dissenting: The petitioner in this case makes the following contention: “That the tax exempt income of one member of an affiliated group may not offset and wipe out the net loss of another member so as to prevent its net loss from being carried forward and deducted from its income for a succeeding year.” I think this contention of petitioner is correct, and that it is error for the Board to hold the contrary.
An examination of the findings of fact will show that the respondent, in determining whether petitioner had a “ net loss ” for 1923 which it is entitled to carry forward and use as a deduction in 1924, does it on a consolidated basis, which I think is fundamentally wrong. In my judgment, on the authority of Woolford Realty Co. v. Rose, 286 U. S. 319, recently decided by the Supreme Court, there is no such thing as a “ consolidated net loss ” under the 1924 and prior Acts. The proper way, in my judgment, is to determine the net income, or the net loss, as the case may be, of each constituent corporation. If one corporation has a net loss and such net loss is used *1090to wipe out the taxable net income of an affiliate, then the amount of net loss which it may carry forward into the ensuing year is correspondingly reduced.
This rule is necessary to prevent the net loss being used for deduction purposes twice, a thing Congress evidently did not intend. Swift & Co. v. United States, 38 Fed. (2d) 365, On that point I have no disagreement with the majority opinion, but where I do disagree is as to respondent’s use of tax-exempt interest in the instant case, which belonged to petitioner’s affiliate, the First Federal Trust Company.
I think I can better illustrate the point 1 am endeavoring to stress by the use of a concrete illustration. Take corporations “A” and “ B,” which ate affiliated in 1923. Let us suppose corporation “A” has an operating loss of $50,000 in 1923 after the use of all items of ordinary income and deductions. Corporation “ B ” has a net income of $25,000 by the use of all items of ordinary income and deductions. I will admit that corporation “A,” in determining what “net loss” it shall carry forward and use 'as a deduction from its 1924 income, will have to reduce its “ net loss ” by the amount that was Used in wiping out the ordinary net income of its affiliate, “ B.” In such a c'ase corporation “A” would be entitled to carry forward into 1924 a “net loss ” of only $25,060, because $25,000 of its net loss had been used to wipe out that much taxable income of corporation “ B.” Suppose corporation “ B” in addition to its ordinary net income of $25,000, has tax-exempt income of $25,000. According to the contention made by respondent, and approved by the majority opinion, this $25,000 tax-exempt income of “ B ” should also be used to reduce the statutory “net loss” of “A” and “A” would not be entitled to carry forward any statutory “ net loss ” into 1924. I say this is wrong. Corporation “A” should have its statutory “ net loss ” reduced only by its own tax-exempt interest and nontaxable dividends plus the amount of its net loss which is used to wipe out the net income of its affiliate corporation,, “ B.”
In the instant case the First Federal Trust Conppany had a net income (ordinary income) for 1923 of $34,457.72, and to the extent that petitioner’s net loss for 1923 was used to wipe out this $34,457.72, it should be reduced in carrying forward into 1924, under the doctrine of Swift <& Go., supra. But the respondent’s use of $249,315.54, tax-exempt interest (not tax-exempt interest belonging to petitioner, but tax-exempt interest belonging to the First Federal Trust Company) in reducing petitioner’s “net loss” for 1923 was error, in my judgment.
The majority opinion cites, as authority for approving respondent’s action in this respect, Samuel G. Adams, 19 B. T. A. 781, but there is *1091a substantial difference in the two situations. In the Samuel G-. Adams case the husband combined all the income of himself and wife on one single joint return and there was only one taxpayer, to wit, Samuel Q. Adams. But the situation is entirely different with affiliated corporations which file a consolidated return. Each corporation remains a separate taxpayer and its statutory net loss which it is entitled to carry forward to the next taxable year should be computed separately. The net loss of affiliated corporations may not be used as a consolidated net loss of the affiliated group. Delaware & Hudson Co., 26 B. T. A. 520.
The majority opinion also cites as authority for its holding on this point. Kaiwiki Sugar Co., Ltd., 21 B. T. A. 997. Admittedly this case does hold that the nontaxable dividends received by one corporation, having no net loss for the taxable year, may be used to reduce, the statutory net loss of an affiliated corporation, and in that respect would be a valid precedent for the majority opinion in the instant case. But in view of the recent decision of the Supreme Court in Woolford Realty Co. v. Rose, supra, I think our decision on the particular point herein discussed as decided in Kaiwiki Sugar Co., Ltd., supra, was wrong and should not be followed.
Tkammelu agrees with this dissent.