*2489 1. Deficiencies held not barred.
2. Corporations held affiliated.
*878 This proceeding is for the redetermination of deficiencies in income and profits taxes for the year 1921 amounting as follows: for the Pantlind Hotel Co., $11,531.19; for the Pantlind Building Co., $3,962.62.
Petitioners allege error in that (1) assessment and collection are barred, and (2) respondent has determined the taxes of petitioners separately, whereas they were affiliated in 1921.
*879 FINDINGS OF FACT.
The Pantlind Hotel Co. is a Delaware corporation, organized on May 7, 1915, with principal office at Grand Rapids, Mich., and the Pantlind Building Co. is a Michigan corporation, organized on August 17, 1912, with principal office also at Grand Rapids, Mich.
The Pantlind Hotel Co., hereinafter referred to as the hotel company, was engaged in the hotel business in Grand Rapids, Mich., operating the Pantlind Hotel. The Pantlind Building Co., hereinafter referred to as the building*2490 company, owned the Pantlind Building, which contained, besides the Pantlind Hotel, a number of stores and banking rooms, and it leased and operated adjoining properties.
Prior to 1912 a hotel known as the Pantlind Hotel was located at the corner of Monroe and Pearl Streets, in the City of Grand Rapids, Mich., and was operated by J. Boyd Pantlind. The building which the hotel occupied was very old and a movement was initiated in 1912 to provide additional hotel facilities for the City of Grand Rapids so that visiting furniture buyers might be accommodated during their visits, which regularly occurred during the January and July markets. The building company was organized in consequence of this movement. Its bonds were sold to the public, its capital stock, both preferred and common, was sold almost entirely to persons directly interested in the erection of additional hotel facilities, being for the most part men engaged in the furniture industry or owning real estate and doing business in the immediate vicinity of the site. Subscriptions for the most part were taken one-half in preferred stock and one-half in common stock. During the construction of the hotel efforts were made*2491 to find a hotel operator who would take a lease on the building at an attractive rental, but without success. The building was completed in 1915. The hotel company was organized in 1915, issuing the majority of its common stock in exchange, par for par, for the common stock of the building company. A part of the preferred stock of the hotel company was issued to J. Boyd Pantlind in exchange for the hotel furniture, fixtures and equipment which he had been using in that part of the hotel which he operated prior to the completion of the entire building. Under date of January 10, 1916, the hotel company leased part of the building for a term of 20 years, the lease providing for rental payments, as follows:
5. The Hotel Company does hereby hire the said premises for the term aforesaid, and does covenant and promise to pay to the Building Company, its successors and assigns, for rental of said property as follows:
Twelve per cent. (12%) of all gross receipts for any year in which such gross receipts are less than Five Hundred Thousand Dollars ($500,000.00).
*880 Thirteen per cent. (13%) of all gross receipts for any year in which such gross receipts are Five Hundred*2492 Thousand dollars ($500,000.00) or more, and less than Five Hundred Fifty Thousand dollars ($550,000.00).
Fourteen per cent. (14%) of all gross receipts for any year in which such gross receipts are Five Hundred Fifty Thousand dollars ($550,000.00) or more, and less than Six Hundred Thousand dollars ($600,000.00).
Fifteen per cent. (15%) of all gross receipts for any year in which such gross receipts are Six Hundred Thousand dollars ($600,000.00) or more.
It is further agreed that the rental shall be not less than Sixty Thousand dollars ($60,000.00) per year even though the actual gross receipts shall be less than Five Hundred Thousand dollars, ($500,000.00) per annum.
It is further agreed that in addition to the above rentals the Hotel Company shall pay all charges accruing for heat, light, power, or otherwise, under two (2) certain contracts entered into and existing between the Building Company and the Grand Rapids-Muskegon Power Company, dated July 1, 1914, which contracts provide for the furnishing of heat, light, power, etc., for said premises, which contracts the Hotel Company hereby assume.
It is further agreed that if within five (5) years after the beginning*2493 of the term of this lease gross receipts as herein defined shall not have reached a total of Six Hundred Thousand dollars per year, then, unless the Hotel Company shall be willing and agree to thereafter pay a minimum rental of Eighty-four Thousand dollars ($84,000.00) per year, the Building Company upon giving six (6) months' written notice so to do, may terminate this lease. If this lease shall be so terminated, then the Building Company shall purchase and take over from the Hotel Company the furnishings and equipment used in the hotel at their then fair value, for hotel purposes, to be agreed upon between the parties hereto, but if the parties cannot agree, then the said value to be fixed and determined by arbitration, each party selecting one arbitrator, and the two arbitrators so chosen selecting a third, and the decision of said three arbitrators, or a majority of them, to be final. Pending such agreement or arbitration, the Building Company shall be entitled to the use of said furniture and equipment.
The earnings of the building company during the early years of its history were not such as to justify the payment of a dividend on the preferred stock. It was in arrears*2494 for such dividends on January 1, 1921. During the year 1921 a dividend of 6 per cent was paid on the preferred stock, such dividend being the current dividend but not the arrears.
The stockholdings in the two companies were as follows:
| Jan. 1, 1921 | Dec. 31, 1921 | |||||
| Building Co. | Building Co. | |||||
| Owned by - | Hotel Co., common | Preferred | Common | Hotel Co., common | Preferred | Common |
| Hotel Co | 685 | 3,912 | 700 | 3,914 | ||
| Stockholders in common | 2,526 | 2,343 | 11 | 2,503 | 2,486 | 10 |
| Subtotals | 2,526 | 3,028 | 3,923 | 2,503 | 3,186 | 3,924 |
| All other stockholdings | 1,436 | 1,425 | 66 | 1,461 | 1,267 | 65 |
| Totals | 3,962 | 4,453 | 3,989 | 3,964 | 4,453 | 3,989 |
*881 At the annual stockholders' meeting of the building company on January 15, 1921, the following shares were represented and voted:
| Preferred | Common | Total | |
| Jan. 15, 1921 | |||
| Shares present in person | 680 | 11 | 691 |
| Shares present in proxy | 685 | 3,912 | 4,597 |
| Total voting | 1,365 | 3,923 | 5,288 |
| Total outstanding | 4,453 | 3,989 | 8,442 |
| Shares present in person: | |||
| Hotel company stockholders | 583 | 11 | 594 |
| Building company stockholders only | 97 | 97 | |
| 680 | 11 | 691 | |
| By proxy in name of hotel company own stock, total | 685 | 3,912 | 4,597 |
| Held by hotel company | 685 | 3,912 | 4,597 |
| Held by stockholders | 583 | 11 | 594 |
| Total controlled by hotel company and its stockholders | 1,268 | 3,923 | 5,191 |
| Held by building company stockholders | 97 | 97 | |
| Total voting | 1,365 | 3,923 | 5,288 |
*2495 In 1918 the hotel company paid to the building company $10,000 rent in addition to the amount required to be paid under the lease. This concession was due to information conveyed to the hotel company that the building company was without sufficient income to provide funds for the payment of its taxes, bond interest and other charges. At various times improvements were made to the building at the expense of the hotel company without charge to the building company. In 1920 it became necessary to install a heating plant in the building in lieu of the heat supplied from an outside source. This heating plant was installed during 1920 and 1921 at a cost of approximately $70,000, which cost was borne by the hotel company without charge to the building company.
At all times the hotel company determined the selection of the directors of the building company. All of the directors of the hotel company, except one, were also directors of the building company in 1921. There were other directors of the building company who were not directors of the hotel company.
A consolidated return, including both companies for the year 1921, was filed on June 15, 1922. The building company and*2496 respondent agreed in writing as follows:
INCOME AND PROFITS TAX WAIVER
For taxable years ended prior to January 1, 1922
NOVEMBER 3, 1925.
In pursuance of the provisions of existing Internal Revenue Laws Pantlind Building Company, a taxpayer of Grand Rapids, Michigan, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making *882 any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) 1921 under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
PANTLIND BUILDING COMPANY,
*2497 BY CLAY H. HOLLISTER, Pt.
D. H. BLAIR,Commissioner.
WB
The hotel company and respondent agreed in writing as follows:
INCOME AND PROFITS TAX WAIVER
For taxable years ended prior to January 1, 1922
NOVEMBER 3, 1925.
In pursuance of the provisions of existing Internal Revenue Laws Pantlind Hotel Company, a taxpayer of Grand Rapids, Michigan, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) 1921 under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board, then said date shall be extended by the number of days between the date of mailing of said notice of*2498 deficiency and the date of final decision by said Board.
PANTLIND HOTEL COMPANY,
BY FRED Z. PANTLIND, Pres.
D. H. BLAIR,Commissioner.
WB
OPINION.
SIEFKIN: It is urged by petitioners that the two so-called "waivers" were improperly admitted in evidence on the ground that the Commissioner's signature was not properly identified and also on the ground that it was not shown by whom and when they were signed on the part of the Commissioner, and are thus inoperative as proof that the statute of limitations has been suspended. During *883 the hearing it was stipulated by the parties that such instruments were properly signed by officers of the companies and that the seals were the corporate seals. They were produced from the files of the Commissioner and introduced by counsel representing the Commissioner at the hearing of the case.
It is obvious from the instruments themselves that the Commissioner himself did not sign them since initials appear under the signatures which we assume are the initials of someone signing for him. Nor do the instruments, by themselves, show what date the signatures of "D. H. Blair" were placed thereon. Each contains, however, *2499 a typewritten date of November 3, 1925.
The term "waiver" is a misnomer and is misleading. Congress in neither the Revenue Act of 1924 nor 1926 used the word as designating an instrument which extended the time for determination, assessment and collection by the taxing officials, but instead, in section 278(c) of both Acts, spoke of a case "where both the Commissioner and the taxpayer have consented in writing." This language recognized a bilateral agreement. A contract may be unilateral in obligation, but always has at least two operating parties; a waiver "so far as it is thought to be anything, * * * is unilateral." Ewart, Waiver Distributed, 150.
These instruments, then, create an obligation contractual in its nature and admitted by petitioners to be signed by their proper officers, regular on their face and produced on behalf of the other party.
Sections 322 and 323 of the Revised Statutes, section 1301(a) of the Revenue Act of 1918 and section 1 of the Urgent Deficiency Appropriation Act, approved October 6, 1917 (40 Stat. 348), provide for the appointment of deputy commissioners and an assistant to the Commissioner. The statutes referred to provided that the deputy*2500 commissioner "shall act as Commissioner of Internal Revenue in case of the absence of that officer." Like duties are prescribed for the assistant to the Commissioner. Section 1 of the Act of October 6, 1917, provides in part as follows (40 Stat. 348):
The Commissioner of Internal Revenue is authorized to assign to Deputy Commissioners such duties as he may prescribe, and the Secretary of the Treasury may designate any one of them to act as Commissioner of Internal Revenue during the Commissioner's absence.
Nothing appears in the record of this appeal to indicate that the signature or approval of the Commissioner was not made in accordance with the provisions of the statutes referred to.
Furthermore, there is a well recognized rule that, at least in many instances, discretionary acts of executive officers may be performed *884 by subordinates. In , it appeared that a temporary Forest Reserve had been created by the order of the Commissioner of the General Land Office. The order was made under the direction of the Secretary of the Interior. *2501 The acts under which the order was issued bestowed upon the President of the United States the power to withdraw lands from disposition under the public land laws. In the course of the opinion (page 357) the court states that "the act of the Secretary of the Interior in directing the latter (the withdrawal) was in legal contemplation the act of the President." See also .
Also the mere fact that the words "D. H. Blair, Commissioner," appearing on the waivers submitted in evidence was not in the personal handwriting of D. H. Blair does not constitute evidence tending to prove that the signature did not represent his personal discretionary act. In ; , it was held that a person who appears before a magistrate and duly acknowledges the execution of a deed to which his name was subscribed by another in his absence, thereby recognizes and adopts the signature as his own. See also ; and 8 R.C.L., p. 938. There is nothing to show that the signature appearing on the waivers introduced in evidence was not written at the personal*2502 direction of D. H. Blair or that it was not adopted by him as his own after having been written by another. In ; , it was stated that the acts of public officers should be construed with liberality. "There is always a presumption that they (acts of public officers) are in accordance with the law. The presumption can be repelled only by clear evidence of illegality."
In , it appeared that a deputy sheriff had an execution returnable in February. In March the debtor sold certain horses which he owned on the return day. Afterwards the deputy sheriff sold the horses under the execution. Held in the absence of proof, that it would be presumed that the property was levied upon before the return day. See also section 579 of Mechem on Public Officers.
It would appear that the approval or consent of the Commissioner to the waivers involved in this appeal is clearly not within the rule of such cases as *2503 ; ; and , where it was held that specific acts of municipal officers could not be delegated under the statutes governing the matter. Under the circumstances, we have no hesitation in holding that petitioner is bound by the terms of such instruments and that the deficiencies in question, having been asserted within the time as agreed upon, are not barred. .
*885 As to the question of affiliation, the hotel company owned at least 98 per cent of the common stock of the building company during the taxable year and were such ownership the sole criterion there would be no doubt of the affirmative application of the Revenue Act for a consolidated return. However, in addition to the common stock there was outstanding during the year preferred stock of the building company and this preferred stock was possessed of voting rights due to the provision of the law of the State of Michigan that preferred stock was entitled to full voting rights where, as here, *2504 the issuing corporation was in arrears more than 60 days in the payment of dividends on the preferred stock. There were outstanding 3,989 shares of common stock and 4,453 shares of preferred stock of the building company, or an aggregate of 8,442 shares, all of which had full voting rights during 1921. Accordingly, it becomes necessary to analyze the holdings of the preferred stock. Set out in the findings of fact is an analysis of the holdings of the voting stock of both companies as at the beginning and at the end of the year. In grouping the holdings of stockholders common to both companies, minor variations in comparative percentages owned in each company are disregarded, in accordance with the . The combined holdings of the hotel company and of the stockholders common to both companies amounted in the aggregate to about 83 per cent of the total outstanding voting stock of the building company at the beginning of the year, and about 85 per cent thereof at the end of the year. The record is silent as to the identities and the extent of the separate holdings of most of the stockholders included in the statement*2505 in the group designated "all others," leaving it open to conjecture whether the shares thus designated represented in their aggregate the true measure of the minority interest. We do know, however, that such minority was about 17 per cent of the outstanding stock at the beginning of the year and 15 per cent at the end of the year. As pointed out in , the word "control" as used in the statute means "to exercise a direct, a restraining or directing influence over; to dominate; hence to hold from action; to curb; subject; overpower." And the question is one of actual or practical control as contrasted with ownership or legal control. In , we said:
Affiliation, if it exists, must be based on ownership or control of substantially all the stock. . The control required by the statute is control of the voting stock, and this control must be shown to be genuine, and must be actually exercised. *2506 . Control of the business with a quiescent minority is not sufficient, nor is the fact that there is unity of purpose and harmonious cooperation sufficient to satisfy the statutory requisites for affiliation. *886 . We have also said, in the , that it will be noted that the words "controls" and "controlled" as used in section 240(b) of the Revenue Act of 1918 are not in any manner limited or qualified. In the absence of any qualification these words must be taken to mean full and complete control.
In that case we denied affiliation although the minority stockholders worked with the principal stockholders "toward a harmonious end" and although the two corporations "worked together as a business unit," basing such denial upon our view that control of the business is not control of the stock. In this case, however, ownership of about 54 per cent of the voting stock of the building company by the hotel company is to be considered in connection*2507 with the ownership of an additional 29 to 31 per cent of the building company by stockholders of the hotel company.
Upon a careful consideration of all the evidence, including the evidence as to intercompany transactions set forth in our findings, we are of the opinion that substantially all of the voting stock of petitioners was controlled by the same interests and the taxes should be determined upon the basis of a consolidated return.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.