*2482 Upon the facts shown petitioner held not entitled to a deduction in 1923 on account of a net loss sustained in 1922 by an affiliated group of which it was a member.
*945 This proceeding involves a deficiency in income and profits tax for the calendar year 1923 in the amount of $1,644.06. At the hearing the petitioner orally amended its petition, waiving the only allegation of error contained therein, relating to the disallowance by the respondent of an expense deduction, and claiming the right to a deduction on account of a net loss of the preceding year.
FINDINGS OF FACT.
The petitioner, with the Betts Machine Co. and the Ingle Machine Co., filed a consolidated income-tax return for the calendar year 1922. The petitioner was designated as the principal corporation of the affiliated group. Said affiliation was based upon identity of stock ownership by several individuals constituting the same interests under section 240(b) of the Revenue Act of 1921. The petitioner owned or controlled shares of stock of*2483 one or more of the affiliated corporations.
The affiliated group operated as a single economic unit engaged in the manufacture and sale of machinery and tools. The petitioner held in its name land and other real property which it rented to *946 the other companies. The Ingle Machine Co. manufactured machinery and tools which were sold by the Betts Machine Co. The business was divided in this way among the affiliated companies for the purpose of promoting efficiency and economy.
During the year 1922 the Betts Machine Co. and the Ingle Machine Co. were liquidated. All of their assets were sold to the Consolidated Machine Tool Co. of America in consideration for cash and stock of said company. The petitioner at the same time sold a part of its assets to the said Consolidated Machine Tool Co. of America. At June 30, 1922, all of the assets of the Betts Machine Tool Co. and the Ingle Machine Co. were sold. Said companies were finally liquidated on December 20, 1922, and October 14, 1922, respectively.
The respondent's final audit of the consolidated return for the calendar year 1922 disclosed a net loss for the affiliated group of $43,448.95. The petitioner itself*2484 had a net gain which was exceeded by the losses of the affiliated companies by the said amount of $43,448.95. For the calendar year 1923 the petitioner filed a return on its own behalf, upon which the deficiency herein asserted was determined.
OPINION.
SMITH: The petitioner contends that it sustained a net loss in the year 1922 which it is entitled to deduct from its net income for the year 1923. The pertinent part of the statute is section 204(b) of the Revenue Act of 1921, which reads as follows:
If for any taxable year beginning after December 31, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from the net income of the taxpayer for the succeeding taxable year; and if such net loss is in excess of the net income for such succeeding taxable year, the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year; the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.
The petitioner's claim for the deduction of this loss in the year*2485 1923 rests upon the hypothesis that it was the same taxpayer, within the meaning of section 204(b) above quoted, that sustained the net loss in the preceding year. The facts before us do not support this premise. Both the Betts Machine Co. and the Ingle Machine Co. were liquidated and ceased operations entirely before the end of the year 1922. Their assets were sold to another corporation and the proceeds distributed to the stockholders. The evidence does not disclose who the stockholders were or any of the details of the liquidation. The balance sheets of the companies for the year 1922, submitted in evidence by the respondent, indicate that the petitioner did not own any substantial majority of the capital stock of the *947 other companies. The respondent's final audit of the consolidated return for the year 1922 discloses a net gain in that year for the petitioner and net losses for each of the affiliated companies in excess of the petitioner's net gain.
Clearly the net loss allowable as a deduction in a subsequent year is available only to the taxpayer who sustained the net loss in the prior year. The petitioner here has failed to show that it was the same taxpayer*2486 in the year 1923 that sustained the net loss in the year 1922.
Judgment will be entered for the respondent.