operated as one and each for the benefit of the other. Skelly, Osborne and Pielsticker dominated and controlled both of these corporations and their efforts were directed not to making a success of one company but to making a success of both companies, which effort was the result of a preconceived plan consistently carried out.
A careful examination of the stockholdings and the relationships existing between the various holders shows that substantially all of the stock is owned or controlled by the same individuals. It seems to follow, naturally, if a group of individuals owns or controls substantially all of the stock of both corporations, and if such ownership or control is by all exercised for one purpose, namely, the joint success of the corporations, that these individuals meet the requirements of the words “ the same interests.”
We believe that the two corporations were affiliated and that any other conclusion would be contrary to the meaning of the statute.