*2143 On the evidence, held that 95 per cent of the stock of the two companies involved was not owned by the same interests, and said companies were not affiliated for the taxable years within the provisions of section 240(c) of the Revenue Acts of 1924 and 1926.
*1372 These are proceedings for the redetermination of deficiencies in income tax for the years 1924 and 1925 in the amounts of $2,639.52 and $3,316.95, respectively, and for the period January 1 to February 28, 1926, in the amount of $421.88. The sole issue raised by the pleadings is whether or not the petitioner was affiliated with the Kiboling Co. for the respective taxable years and period, within the meaning of the taxing statutes. The proceedings were consolidated for hearing and decision.
FINDINGS OF FACT.
Kile & Morgan Co. was incorporated under the laws of the State of Rhode Island in 1903, and has been continuously engaged in the sale of hardwood lumber since that time. During the year of 1924 the officers of said corporation were, president, Berton E. Kile; secretary and*2144 treasurer, Mortimer H. Alling; and the directors were Berton E. Kile, Mortimer H. Alling, and M. G. Atkin. During the year 1925 and the months of January and February, 1926, the abovenamed persons continued to hold the offices held by them during the year 1924 and continued as directors of the corporation.
The Kiboling Co. is a trust organized in Rhode Island under a voluntary trust agreement executed January 15, 1917, under which trust agreement the said Berton E. Kile and Mortimer H. Alling are the trustees. The Kiboling Co.'s principal place of business is the office of Kile & Morgan Co., in Providence, R.I.The said Kiboling Co. has been taxed since its organization as a corporation under the Federal income-tax law. The Kiboling Co. was organized to hold and clear for the purpose of farming, and to farm, about six thousand acres of cut-over timber land in Earle, Ark., the lumber from which land had been previously sold by the Kile & Morgan Co. As the Kiboling Co. was unable to finance these operations, the expense of clearing this land and preparing it for farming had to be borne by Berton E. Kile, individually, and by the Kile & Morgan Co. The books of the Kiboling Co.*2145 show that during this period the Kiboling Co. was continuously indebted to Berton E. Kile and the Kile & Morgan Co., the indebtedness on the following dates being in the following amounts:
| B. E. Kile | Kile & Morgan Co. | |
| Jan. 1, 1924 | $162,230.00 | $25,000.00 |
| Jan. 1, 1925 | 171,747.67 | 25,000.00 |
| Jan. 1, 1926 | 181,999.53 | 26,685.83 |
| Mar. 1, 1926 | 181,999.53 | 30,000.00 |
*1373 The capital stock of the Kile & Morgan Co. in the years 1924 and 1925 and the months of January and February, 1926, consisted of 1,000 shares of common stock having full voting power. During this period Berton E. Kile owned 667 shares of this stock and Mortimer H. Alling owned 328 shares, a total of 995, constituting 99.5 per cent. M. G. Atkin, the third director of that corporation, was a bookkeeper of the company and was given five shares of stock on February 4, 1924, to qualify her as a director, which stock she continued to hold during said period.
The beneficial interest under the Kiboling Co. is divided into trust certificates, or shares of stock, all being voting shares, the total of said shares issued and outstanding in 1924 and 1925 and in the months of January and February, *2146 1926, being 1,810. Of this number Berton E. Kile owned 1,483 and Mortimer H. Allin owned 173 shares, so that during this period the said Kile and Alling owned a total of 1,656 shares, constituting 91.5 per cent.
During the years 1924 and 1925 and the months of January and February, 1926, Thomas J. Boston owned 137 shares of the Kiboling Co., and Mrs. Thomas J. Boston owned 17 shares. Mrs. Thomas J. Boston is a sister of Berton E. Kile, and the 17 shares of stock owned by her were given to her by Berton E. Kile as Christmas presents, 12 shares being given to her on December 18, 1920, and 5 shares on December 20, 1921. Her husband, Thomas J. Boston, brother-in-law of Berton E. Kile, was employed by Berton E. Kile and Mortimer H. Alling, trustees of the Kiboling Co., as local manager in charge of its property, and he became possessed of said stock by reason of his relationship to the said Berton E. Kile and his position in the company. The stock owned by Mr. and Mrs. Boston, has, at every meeting of the stockholders of the Kiboling Co., been voted with the stock of Alling and Kile, so that every vote passed at every meeting has been a unaminous vote of all of the stockholders under*2147 the trust. The said Thomas J. Boston was indebted to the Kiboling Co. from January 1, 1924, to March 1, 1926, continuously, as follows: January 1, 1924, $2,822.67; January 1, 1925, $3,822.77; January 1, 1926, $4,054.22; March 1, 1926, $4,020.96. Under the statutes of Rhode Island, General Laws 1923, ch. 349, sec. 14, the stock owned by Boston in this trust was subject to attachment in a suit by the trustees of the Kiboling Co. for the collection of the indebtedness of Boston to the trust. The percentage of total ownership in the trust certificates of the Kiboling Co. by Thomas J. Boston was 7.56, and by Mrs. Thomas J. Boston was .94.
Under the trust agreement, no holder of Kiboling certificates has the right to make sale of any shares without first offering them to the trustees.
*1374 In the years 1919, 1920, 1921, 1922, and 1923, these companies were held to be, and were taxed as, affiliated companies.
OPINION.
TRAMMELL: The sole issue for decision here is whether the petitioner, a corporation organized under the laws of Rhode Island, and the Kiboling Co., a Rhode Island Trust, were affiliated during the taxable years and period involved, within the meaning of*2148 section 240(c) of the Revenue Acts of 1924 and 1926, which reads in material part as follows:
For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the voting stock of the other or others, or (2) if at least 95 per centum of the voting stock of two or more corporations is owned by the same interests.
No issue is raised with respect to whether the Kiboling Co. is properly taxable as a corporation. However, the parties have stipulated that it has been so taxed under the Federal statutes for each year since its organization to and including the year 1923. Since the question has not been raised, we will not give further consideration to this point.
The petitioner contends that at least 95 per centum of its voting stock and a like percentage of the Kiboling Co.'s stock were owned "by the same interests," and that hence they should be deemed to be affiliated within the meaning of the statute above quoted.
Without detailed consideration of what constitutes "the same interests," an analysis of the stock ownership of these companies fails to convince us that the petitioner's position*2149 is tenable.
Kile owned 667 shares or 66.7 per cent of the voting stock of the Kile & Morgan Co. Alling owned 328 shares, or 32.8 per cent of the stock of the same company, and M. G. Atkin, the bookkeeper, held 5 qualifying shares. Thus Kile and Alling owned a total of 99.5 per cent of the voting stock of the Kile & Morgan Co.
Of the voting stock, or shares of beneficial interest, of the Kiboling Co., Kile owned 81.94 per cent, Alling 9.55 per cent, Boston, the brother-in-law of Kile, owned 7.56 per cent and Mrs. Boston, the sister of Kile, owned .94 per cent. Atkin owned no stock of the Kiboling Co. and neither Boston nor his wife owned any stock of the Kile & Morgan Co.
Even if, as is contended by the petitioner, we should hold that Kile and his sister, Mrs. Boston, and her husband, are "the same interests," we find that they owned in the aggregate 90.45 per cent of the voting stock of the Kiboling Company and 66.7 per cent of the stock of the Kile & Morgan Co., which is less than the 95 per cent required by the statute. If we consider Kile and Alling as constituting "the *1375 same interests," they owned in the aggregate 99.5 per cent of the voting stock of the*2150 Kile & Morgan Co., but only 91.49 per cent of the Kiboling Company. However, since the Bostons owned no stock of the Kile & Morgan Co. and had no interest therein, they can not be regarded as constituting "the same interests," with Kile and Alling, who owned substantially all the stock of the latter company.
In no event, therefore, can it be said that at least 95 per cent of the voting stock of the two companies was owned by the same interests. Accordingly, it is our opinion that the petitioner has failed to show that it is affiliated with the Kiboling Co. within the purview of the statute.
In this connection the attitude of the courts on the question of diversity of interests as affecting affiliation may be noted. In Montana Mercantile Co. v. Rasmusson, 28 Fed.(2d) 916, the court in its opinion said:
Moreover, the object of the statute is taxes proportionate to income and equality between taxpayers, to accomplish which the actual or ultimate taxpayer is ascertained by looking quite through the corporate entities. And in the course thereof, if it be found that the gains and losses of several corporations accrue to or fall upon substantially the same*2151 shareholders, taxpayers, the accounts of the corporations are balanced between themselves, to ascertain the actual gains to the common owners and upon which they should pay taxes.
In brief, the benefits of the statute extend to those subject to the hazards of the enterprise, and only when they are substantially one and the same.
This is not the present case. If Montana lost a million, and Western gained a million, it would be unjust to acquit the 50 per cent. Western shareholders, without interest in Montana, of taxes on Western profits, because of Montana losses, which fall not upon them. Yet that is the principle for which plaintiffs contend. It has no basis in the statutes.
Again, the reasons for the rule are set forth by the court in its opinion in Commissioner v. Adolph Hirsch & Co., 30 Fed.(2d) 645, as follows:
Stockholders of two or more corporations, if the same persons, and their holdings in different corporations are in the same proportions, bear the ultimate burden of taxes equally and equitably, regardless of whether it rests primarily upon one or the other of the affiliated corporations, if only such corporations be deemed affiliated, *2152 but it is where the proportions of the stockholders are different that inequities result.
In the instant case, Alling owned less than 10 per cent of the stock of the Kiboling Co. and owned approximately one-third of the stock of the Kile & Morgan Co. Obviously, it would be inequitable to relieve him of the ultimate burden of taxation on profits of the Kile & Morgan Co. by offsetting against the gains of that company the losses of the Kiboling Co. And should the Bostons be required to bear any portion of the taxes on profits of the Kile & Morgan Co. in which they owned not one share of stock.
*1376 For the reasons indicated, the determination of the respondent is approved.
Reviewed by the Board.
Judgment will be entered for the respondent.