*885 Petitioner, a foreign personal holding company, filed a timely personal holding company tax return on Form 1120 H showing no surtax due, but filed no normal tax return on Form 1120. Respondent thereafter filed a normal tax return on Form 1120 for petitioner, pursuant to section 3176 of the Revised Statutes. Following the issuance of a notice of deficiency in both normal and surtax, petitioner lodged with respondent a document purporting to be a normal tax return on Form 1120. Held:
(1) Petitioner is liable for a deficiency in normal tax under section 233 of the Revenue Act of 1934, because it did not file a true and accurate return of normal tax in the manner prescribed by Title I, which contains the income tax provisions of the act, and hence lost its right to certain deductions.
(2) Petitioner is liable for a delinquency penalty of 25 percent for failure to file a normal tax return on Form 1120.
(3) Petitioner is not liable for surtax under Title I-A of the Revenue Act of 1934, which imposes a surtax on personal holding companies, inasmuch as the timely filed personal holding company return on Form 1120 H was a sufficient compliance with section 233, so far as that*886 section applies to Title I-A by reason of section 351(c) of the act.
*1248 For the calendar year 1934, the respondent determined a deficiency in normal income tax 1 of $1,598.59, to which was added a 25 percent penalty 2 of $399.65 for delinquency in filing a normal tax return on Form 1120, and a deficiency in personal holding company surtax 3 of $2,790.27. By amended answer, respondent asks for increased deficiencies on the ground that he mistakenly failed to add to petitioner's taxable income for 1934 a gain in the amount of $677.65 on the sale of securities.
The issues are whether (1) petitioner is entitled to the benefit of any deductions in the computation of its normal tax and/or its personal holding company surtax where it filed a timely personal holding company surtax return on Form 1120 H but filed no normal tax "return" until after respondent had prepared and filed a normal tax return on Form 1120 for it under section 3176*887 of the Revised Statutes and determined deficiencies thereon and had mailed a notice of deficiency to the petitioner, and whether (2) respondent properly added *1249 a 25 percent penalty to the deficiency in normal tax for the delinquency in filing a normal tax return on Form 1120.
The facts are found as stipulated.
FINDINGS OF FACT.
Petitioner is a foreign corporation, organized under the laws of the Colony of Newfoundland. On June 15, 1935, it filed a personal holding company return on Form 1120 H, for the calendar year 1934, with the collector of internal revenue at Baltimore, Maryland, which showed the following items:
| 1. Net income (as defined in Title I of the Revenue Act of 1934) | $ (1,445.37) |
| 2. Dividends on stock of demestic corporations subject to taxation under Title I of the Revenue Act of 1934 (from Schedule A) | 11,626.12 |
| 3. TOTAL OF ITEMS 1 and 2 | $10,180.75 |
| Less: | |
| 6. Losses from sale or exchange of capital assets (disallowed by section 117(d) of the Revenue Act of 1934) | $144,594.24 |
| 8. TOTAL OF ITEMS 4 to 7 | 144,594.24 |
| 9. ADJUSTED NET INCOME (Item 3 minus Item 8) | $ (134,413.49) |
Thereafter, respondent sent numerous letters*888 to petitioner and its representatives in the United States and Canada requesting that a normal income tax return be prepared and filed. Harold P. Cornell was petitioner's secretary resident in the United States. It was his duty to prepare and file Federal income tax returns on petitioner's behalf, and he did prepare and file the above mentioned Form 1120 H. However, he believed that no normal tax return on Form 1120 was required under the internal revenue laws, because he thought Form 1120 H contained all the information which would have been set forth on Form 1120, and because he also thought that the return on Form 1120 would show that petitioner did not have net income subject to tax for the calendar year 1934. Therefore, he did not file a timely return on Form 1120. He had prepared other returns for domestic corporate taxpayers on Form 1120 for 1934, but had not prepared any such returns for a foreign corporation for that year. He had prepared Form 1120 returns for foreign and domestic corporatioons for years prior to 1934, including returns for this petitioner.
On April 28, 1938, respondent prepared and made a normal tax return on Form 1120 for petitioner pursuant to*889 the authority granted in section 3176 of the Revised Statutes. This return showed gross income of $11,626.12, consisting of dividends on stock of domestic *1250 corporations subject to taxation under Title I of the 1934 Act, no deductions, net income of $11,626.12 and a tax due of $1,598.59.
Respondent mailed a notice of deficiency to petitioner on May 18, 1938.
On August 9, 1938, petitioner filed a normal tax return for 1934 on Form 1120. This return was filled out in full in the usual fashion and showed a deficit in income of $1,445.37 and no tax due. Attached schedules contained breakdowns of dividends and interest, showing payors and amounts, and of capital gains and losses, showing a net capital loss of $146,594.28. Included in the latter schedule was a profit of $677.65 on a sale of 2,500 shares of common stock of the Pacific Gas & Electric Co. At the time of filing this return petitioner did not know that respondent had filed a return for petitioner under section 3176 of the Revised Statutes.
On the normal tax return filed by petitioner on Form 1120, the sum of $1,888.50 was entered as interest received, and it constituted interest received from a domestic*890 corporation less than 20 percent of the gross income of which was derived from sources within the United States for the three-year period ending with the close of the taxable year preceding the payment of such interest; and it is stipulated that as such it did not constitute income from sources within the United States within the meaning of section 119 of the Revenue Act of 1934. Schedule B, attached to the return and containing a breakdown of capital gains and losses, showed profits of $5,644.98 from the sale of 845 shares of North American Co. common stock and $14,520.27 from the sale of 500 shares of Union Carbide & Carbon Co. stock. It is stipulated that these profits resulted from sales of personal property without the United States and did not constitute income from sources within the United States within the meaning of section 119 of the Revenue Act of 1934.
A deduction taken on the return of $50 for Newfoundland taxes was not an item of expense allocated or appointed to income derived from sources within the United States.
The items of gross income received by petitioner from sources within the United States were as follows: dividends received from domestic corporations, *891 $11,626.12; and gain derived from the sale of 2,500 shares of Pacific Gas & Electric Co. common stock within the United States, $677.65.
During the calendar year 1934, petitioner sustained losses on sales of securities (which are stipulated to have been capital assets within the meaning of section 117(b) of the Revenue Act of 1934), within the United States in the aggregate amount of $167,437.18.
Petitioner's ordinary and necessary expenses incurred in connection with the earning of the aforesaid income from sources within the United States during the calendar year 1934 aggregated $1,283.77.
*1251 OPINION.
LEECH: The correctness of both contested deficiencies depends upon whether petitioner has perfected its right to certain asserted deductions. .
The petitioner was a foreign corporation. Section 233 of Title I of the Revenue Act of 1934, controlling here, provides:
A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this title only by filing or causing to be filed with the collector a true and accurate return of its total income received from all*892 sources in the United States, in the manner prescribed in this title; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits.
Was the so-called normal tax return filed by petitioner on Form 1120 a sufficient compliance with section 233 to entitle petitioner to the deductions therein claimed? We think not.
Undoubtedly a taxpayer may litigate a determination of respondent on the basis of a return made by the latter under section 3176 of the Revised Statutes. But, a "return" filed by a taxpayer after such a return has been prepared and filed for him by respondent, under the circumstances existing here, is a nullity and does not comply with section 233, supra.The taxpayer can not thus take advantage from an alleged return submitted by the taxpayer not only after the respondent's filing of its return under section 3176, but also after the issuance of a notice of deficiency. ; ; *893 ; . Cf. . The case of , does not aid petitioner, since it held only that a return filed before the determination of a deficiency was sufficient compliance with section 233. Moreover, in that case, the return filed by the revenue agent was never accepted by the Commissioner, and the taxpayer's delinquent return was made the subject of an audit by respondent. In the Taylor case, supra, the Board held that these facts distinguished the Anglo-American case.
Was petitioner's timely personal holding company surtax return on Form 1120 H a compliance with section 233, supra, sufficient to entitle it to the deduction of dividends received from domestic corporations subject to tax, in the computation of its normal tax? We think not.
Respondent did not prepare and file the normal tax return for the petitioner until after a failure of compliance with his repeated requests to the petitioner to file such a return.
*894 Clearly, the normal and surtax here in dispute are separate and distinct taxes. Revenue Act of 1934, Title I, Title I-A; The revenue act undoubtedly contemplates the filing of separate returns for these taxes. Secs. 52, 53, 54, and 351 of the *1252 Revenue Act of 1934. ; ; ; That being so, it would seem obvious that our decision on the first question would conclude the petitioner here. Moreover, it seems to us to be the plain intendment of section 233 that a normal tax return on Form 1120 is required to be filed in order to secure deductions from income subject to normal tax, especially because the section specifies a "true and accurate return" filed "in the manner prescribed in this title." That can relate only to the normal tax return, Form 1120, required by section 53. The personal holding company return, Form 1120 H, does not contain all the information which the Commissioner "deems necessary" for*895 the calculation of deductions and credits in respect of normal tax liability. For instance, there is no requirement in a Form 1120 H return of the schedule "Reconciliation of Net Income and Analysis of Changes in Surplus," nor is there provision for the schedule "Balance Sheets." Form 1120 H requires only 14 basic items, while Form 1120 requires approximately 25. Thus, the one return filed by petitioner is insufficient for normal tax purposes, and the sanction provided by section 233 must be applied. .
Did the timely personal holding company surtax return entitle the petitioner to deduct from its income subject to surtax the amount of its capital losses disallowed by section 117(d) and included, as such, in that return? We think it did.
It is stipulated that the income set out on the personal holding company surtax return on Form 1120 H was correct and that the correct amount of the "losses from sale or exchange of capital assets (disallowed by section 117(d) of the Revenue Act of 1934)" and thus deductible in the computation of the surtax was in an amount exceeding that claimed on the personal holding company surtax return*896 on Form 1120 H. However, despite those facts, respondent contests the deductibility of any amount for such losses. He argues that section 233 applies to the surtax provisions which are contained in the separate Title I-A, by reason of section 351(c), which reads:
All provisions of law (including penalties) applicable in respect of the taxes imposed by Title I of this Act, shall insofar as not inconsistent with this section, be applicable in respect of the tax imposed by this section, * * *.
His position then is that petitioner has not complied with the provisions of section 233, supra, in that the personal holding company surtax return, on Form 1120 H, was not "a true and accurate return of * * * [petitioner's] total income received from all sources in the United States, in the manner prescribed in this title; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits" as are *1253 here disputed. He argues that the schedules contained in the personal holding company surtax return do not provide for information sufficient to calculate the deduction now contested, and that the scheme of returns*897 formulated by the respondent contemplates the filing of both forms so that information contained in the normal tax return may be used to supplement and emphasize the items required in the personal holding company surtax return, the first return on Form 1120 and the second on Form 1120 H.
Respondent complains specifically that the personal holding company tax return discloses no data which would enable him to determine whether petitioner falls within the characterization of a personal holding company and that there is no breakdown of the item "Net income (as defined in Title I of the Revenue Act of 1934)" and no breakdown of the item "Losses from sale or exchange of capital assets", so that audit of such figures is impossible.
Respondent can hardly complain of any difficulty in determining whether petitioner is a personal holding company within the act when petitioner has filed a return which admits that it is such a company and upon that basis respondent has determined a liability against it for surtax, and, so far as the impossibility of making an audit is concerned, respondent had it in his power to require petitioner to produce books and records in support of the facts appearing*898 on the return. Sec. 54, Revenue Act of 1934. We refuse to hold that, in order to obtain any deductions in the computation of its surtax, petitioner must have filed a timely normal tax return on Form 1120, as well as a personal holding company surtax return on Form 1120 H, both of which must satisfy section 233, supra. We know of no authority requiring such a conclusion. Petitioner filed a timely personal holding company surtax return, on the form approved, and issued for that purpose by the respondent. That return was complete and substantially correct. We conclude that this return contained, for the purposes of section 233, supra, "all the information which the Commissioner may deem necessary for the calculation of such deductions and credits" as are material to the computation of the surtax. See section 233, supra.
Respondent is sustained in his determination of a deficiency in normal tax, but reversed in his determination that petitioner is liable for surtax as a personal holding company. The deficiency in normal tax will be increased in recomputation under Rule 50, since the parties have stipulated that petitioner's income from sources within the United States*899 shall be increased by the sum of $677.65, representing the profit from the sale of Pacific Gas & Electric Co. stock which respondent failed to include in petitioner's taxable income.
*1254 Respondent is sustained in his imposition of a 25 percent delinquency penalty, since petitioner did not file a timely normal tax return.
Decision will be entered under Rule 50.