*2668 Petitioner held affiliated with the Nehalem Logging & Timber Co.
*80 ARUNDELL: Deficiencies in income taxes for the calendar years 1919 and 1920, in the amount of $9,238.79 and $1,193.49, respectively. The question involved is petitioner's right to affiliation with the Nehalem Timber & Logging Co.
*81 FINDINGS OF FACT.
Petitioner is a corporation organized under the laws of Oregon, with its principal office and place of business at Portland.
During the years 1919 and 1920 petitioner was engaged in operating a sawmill at Prescott, Oreg. The Nehalem Timber & Logging Co. carried on logging operations on its holdings near Scappoose, Oreg., some 20 miles up the Columbia River from Prescott. The logs produced by the Nehalem Timber & Logging Co. were shipped to the Columbia River over the line of the Portland & Southwestern Railroad Co. The railroad company was owned by the Nehalem Timber & Logging Co. and the Commissioner has affiliated those two companies during the years 1919 and 1920, under section 240 of the Revenue Act*2669 of 1918.
During the years in question the petitioner and the Nehalem Timber & Logging Co. occupied the same offices in Portland and all operations of these companies, as well as the Portland & South-western Railroad Co., were directed from such offices. The same employees served the three companies.
During the year 1919 Henry Kirk was general manager of all three of these companies. During January, 1920, he was succeeded in his office as general manager of the three companies by J. A. Ryan, who also served in the capacity of vice president of the Nehalem Timber & Logging Co. and of the Portland & Soughwestern Railroad Co. and treasurer of the petitioner during the remainder of the year 1920 and up to the present time. Henry Turrish was president of all of the three companies during the years 1919 and 1920.
The boards of directors of all three companies during the years 1919 and 1920 were composed of the same men. In 1919 the directors of all three companies were Henry Turrish, W. K. Coffin, C. P. Bradshaw, J. B. Kerr, and Henry Kirk. Only one change occurred in the board of directors of the three companies during 1920, J. A. Ryan having been elected in January of that*2670 year to succeed Henry Kirk as director of each of the three companies.
The petitioner and the Nehalem Timber & Logging Co. and Portland & Southwestern Railroad Co. have always been operated as a single unit. The Nehalem Timber & Logging Co. owned and held a large body of timber and carried on logging operations. The petitioner owned and operated a sawmill plant, manufacturing lumber and lumber products. The railroad company transported all logs produced by the Nehalem Timber & Logging Co. The latter company supplied all the lots that petitioner used in the operation of its sawmill, selling upon the open market only such logs as remained *82 after petitioner's needs were fully supplied. Logs were sold by the Nehalem Timber & Logging Co. to petitioner at a price lower by more than $1 per thousand feet than the general market price of similar logs. The grades of logs for which there were the greatest demand and which could be sold to the best advantage on the open market were so sold; all other logs made by the Nehalem Timber & Logging Co. were manufactured into lumber by the petitioner.
During the taxable years the Nehalem Timber & Logging Co. advanced to petitioner*2671 large sums of money, the amount advanced in the year 1920 being between $200,000 and $250,000. The Nehalem Timber & Logging Co. also extended large amounts of credit to petitioner and endorsed the latter's notes. No interest was charged to petitioner upon the large amounts of credit extended for logs delivered to it by the Nehalem Timber & Logging Co., but the latter company did charge interest upon money advanced or acceptances given.
There were no changes in the stockholders of the two corporations during the year 1919 and only a few changes during the year 1920. During the year 1919 and at the close of the year 1920 the stockholdings holdings of the two companies were as follows:
| 1919 | Close of 1920 | |||||||
| Nehalem Co. | Petitioner | Nehalem Co. | Petitioner | |||||
| Stockholders | Shares | Per cent | Shares | Per cent | Shares | Per cent | ||
| Barker, R. F | 5 | 0.025 | ||||||
| Bauman, John | 5 | 0.001 | 5 | 0.001 | ||||
| Bradshaw, C. P. (secretary, both companies) | 25 | .005 | 1 | .0005 | 25 | .0051 | 1 | 0.0006 |
| Carson, Wm. (same as Valley Lumber Co. and Wm. Carson Co.) | 1 | .0002 | 1 | .0005 | 1 | .0002 | 1 | .0006 |
| Carson, Wm. Co. (same as Wm. Carson, C. W. Lockwood and Valley Lumber Co.) | 608 | .1216 | 608 | .1242 | 143 | .0887 | ||
| Carter, Frank | 86 | .0172 | 86 | .0176 | ||||
| Carter, Frank, Co | 12 | .0025 | 12 | .0025 | ||||
| Clark, D. S | 160 | .0320 | 145 | .0799 | 160 | .0327 | 145 | .0899 |
| Clark, M. S. (wife of D. S.) | 150 | .03 | 150 | .0306 | ||||
| Coffin, W. K. (vice president both companies) | 506 1/2 | .1013 | 145 | .0799 | 506 1/2 | .1034 | 145 | .0899 |
| Conhaim, Louis | 100 | .02 | 100 | .0204 | ||||
| Connor, H. J | 50 | .01 | 50 | .0102 | ||||
| Culver, D. S | 100 | .02 | 100 | .0204 | ||||
| Cutter, Belle F | 40 | .008 | 40 | .0083 | ||||
| Dulaney, Daniel M | 150 | .03 | 95 | .0523 | 150 | .0306 | 95 | .0589 |
| Durham, G. H | 49 | .0270 | ||||||
| Dutton, H. P | 55 | .0306 | ||||||
| Durham, R. L | 1 | .0005 | ||||||
| Gosman, G. H. R | 4 | .0008 | 4 | .0008 | ||||
| Gosman, E. M | 4 | .0008 | 4 | .0008 | ||||
| Gregory, J. T | 100 | .02 | 145 | .0799 | ||||
| Gregory, F. W | 95 | .0523 | ||||||
| Harris, Mrs. Tillie | 40 | .008 | 40 | .0082 | ||||
| Henry, C. H | 50 | .01 | 50 | .0103 | ||||
| Kaufman, Isaac | 75 | .015 | 75 | .0153 | ||||
| Keith, A. J | 206 1/2 | .0413 | 72 | .0396 | 206 1/2 | .0422 | 72 | .0447 |
| Keith, T. B | 195 | .039 | 73 | .0403 | 195 | .0398 | 73 | .0453 |
| Kerr, James B. (asst. secretary, both companies) | 1 | .0002 | 1 | .0005 | 1 | .0002 | 1 | .0006 |
| Kirk, Henry | 1 | .0002 | 1 | .0005 | ||||
| Levy, Ben L | 25 | .005 | 25 | .0051 | ||||
| Levy, Henry M | 52 | 0.0104 | 52 | 0.0107 | ||||
| Levy, Irene J | 52 | .0104 | 52 | .0107 | ||||
| Levy, Louis | 156 | .0311 | 156 | .0318 | ||||
| Lockwood, C. W | 1 | .0002 | 1 | 0.0005 | 1 | .0002 | 1 | 0.0006 |
| Marsh, A. J | 145 | .0799 | 145 | .0892 | ||||
| Maxiener, Henry (private secretary to Henry Turrish) | 100 | .02 | 100 | .0204 | ||||
| Mercer, Carrie L. (wife of W. A. Mercer) | 38 | .0076 | 38 | .0078 | ||||
| Mercer, W. A | 4 | .0008 | 4 | .0008 | ||||
| Nehalem Timber & Logging Co | 486 | .2678 | 486 | .3009 | ||||
| Newald, Pearl Levy (sister of Levy boys) | 52 | .0104 | 52 | .0106 | ||||
| Ordean, A. L | 250 | .05 | 250 | .0510 | ||||
| Pearson, John | 65 | .013 | 65 | .0127 | ||||
| Playter, Mary H | 15 | .003 | 15 | .0031 | ||||
| Playter, J. A | 25 | .005 | 25 | .0051 | ||||
| Ryan, J. A. (general Manager, both companies 1920) | 1 | .0002 | 146 | .0904 | ||||
| Sarles, E. Y | 100 | .02 | 50 | .0102 | ||||
| Sarles, L. R | 50 | .0102 | ||||||
| Simpson, Adolph | 5 | .001 | 5 | .0010 | ||||
| Stein, M. S | 560 | .112 | 560 | .1143 | ||||
| Strong, James W | 10 | .002 | 10 | .0020 | ||||
| Turrish, Henry (president, both companies) | 700 | .14 | 1 | 700 | .1428 | 1 | .0006 | |
| Reliance Inv. Co. (stock voted by Henry Turrish) | 115 | .0639 | 115 | .0712 | ||||
| Turrish, James Co. (stock voted by Henry Turrish) | 100 | .02 | 100 | .0204 | ||||
| Valley Lumber Co. (same as Wm. Carson and C. W. Lockwood) | 143 | .0788 | ||||||
| Werner, Agnes Keith (sister of A. J. and T. B. Keith) | 20 | .004 | 20 | .0041 | ||||
| Winfree, A. B | 45 | .0279 | ||||||
| 5,000 | 100 | 1,815 | 100 | 4,900 | 100 | 1,615 | 100 |
*2672 *83 Frank Carter, D. S. Clark and his wife, M. S. Clark, Louis Conhaim, C. H. Henry, Isaac Kaufman, W. A. Mercer and his wife, Carrie L. Mercer, Pearl L. Newald, A. L. Ordean, John Pearson, M. S. Stein, and the members of the Levy family were all close personal friends and some of them close business associates of Henry Turrish, who was looked to by all to protect their interests. G. H. and R. L. Durham, Tillie Harris, and Agnes Keith Werner were all friends and business associates of the Keith brothers, who together with Henry Turrish were the active parties in control of this enterprise.
Under date of July 25, 1922, E. H. Batson, Deputy Commissioner of Internal Revenue, addressed a letter to the Nehalem Timber & Logging Co., which letter contained the following statement:
From the facts presented, you are advised that during the taxable years 1917 to 1920, inclusive, your company was affiliated with the Beaver Lumber Company and the Portland and Southwestern Railroad Company, and you should have filed a consolidated excess profits tax return for the year 1917 and a consolidated income and profits tax return for each of the years 1918 and *84 1919. * * * and*2673 a consolidated income and profits tax return should be filed by you for the tax year 1920, provided such action has not been taken.
Thereafter, under date of January 15, 1925, petitioner was advised by Deputy Commissioner J. G. Bright that the matter of petitioner's affiliation with the Nehalem Timber & Logging Co. had been considered and it was now held that for the years 1918 and 1919 petitioner was not affiliated with any other corporation within the purview of section 240 of the Revenue Act of 1918. On December 18, 1925, Deputy Commissioner Bright advised petitioner that it was the opinion of the Bureau of Internal Revenue that petitioner was not affiliated with any other corporation for the year 1920.
Petitioner and the Nehalem Timber & Logging Co. were affiliated within the meaning of section 240 of the Revenue Act of 1918 during the years 1919 and 1920.
Judgment will be entered on 15 days' notice, under Rule 50.
Considered by STERNHAGEN and GREEN.