*2559 Petitioner, in 1919, filed a consolidated return for the year 1918, on behalf of itself and two other corporations claimed to be affiliated, which return complied with the requirements of section 240(a), Revenue Act of 1918. Thereafter the Commissioner decided that those corporations were not affiliated and ordered separate returns made. Such returns were made and filed in 1923. Held, that the return filed in 1919 was a compliance with section 239, Revenue Act of 1918, and that the collection of a deficiency for 1918, if any, was barred by limitation at the date of the deficiency notice on July 31, 1925.
*575 This proceeding is to redetermine a deficiency of $34,784.67 in income and profits tax for 1918. The entire amount is in controversy. The petition sets forth alleged errors of the Commissioner in substance as follows:
(a) (b) In holding that a consolidated return of 1918 income, filed in 1919, for petitioner and two other corporations, was not a compliance with section 239, Revenue Act of 1918, *2560 requiring every corporation, etc., to "make a return," because petitioner was held subsequently by the Commissioner not to be affiliated.
(c) In determining the deficiency more than five years after the filing of the said consolidated return;
(d) In holding that the statute of limitations started running from the date of filing in September, 1923, of an amended return of petitioner's 1918 income, instead of from the date the consolidated return was filed in 1919;
(e) In holding petitioner was not affiliated with the Philadelphia Paper Manufacturing Co. in 1918;
(f) In disallowing the deduction as business expenses of sums spent for automobiles and entertainment of customers;
(g) In failing to allow the proper war-profits credit under section 311(c)(2), Revenue Act of 1918;
(h) In disallowing in part petitioner's deduction for depreciation.
The Commissioner conceded the correctness of petitioner's contentions in assignments of error (f) and (g). The petitioner withdrew assignment (h). This leaves two questions: First, is the proposed deficiency barred by the limitation provisions of the Revenue Act *576 (assignments (a), (b), (c), (d))? and, second - (e), was*2561 the petitioner affiliated with the Philadelphia Paper Manufacturing Co., hereinafter called the Philadelphia Company?
FINDINGS OF FACT.
During 1918, the taxpayer was a Pennsylvania corporation with its principal office at Manayunk, Philadelphia. On June 23, 1923, it was consolidated and merged with the Philadelphia Company into a new corporation bearing the same name as the latter.
In June, 1919, a consolidated return was filed for the calendar year 1918, for petitioner, the Philadelphia Company and the National Fibre Box Co. Thereafter, on an examination of that return, the Commissioner ruled that petitioner was not affiliated with the Philadelphia Company. He informed petitioner accordingly and directed and ordered petitioner to prepare a new return excluding the income and invested capital of the last named corporation. In September, 1923, a separate return was filed by petitioner. At no time did the Commissioner suggest penalties against petitioner for delinquency in filing a return.
The notice of deficiency was mailed to the petitioner on July 31, 1925, which is more than five years after June, 1919, but within five years of September, 1923.
The consolidated*2562 return made and filed in June, 1919, had attached thereto schedules showing in separate columns all of the facts necessary for a computation of the tax of each corporation separately.
The petitioner claims it is affiliated with the Philadelphia Company. The stockholders, in 1918, of the two companies and the number of shares held by each are set out below. There were no changes during the year.
| Number of shares | ||
| Name of stockholders | Philadelphia Paper Mfg. Co. | Fibre Container Co. |
| Carrie J. Brown | 492 | 180 |
| G. A. Bisler | 90 | 150 |
| Julian H. White | 40 | |
| Est. of Harriet W. Harrison | 23 | |
| Elizabeth A. Harter | 68 | |
| W. C. Jacobs | 14 | 55 |
| Chas. T. Colloday | 100 | 332 |
| Brownell Buehler | 20 | 50 |
| John Jacobs, jr | 9 | 1,431 |
| Mary E. Short | 18 | |
| Mrs. Herman Von Eiff | 5 | |
| Mrs. John Schofield | 5 | |
| Agnes R. Dougherty | 10 | |
| Gerald A. Dougherty | 5 | 30 |
| Irma P. Hubbard | 11 | |
| Mildred P. Jones | 11 | |
| Lella P. Bailey | 11 | 15 |
| Mrs. P. Philip Weston | 12 | |
| Katherine H. Brown | 23 | |
| Mary B. Harter | 23 | |
| George P. Orr | 5 | |
| Owen J. Roberts | 5 | |
| Philip Hauck | 100 | |
| Frank J. Cole | 10 | |
| Dorothea D. G. Jacobs | 100 | |
| Ward Smith | 44 | |
| E. J. Stoeser | 50 | |
| Thomas Kenny | 10 | |
| Peter Leibert | 75 | |
| John B. Obert | 75 | |
| Wm. H. Bovard | 10 | |
| Henry G. Colloday | 33 | |
| F. H. I. Hetherington | 10 | |
| John C. Belz | 250 | |
| Edward H. Preston | 50 | |
| Emma C. Jacobs | 75 | |
| Jessie Lister | 2 | |
| T. A. Murphy | 1 | |
| Helen P. Weaver | 30 | |
| Chas. T. Chase | 50 | |
| Basil H. Walsh | 216 | |
| Est. of Chas. Wirth | 57 | |
| Eager & Babcock | 6 | |
| Chas. T. Millar | 3 |
*2563 *577 Eight persons, owning a total of 2,243 shares, or 64 per cent of petitioner's outstanding stock, also owned 741 shares, constituting 74.1 per cent of the outstanding stock of the Philadelphia Company. The following other stockholders of petitioner are each related to one of these eight:
Dorothea Jacobs, wife of John Jacobs.
Emma C. Jacobs, mother of John Jacobs.
Henry C. Colloday, an heir of Chas. T. Colloday.
The following other stockholders of the Philadelphia Company are related to one of the eight:
Irma P. Hubbard, sister of Lella P. Bailey.
Mildred P. Bailey, sister of Lella P. Bailey.
Katherine H. Brown, sister-in-law of Carrie J. Brown.
Mary B. Harter, sister-in-law of Carrie J. Brown.
Elizabeth A. Harter, sister-in-law of Carrie J. Brown.
Agnes R. Dougherty, wife of Gerald A. Dougherty.
John Jacobs was president of both corporations. Petitioner's plant adjoined the plant of the Philadelphia Company on land owned by the latter, to which it paid rent. The petitioner manufactured fiber shipping containers, which were made from box board, a product manufactured by the Philadelphia Company. It purchased all of the box board which*2564 it used from the Philadelphia Company, which constituted 90 per cent of all purchases made by it. The Philadelphia Company granted unusual credit terms to petitioner.
*578 During 1918, petitioner expended for automobiles and other entertainment of customers, $2,152.23.
The petitioner was incorporated May 17, 1915, with the name Commercial Box & Envelope Co., which was changed on September 8, 1917, to Fibre Container Co. The purpose for which petitioner was incorporated was the manufacture of paper boxes and paper containers. The correct war-profits credit, under section 311(c)(2), is the median of 10.48 per cent.
OPINION.
LOVE: The primary question is whether or not the assessment of the proposed deficiency is barred by section 277(a)(3), Revenue Act of 1926. The pertinent part of this section is the following:
The amount of income, excess-profits, and war-profits taxes imposed by * * * the Revenue Act of 1918, * * * shall be assessed within five years after the return was filed, and no proceeding in court without assessment shall be begun after the expiration of such period.
As appears in the findings of fact, a consolidated return was filed in June, 1919. *2565 Later the Commissioner ruled petitioner was not affiliated with the Philadelphia Company, one of the corporations included in the return, and directed petitioner to file another return from which would be excluded income and invested capital of the Philadelphia Company. Petitioner filed a new return, accordingly, in September, 1923. On July 31, 1925, notice of the deficiency here in question was mailed to petitioner.
The Commissioner's position is, that since he had determined that petitioner was not affiliated with the Philadelphia Company, the return filed in June, 1919, was not a compliance with section 239, Revenue Act of 1918. This section provides, "That every corporation subject to taxation under this title * * * shall make a return * * *." Section 240(a) required corporations which are affiliated to make a consolidated return.
There is no question of petitioner's good faith in filing the consolidated return, and it also is not questioned that such return complied in all respects with section 240(a) if the corporations were affiliated.
We think that a return so made also complies with section 239. Therefore, the limitation of time within which an assessment may*2566 be made should be computed from the date of filing such return. The facts in the present case bring it within the decision of the Board in . The present case also comes squarely within the Board's decision in , in that here as there the consolidated return contained all of the information necessary to a computation *579 of the tax of each constituent corporation separately. See also . The deficiency letter having been mailed more than five years after the filing of the consolidated return, the assessment of the proposed deficiency is barred by section 277(a)(3), Revenue Act of 1926.
It is, therefore, unnecessary to consider the question of affiliation.
Judgment of no deficiency for the year 1918 will be entered.
Considered by TRUSSELL, SMITH, and LITTLETON.