*1515 1. APPORTIONMENT OF TAXES AMONG AFFILIATED CORPORATIONS. Where petitioner and certain other corporations with which petitioner was affiliated for the taxable years 1918 and 1919 filed consolidated income-tax returns, the return for 1918 being filed by petitioner as the reporting company, and the return for 1919 being filed by the Stanley Company of America as the reporting company, and where the evidence shows that there was no agreement between the taxpayers that the entire amount of the tax should be assessed against and collected from petitioner, but that, on the contrary, the subsidiaries in each of the taxable years filed with the Commissioner on Form 1122 instructions as to how the taxes shown on the respective returns should be apportioned, the Commissioner is without authority to determine deficiences against petitioner to the extent that such deficiencies are based on increases in the income of the affiliated corporations for the respective taxable years.
2. ESTOPPEL. Where the Commissioner had full knowledge of the information returns which had been filed with the consolidated returns directing him as to how he should apportion the tax, he can not create an estoppel*1516 against petitioner by his own failure to perform the act directed by such information returns.
3. JURISDICTION OF SUBSIDIARIES WHICH NOT APPEALED. Where a notice of deficiency is sent to one member of an affiliated group asserting a deficiency based on the consolidated income of the group, but no mention is made of the affiliated corporations, either in the notice of deficiency or attached statements, the Board is without jurisdiction to consider the liabilities of such other corporations to whom no notice of deficiency was mailed and against which no deficiency has been determined and no appeal has been taken.
*500 In this proceeding the petitioner seeks a redetermination of its tax liability for the years 1918 and 1919, for which the respondent has determined deficiencies of $22,910.51 and $126,990.03, respectively. These deficiencies are based upon the income of petitioner and other corporations with which it was affiliated during the taxable years. No exception is taken to the respondent's computation of*1517 consolidated net income or to the tax computed, the sole issue being the respondent's action in asserting the entire amount of the deficiencies against the petitioner. Petitioner contends that there was no agreement on file with the Commissioner authorizing him to assess against and collect from petitioner the taxes due by the corporations with which petitioner was affiliated, and that no such agreement has ever existed.
FINDINGS OF FACT.
During the taxable years, the petitioner was a corporation existing under the laws of the State of Delaware and was engaged in the business of operating motion picture theatres.
During the year 1919 and within the time prescribed by law, the petitioner filed its income-tax return for the year 1918. This return included the income of the petitioner and the corporations affiliated with it, as follows:
| Central Market Street Company (petitioner) | $99,611.90 |
| Central Market Street Real Estate Company | None. |
| Arcade Amusement Company | 155.82 |
| 333 Market Street Company | 349.60 |
| Regent Theatre Company | 57.27 |
| Victoria Amusement Company | 431.08 |
| Savoy Amusement Company | 552.87 |
| Princess Amusement Company | 98.19 |
| Juniper Amusement Company | 744.14 |
| Lubin Auditorum Company (loss) | -3,711.14 |
| 98,289.73 |
Accompanying and attached to the consolidated return of the petitioner were information returns of subsidiary companies on Form 1122 for each of the affiliated companies. These information returns directed apportionment of the tax liability shown on the consolidated return as follows:
| Juniper Amusement Company | $11,044.61 |
| Princess Amusement Company | 1,420.53 |
| Regent Theatre Company | 852.32 |
| Arcade Amusement Company | 2,308.44 |
| Savoy Amusement Company | 8,239.07 |
| 333 Market Street Company | 5,184.93 |
| Victoria Amusement Company | 6,463.40 |
| Central Market Street Real Estate Company | None. |
| Lubin Auditorium Company | None. |
| 35,513.30 |
The entire amount of the tax shown to be due on the consolidated return of the affiliated group was assessed against the petitioner on July 30, 1919, irrespective of the directions on the information returns of the subsidiary companies as to how the tax was to be apportioned. Of such assessment the first and second installments of $8,772.65 and $8,983.99 were paid to the collector of internal revenue by the petitioner. The*1519 Stanley Company of America acquired control of the majority of the stock of the petitioner in 1919 and thereafter directed the affairs of the petitioner and subsidiaries. In pursuance of this policy the Stanley Company of America paid to the collector of internal revenue the third and fourth installments of the assessment of tax shown to be due on the original 1918 return of the petitioner and its subsidiaries.
Thereafter and during the year 1919 each subsidiary which had directed that a portion of the consolidated tax be assessed against it was charged on the books of the petitioner with its proportion of the first and second installments, and similar entries were made on the books of the subsidiary companies crediting petitioner with the amount so paid. Similarly, entries were made on the books of the Stanley Company of America as regards the third and fourth installments of the 1918 tax. The Stanley Company of America was credited on the books of the subsidiary companies with the amounts so paid.
In the audit of the 1918 return the respondent ruled that all of the above-mentioned companies were affiliated with the petitioner and determined the net income of each to be as*1520 follows:
| Central Market Street Company (petitioner) | $110,653.80 |
| Arcade Amusement Company | 1,075.23 |
| Regent Theatre Company | 811.89 |
| Savoy Amusement Company | 3,099.91 |
| Princess Amusement Company | 4,913.56 |
| Juniper Amusement Company | 7,730.84 |
| Lubin Auditorium Company (loss) | -1,809.49 |
| 333 Market Street Company (loss) | -1,237.21 |
| Central Market Street Real Estate Company (loss) | -10,318.21 |
| Victoria Amusement Company (loss) | -1,655.16 |
| Consolidated income | 113,265.16 |
*502 Petitioner does not dispute the correctness of this determination of income.
Upon this consolidated net income of $113,265.16 the respondent determined a tax of $58,423.81 and a deficiency of $22,910.51, all of which was determined against petitioner.
During the year 1920, within the time prescribed by law, the Stanley Company of America filed its income-tax return for the calendar year 1919, including therein income or loss of petitioner and its subsidiaries and that of other companies believed to be affiliated with the Stanley Company of America. Accompanying and attached to such return by the Stanley Company of America were information returns on Form 1122 for petitioner and its*1521 subsidiaries. Form 1122 contained paragraph 7, which reads:
In case of all consolidated returns, the Department prefers that the total tax assessed against the affiliated group be paid by the parent or principal reporting company, instead of being apportioned among the affiliated companies.
If apportionment is made, state the amount of income and profits tax for the taxable year to be assessed against the subsidiary or affiliated company making the return .
These information returns, filed by the petitioner and subsidiaries in the appropriate blank space provided therefor, directed that the following amounts be assessed against each of the following companies:
| Central Market Street Company (petitioner) | None. |
| Juniper Amusement Company | $32,955.16 |
| Princess Amustment Company | 2,441.12 |
| Regent Theatre Company | 4,882.25 |
| Arcade Amusement Company | 3,661.68 |
| Savoy Amusement Company | 14,890.85 |
| 333 Market Street Company | 12,205.61 |
| Victoria Amusement Company | 18,552.53 |
| Lubin Auditorium Company | 1,952.90 |
| Central Market Street Real Estate Company | None. |
The entire tax liability of $244,112.31 as shown on the consolidated return of the Stanley Company of America*1522 and subsidiaries was *503 assessed against and paid by the Stanley Company of America in 1920, and the amounts shown above were charged to the above named subsidiaries on the books of the Stanley Company of America.
Corresponding entries were made on the books of each company crediting the Stanley Company of America with the amounts so paid. No part of the tax shown to be due on the consolidated 1919 return was assessed against, paid by, or charged to the petitioner, Central Market Street Company.
According to its books and the schedule filed with the consolidated return, petitioner sustained a loss in 1919 of $20,500. In the audit of the consolidated return filed by the Stanley Company of America, the respondent ruled that the petitioner was affiliated with the companies listed above, but was not affiliated with the Stanley Company of America or any company other than those previously mentioned. The tax of the petitioner and subsidiaries was computed on the basis of such affiliation upon a consolidated net income of $337,643.27, but the respondent determined that the petitioner sustained a loss in the year 1919 of $287.17. On the basis of such audit, the respondent*1523 determined a deficiency for 1919 of $126,990.03, which entire amount was alleged in the deficiency notice to be due from the petitioner. The deficiency notice did not determine any deficiency against any of the subsidiary companies with which petitioner was affiliated.
When the consolidated return of the petitioner and its affiliated companies was filed for the calendar year 1918, there was no agreement between the petitioner and its subsidiaries, and no agreement has since been made, whereby the respondent is authorized to assess against the petitioner the deficiency involved for the year 1918 of any of the subsidiaries.
When the tax return of the Stanley Company of America, in which was included the income of the petitioner and its subsidiaries, was filed for the year 1919, there was no agreement, nor has any been made subsequently between petitioner and its subsidiaries by which the respondent is authorized to assess the deficiencies due by the subsidiaries against the petitioner.
Protest against the assertion by the bureau of internal revenue against petitioner of the additional tax claimed to be due for 1919 was filed by the petitioner, the Central Market Street Company, *1524 in June, 1924, signed by Louis Subloski; another protest, dated January 21, 1925, with respect to the same tax liability was signed by petitioner and filed with the bureau; and another protest, dated February 7, 1925, was filed; and still another, dated August 9, 1926, was filed. In none of these protests did petitioner challenge the Commissioner's allocation of all the claimed taxes to petitioner.
*504 The first time that petitioner protested against the allocation of all the deficiency to it, was in its amended petition filed December 18, 1928. The deficiency notice, which is the basis of this appeal, is dated December 31, 1926, and was addressed to the Central Market Street Company, 1214 Market Street, Philadelphia, Pennsylvania. No mention is made either in this notice or any of the attached statements of any subsidiaries. In its appeal to the Board the petitioner captioned its petition "Central Market Street Company (and Subsidiaries), v. Commissioner of Internal Revenue, Respondent," but none of the subsidiaries were named, either in the caption or in the body of the petition. In its amended petition no mention was made of the subsidiaries, either in the body*1525 of the petition or the caption, as being parties to the appeal.
OPINION.
BLACK: The principal issue in this proceeding is the correctness of the action of the Commissioner in allocating to petitioner all of the deficiencies determined for 1918 and 1919 upon the basis of consolidated income of petitioner and certain other corporations with which it was affiliated during the respective taxable years.
Petitioner contends that no agreement was ever filed with the Commissioner consenting to the assessment of the entire deficiency against petitioner and that none was ever entered into. Respondent, at the hearing, while admitting that no such agreement was ever filed with the bureau of internal revenue, contended that petitioner and its affiliated corporations by their course of conduct had entered into such an implied agreement and are now estopped to deny that such an agreement existed. Respondent filed no brief.
Section 240(a) of the Revenue Act of 1918 provides: "In any case in which the 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*1526 in such proportions as may be agreed upon among them, or, in the absence of such agreement, then on the basis of the net income properly assignable to each."
The record is uncontroverted to the effect that there was no agreement that all the tax shown by the consolidated returns should be assessed against petitioner, the Central Market Street Company. In fact, the Central Market Street Company did not file the consolidated return for 1919; it was filed for that year by the Stanley Company of America as the reporting company and the Central Market Street Company (petitioner) was included in the return as one of the subsidiaries, and the information return which petitioner filed on Form *505 1122 specifically instructed that none of the tax should be apportioned to petitioner because it had a loss instead of income in 1919.
When the consolidated returns were filed for 1918 and 1919, in each instance they were accompanied by information returns on Form 1122, wherein it was requested that the tax be apportioned against the affiliated corporations in the amounts set out in these respective information returns. Notwithstanding these instructions, the assessment for the year*1527 1918 was made against the petitioner, which paid the first two installments of the tax. For the year 1919 the tax shown on the consolidated return was assessed against the Stanley Company of America, which paid the tax assessed for that year as well as the last two installments of the previous year. On this state of facts we see no warrant for holding that the entire amount of the deficiencies should be assessed against petitioner.
In , we held that the burden of proving the existence or nonexistence of an agreement between affiliated corporations respecting allocation of consolidated tax liability was upon the taxpayer. In the instant case the petitioner has met the burden of proof by showing that there was no agreement to the effect that all the tax should be assessed against the petitioner, but that, on the contrary, in each of the taxable years the subsidiaries filed information returns on Form 1122 in which they each directed how much of the total tax shown on the original return should be apportioned to each corporation included in the consolidated return.
*1528 In the instant case we have no such state of facts as we had before us in , where we held there was an implied agreement to the effect that all the tax should be assessed against the parent corporation. In that case there were four corporations affiliated with the parent corporation, and only one of them filed an information return on Form 1122 directing how the tax shown on the consolidated return should be apportioned.
In the instant case, information returns on Form 1122 were filed by all the subsidiaries, directing how the tax should be apportioned. Such directions are controlling as to the part of the deficiencies properly allocable to them and we are without authority to disregard them. .
As to the year 1918, it has been pointed out in the findings of fact that the consolidated net income as shown on the return was $98,289.73, and this has been increased by the respondent to $113,265.16. Petitioner does not contest the correctness of this increase. Most of the increase is due to increasing petitioner's net income from $99,611.90, *506 *1529 as shown on the original return, to $110,653.80, as reaudited by the Commissioner.
Petitioner is liable for that part of the deficiency asserted by the respondent for the year 1918 which is due to its own increase in income, as shown above. Petitioner had no net income for 1919 and is not liable for any of the deficiency asserted by the respondent for that year.
Where respondent, as in the instant case, was fully advised that directions for apportioning the tax were on file for both taxable years, he can not plead estoppel against petitioner merely because petitioner, in its several protests to the bureau against the deficiencies, did not raise the question of respondent's right to allocate all the deficiencies to petitioner. The Commissioner can not create an estoppel by his own failure to perform the act directed by the plain provisions of the law. Every fact necessary to be known for the performance of his duty was within his knowledge when the return was filed. Cf. .
Although respondent has filed no brief in this proceeding, at the hearing his counsel contended that we had before us on the appeal not only the petitioner, Central*1530 Market Street Company, but its subsidiaries as well. In support of such contention he cited ; affirmed in part and reversed in part, . In that case the facts show that deficiencies were determined not only against the parent corporation, but also against the corporations claimed to be affiliated, and that all appealed. In such a situation we held that we had jurisdiction of the subsidiaries.
In , we again followed that ruling, but we also held that we had no jurisdiction of years in which no deficiencies were determined against the subsidiary.
In the instant case, no deficiencies have been determined against the subsidiaries. They are not before us in any way as petitioners and respondent's contention that we have jurisdiction to determine deficiencies against them is denied. ;; *1531 ; ; .
Reviewed by the Board.
Decision will be entered under Rule 50.