*1009 Although domestic corporations are liable to income tax at the rate of 12 percent on their net income under section 13 of the Revenue Act of 1928, and fire insurance companies are liable to tax upon their net income at the same rate under section 204 of the Revenue Act of 1928, it is nevertheless held that for 1928 a domestic corporation not an insurance company may not file a consolidated return with the fire insurance company for 1928.
*41 This is a proceeding for thr redetermination of a deficiency in income tax for 1928 of $5,793.34. The question in issue is whether a stock fire insurance company is authorized to file for the taxable year 1928 a consolidated return with a corporation which is not in the business of writing insurance.
FINDINGS OF FACT.
1. The petitioner was, during the taxable year 1928, a corporation duly incorporated, organized, and existing under the laws of the State of Maryland, with its principal place of business in New York City, such incorporation*1010 having taken place on December 29, 1925.
*42 2. Such incorporation of petitioner was caused by the New York Fire Insurance Co., which was then, and continued throughout the taxable year 1928 to be, a stock fire insurance company duly incorporated, organized, operating, and existing under and by virtue of the laws of the State of New York, with its principal office in New York City.
3. From the time of the organization of the petitioner and throughout the year 1928, the New York Fire Insurance Co. owned all of the issued and outstanding capital stock of the petitioner and for each of the years 1926, 1927 and 1928 the two corporations filed consolidated returns.
4. Petitioner's sole business since its organization, and throughout the taxable year 1928, was the purchase, sale and holding of securities (including corporate stocks) and the receipt of the dividends and interest therefrom.
5. The respondent's deficiency notice dated February 12, 1931, upon which this proceeding is predicated, set forth a deficiency of $5,793.34, disallowed affiliation of the petitioner and the New York Fire Insurance Co., and computed petitioner's tax liability for the year 1928 upon*1011 the basis of a separate return.
6. The parties have stipulated that if the petitioner is not entitled to affiliation under the applicable statute with the New York Fire Insurance Co. then the deficiency in income tax determined against the petitioner for the year 1928 in the amount of $5,793.34 is correct, but if the petitioner is entitled to such affiliation then there is no deficiency in income tax against either of said two corporations.
OPINION.
SMITH: The sole question presented by this proceeding is whether the petitioner is authorized under the statute to file a consolidated return with the New York Fire Insurance Co. for the calendar year 1928. The respondent has denied the petitioner this right upon the authority of Fire Companies Building Corp.,23 B.T.A. 550">23 B.T.A. 550; affd. (C.C.A., 2d Cir.), 54 Fed.(2d) 488; certiorari denied, 286 U.s. 546; Cincinnati Underwriters Agency Co. v. Commissioner (C.C.A., 6th Cir.), 63 Fed.(2d) 309; certiorari denied, 289 U.S. 754">289 U.S. 754. The petitioner contends that the decision of the Board in *1012 Fire Companies Building Corp., supra, was predicated in large part upon the fact that the rate of tax imposed upon a domestic corporation by section 230(a)(2) of the Revenue Act of 1926 was 13 1/2 percent of the net income, while the rate of tax imposed upon a fire insurance company under section 246(a)(1) of the same act was 12 1/2 percent of the net income. The Board stated in its opinion:
*43 In view of the fact that insurance companies are placed in a class by themselves and taxed wholly differently, from other corporations, and the fact that they could not be included in a consolidated return without violating other provisions of the statute, we think that it is clear that Congress did not intend that they should be included in a consolidated return with other companies and that it was the intention that the statute relating to consolidated returns (section 240) should be limited in its application to corporations subject to tax at the same rate so that the tax could be computed in the first instance as a unit.
The petitioner argues that no such objection can be made against the filing of the consolidated return for the year 1928 and that section 141(e) *1013 of the Revenue Act of 1928, reading as follows:
A consolidated return shall be made only for the domestic corporations within the affiliated group. An insurance company subject to the tax imposed by section 201 or 204 shall not be included in the same consolidated return with a corporation subject to the tax imposed by section 13. is no bar to the filing of a consolidated return for the calendar year 1928.
It is to be noted, however, that the difference in rates imposed by the Revenue Act of 1926 upon insurance companies and ordinary domestic corporations was not the only consideration for the Board's ruling in Fire Companies Building Corp., supra. The Board pointed out in its opinion that the method of computing the net income of a fire insurance company was markedly different from the method of computing the net income of an ordinary domestic corporation. The taxing statute placed insurance companies in a class by themselves for the purpose of the computation of net income. The Board still adheres to its view that it was not the intention of Congress to permit the affiliation of ordinary domestic corporations with insurance companies. The case of *1014 Cincinnati Underwriters Agency Co. v. Commissioner, supra, is directly in point. Answering the argument of petitioner that, since the Revenue Act of 1928 expressly excluded insurance companies from affiliation with noninsurance companies commencing with the year 1929, it must be assumed that in the earlier acts Congress regarded it as being permitted, the Circuit Court of Appeals for the Sixth Circuit said:
It is true that under earlier acts, and to some extent under the act of 1926, the Internal Revenue Department permitted affiliations between insurance companies and other corporations. There were provisions even in the earlier acts which made it impracticable to permit the affiliation, and we can find no justification for the department's practice under those acts. * * * We agree with the view expressed in Fire Companies Building Corporation Case, supra, that this difference in the two acts is "too fragile" to indicate an intention to interpret the law of 1926 as permitting affiliation, and that it is just as reasonable to assume that the intent of the change was "to leave th situation as it had been" and "to make it clear that for the futrue, at*1015 any rate, affiliation *44 should be limited to corporations of the same sort." Besides, as already stated, there was no provision in any of the prior acts for a tax rate applicable to the consolidated income of these differently taxed units, and in our view the Commissioner had no authority to apply the higher class rate to the consolidated result.
Judgment will be entered for the respondent.