1929 BTA LEXIS 2826">*2826 1. In the absence of a written closing agreement the Commissioner may determine a deficiency at any time prior to the expiration of the period of limitations prescribed by law.
2. The three petitioners herein were affiliated in the year 1920 and the deficiencies for such year were properly computed on the basis of a consolidated return.
3. Preferred stock sold by the Good Manufacturing Co. in 1920 and charged against accounts of the purchasers which showed amounts due them from the company should be included in the computation of invested capital of the affiliated group of which said company was a member in 1920.
15 B.T.A. 583">*583 The respondent has asserted deficiencies in income and profits taxes for the year 1920 against the Good Manufacturing Co. (Docket No. 19840), Art Brass Co. (Docket No. 19841), and the Metal Crafters, Inc., (Docket No. 19842) in the respective amounts of $2,641.09, 15 B.T.A. 583">*584 $2,943.64, and $1,140.62; and for the year 1924 against the Good Manufacturing Co. (Docket No. 34244) in the amount of $56.16. The1929 BTA LEXIS 2826">*2827 issues are:
(1) Whether the Commissioner erred in not including certain preferred stock issued by the Good Manufacturing Co., Inc., in 1920 in his computation of the invested capital of that petitioner;
(2) Whether Metal Crafters, Inc., and the Art Brass Co. were affiliated in 1920 within the meaning of section 240(b) of the Revenue Act of 1918;
(3) Whether the Good Manufacturing Co. and the Art Brass Co. were affiliated in 1924 within the meaning of section 240(c) of the Revenue Act of 1924;
(4) Whether the Commissioner, having previously denied affiliation, was without authority to reverse his ruling and assert the deficiencies for the year 1920 on the basis of an affiliation of the three petitioners in that year; and
(5) Whether the Good Manufacturing Co., Inc., having filed a separate income-tax return for 1924, is now barred from asking for a recomputation of its tax liability for such year on the basis of a consolidated return.
FINDINGS OF FACT.
The Good Manufacturing Co., hereinafter designated the Good Company, and the Art Brass Co., hereinafter designated Art Brass, are New York corporations with their principal places of business in New York City; Metal Crafters, 1929 BTA LEXIS 2826">*2828 Inc., hereinafter designated Metal Crafters, is a Pennsylvania corporation with its principal office in East Stroudsburg.
During the years 1919 and 1920 Metal Crafters had outstanding 1,000 shares of capital stock. In September, 1919, Art Brass purchased 880 of such shares which it held throughout the year 1920. Prior to such purchase and throughout the year 1920 Theodore Webber and his son owned 100 and 10 shares, respectively, of such stock.
Theodore Webber was the superintendent of Metal Crafters' plant in 1919 and so remained through 1920. He attended stockholders' meetings and voted his own stock. He had no understanding with Art Brass as to the purchase of his stock. During the year 1920 Metal Crafters sold substantially all the products of Art Brass at prices determined by Webber.
During the year 1920 the stockholders of the Good Company were as follows:
| Stockholder | Shares | Percentage |
| C. Riegger | 817 | 43 |
| A. F. Riegger | 817 | 43 |
| F. H. Samuels | 95 | 5 |
| Wm. M. Cronyn | 95 | 5 |
| F. Biedemeister | 38 | 2 |
| A. M. Piers | 38 | 2 |
| Total | 1,900 | 100 |
15 B.T.A. 583">*585 During the year 1920 the stockholders of the Art Brass Co. were as follows:
| Stockholder | Shares | Percentage |
| C. Riegger | 420 | 35 |
| A. F. Riegger | 420 | 35 |
| F. H. Samuels | 120 | 10 |
| Wm. M. Cronyn | 120 | 10 |
| R. D. Snowden | 120 | 10 |
| Total | 1,200 | 100 |
1929 BTA LEXIS 2826">*2829 During the year 1924 the stockholders of the Good Company were as follows:
| Stockholder | Shares | Percentage |
| C. Riegger | 903 | 42 |
| A. F. Riegger | 903 | 42 |
| F. H. Samuels | 107 1/2 | 5 |
| Wm. M. Cronyn | 107 1/2 | 5 |
| F. Biedemeister | 107 1/2 | 5 |
| J. M. Lyons | 21 1/2 | 1 |
| Total | 2,150 | 100 |
During the year 1924 the stockholders of the Art Brass Co. were as follows:
| January 1 to February 28 | February 28 to December 31 | |||
| Stockholder | Shares | Percentage | Shares | Percentage |
| C. Riegger | 480 | 40 | 720 | 36 |
| A. F. Riegger | 480 | 40 | 720 | 36 |
| F. H. Samuels | 120 | 10 | 180 | 9 |
| Wm. M. Cronyn | 120 | 10 | 180 | 9 |
| W. P. Hill | 100 | 5 | ||
| C. J. Cook | 100 | 5 | ||
| Total | 1,200 | 100 | 2,000 | 100 |
Piers, Lyons, and Biedemeister were employees of the Good Company. Cook and Hill were the employees of Art Brass. Each held his stock subject to a condition that it could not be sold to outsiders until it had first been offered to the Rieggers.
The three petitioners timely filed separate income and profits-tax returns for the year 1920. On May 24, 1923, the Commissioner assessed additional income and profits tax against Art Brass in the amount of $846.98 for 1920 on1929 BTA LEXIS 2826">*2830 the basis of its separate returns for that year and since such assessment has made no attempt to collect the amount thereof by distraint or otherwise. On August 2, 1926, the Commissioner asserted the deficiencies here in question against the three petitioners on the basis of affiliation in 1920.
15 B.T.A. 583">*586 The Good Company timely filed a separate income and profits-tax return for 1924. At the date of such filing it had not been advised that the Commissioner had held that the three petitioners herein were affiliated in the year 1920. Upon audit of such return the Commissioner asserted a deficiency in the amount of $56.16, which is in controversy here.
On October and November 1, 1920, the Good Company issued its preferred stock to A. F. and C. R. Riegger in the par value of $45,000 and charged the same against accounts which were carried on the books and included in the balance sheets of the company as liabilities and which were greater in amount in each case than the par value of the stock issued. The Commissioner included no part of such preferred stock in his computation of the invested capital of such company for the year 1920.
OPINION.
1929 BTA LEXIS 2826">*2831 LANSDON: It is first necessary to dispose of the estoppel issues raised by the petitioner. We are of the opinion that the Commissioner had authority to assert the deficiencies here in controversy for the year 1920 on the basis of affiliation. Our views of this contention have been fully set forth in several of our previous decisions and require no further discussion here. ; . Cf. ; ; ; .
The petitioner admitted at the hearing that the Good Company and Art Brass were affiliated in 1920. It remains, then, on this issue, only to determine whether Art Brass and Metal Crafters were affiliated in that year. The evidence discloses that in such year Art Brass owned 88 per cent of the stock of Metal Crafters and that of the remaining 12 per cent 10 per cent was the property of the superintendent of the latter company and 2 per cent was owned by his son. 1929 BTA LEXIS 2826">*2832 The minority shareholders voted their own stock and, at all times within the years in question, were in harmony with the majority. Metal Crafters was sole agent for Art Brass and all the stockholders of Art Brass, including the minority, were equally interested in profits resulting from such sales. The interests of the majority and the minority stockholders were identical. On the facts we are of the opinion that the petitioner has failed to show that the Commissioner erroneously held that the three corporations were affiliated in 1920. Cf. .
The evidence is clear that in 1924 more than 90 per cent of the stock of the Good Company and Art Brass was owned or controlled by the same interests, but under the Revenue Act of 1924 this was not enough. The provisions therein applicable here are as follows:
15 B.T.A. 583">*587 SEC. 240. (c) 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.
1929 BTA LEXIS 2826">*2833 The findings of fact, above, show that there was no period in the year 1924 when as much as 95 per cent of the stock of the Good Company and Art Brass was owned by the same interests. It is true that there was a provision for potential control of the small minority interest by the majority, but the Act of 1924 disregards control and bases the right to affiliation solely on the element of ownership. On this point we sustain the determination of the Commissioner.
The Good Company issued preferred stock in the year 1920 as and when set forth in our findings of fact. The Commissioner included no part of such stock in his computation of the invested capital of the affiliated corporations for such year. The president of the company testified that, "It [the preferred stock] was paid for by charging against the credits which were on the accounts due A. F. Riegger and C. Riegger." The respondent adduced no evidence in rebuttal but argues in his brief that the omission of this item in the computation of the petitioners' invested capital was based on the fact that there is no proof of the date at which such credits were made to the accounts of the Rieggers. The Good Company owed1929 BTA LEXIS 2826">*2834 the Rieggers amounts at least equal to the par value of the preferred stock issued to them and it is of no importance whether those debts had been running one day or one year or more. The transaction converted borrowed funds into capital at risk in the business. The amounts of preferred stock issued on October 1 and November 1, 1920, properly prorated, should be included in the computation of the invested capital of the affiliated corporation for the year 1920.
Decision will be entered under Rule 50.