*3007 Substantially all of the stock of the petitioner and of the Norborne Fuel, Ice & Light Co. was owned or controlled throughout 1920 by the same interests and, therefore, the two companies were affiliated for that year.
*992 This proceeding is for the redetermination of a deficiency in income and profits taxes of $1,947.41 for the calendar year 1920, and the sole issue raised by the pleadings is whether the respondent erred in holding that the petitioner and the Norborne Fuel, Ice & Light Co. were not affiliated for tax purposes during that year.
FINDINGS OF FACT.
The petitioner is a corporation with its principal office and place of business at Norborne, Mo., where it is engaged in the sale of stoves, general hardware, china ware, and farming implements, etc.
Henry Beckemeier, one of the original incorporators of the petitioner, died, whereupon F. S. Cunningham, son of Ella Cunningham, became the leading officer of the company. Alwine Beckemeier, widow of Henry Beckemeier, having acquired stock in the petitioner upon the death of her husband, suggested*3008 to Charles Wehking, Jr., her brother, also a stockholder, that they sell their stock to Cunningham for the purpose of giving him control in the business, which they did, and they arranged for funds with which he might make the purchase.
On March 1, 1916, an agreement was executed by F. S. Cunningham reciting the execution and delivery of promissory notes to Mrs. Beckemeier aggregating $24,500 in amount, and also the assumption of a promissory note for $6,000 made by said Wehking and Mrs. Beckemeier and the execution and delivery of a 10-year $10,000 promissory note to Wehking. That agreement further recited that said Cunningham pledged and delivered up to Mrs. Beckemeier and said *993 Wehking as collateral security for the payment of said promissory notes, 425 shares of the capital stock of the petitioner, and it further provided for the sale of said shares in the event of default in principal or interest. The concluding paragraph of that agreement provides:
Upon the payment of the whole sum of the principals of said notes above described, together with the interest earned thereon, the said Alwine Beckemeier and said Charles Wehking, Jr., or their assigns, covenant and*3009 agree to deliver and surrender up to the said F. S. Cunningham, the maker hereof, his heirs, execuotrs or assigns, the whole number of Four hundred and twenty-five (425) shares of the capital stock of the said Conningham-Beckemeier Supply Comapny, as above stated and described.
At or about the same time the foregoing sale of stock was made to Cunningham by Mrs. Beckemeier, she, through her brother, Charles Wehking Jr., who under a power of attorney conducted her financial affairs, also agreed to sell to said Conningham, Mrs. Beckemeier's stock in the Norborne Fuel, Ice & Light Co., under an oral agreement whereby he was to take the stock any time he desired and pay the purchase price upon the sale, then in prospect, of the assets of that company to the Missouri Electric Co., or, in the event said sale was not consummated, he should then pay therefor out of the first money accruing to the stock over and above his interest.
On March 14, 1919, Mrs. Beckemeier filed a formal demand in the Probate Court of Carroll County, Missouri, for payment out of the estate of F. S. Cunningham, who died in 1918, of the balance of $12,500, plus interest of $375, due upon the $22,500 note given*3010 by Cunningham to Mrs. Beckemeier in 1916, which claim was approved by said court.
The Norborne Fuel, Ice & Light Co. was incorporated in April, 1903, under the laws of the State of Missouri, and produced and sold electric current as a public utility and manufactured and sold ice.
Throughout the year 1920 the stockholders of record of the petitioner and the Norborne Fuel, Ice & Light Co. were:
| Petitioner | Norborne Fuel, Ice & Light Co. | |
| Shares | Shares | |
| Ella M. Cunningham | 197 | 22 |
| W. W. Williams, brother of Mrs. Katherine Cunningham | 1 | |
| Newlan Conkling, attorney for Ella M. Cunningham and Katherine Cunningham | 1 | |
| Chas. Wehking, jr., brother of Mrs. Alwine Beckemeier | 1 | 1 |
| F. S. Cunningham, son of Mrs. Ella M. Cunningham | 474 | 37 |
| Katherine Cunningham, widow of F. S. Cunningham | 1 | |
| Mrs. Willie A. Westbrook, daughter of Mrs. Ella M. Cunningham | 75 | 24 |
| Alwine Beckemeier, widow of Henry Beckemeier | 16 | |
| Total | 750 | 100 |
*994 The shares of stock of Williams, Conkling, & Wehking in the petitioner were transferred to them by Ella M. Cunningham, to qualify them as officers and directors of the company. That stock was held by them in trust for*3011 said Ella M. Cunningham under an agreement that the stock was not to be sold.
The stockholders of the petitioner and the Norborne Fuel, Ice & Light Co., who were present at stockholders' meetings of said companies on February 28, 1920, either in person or by proxy, were:
| Petitioner | Norborne Fuel, Ice & Light Co. | |
| Shares | Shares | |
| Ella M. Cunningham | 197 | 22 |
| W. W. Williams | 1 | |
| Chas. Wehking, jr | 1 | 1 |
| Newlan Conkling | 1 | |
| Katherine Cunningham | 475 | 37 |
| Mrs. Willie Westbrook, by proxy held by Ella M. Cunningham | 75 | 24 |
| Mrs. Alwine Beckemeier, by proxy held by Chas. Wehking, jr | 16 | |
| Total | 750 | 100 |
The stock of F. S. Cunningham (who died in 1918) in the petitioner and the Norborne Fuel, Ice & Light Co. was voted by Katherine Cunningham, his widow, who was administratrix of his estate, without formal transfer of said stock having been made to her name. Some of the certificates of stock in the petitioner appearing in Cunningham's name were held by the Beckemeier interests as collateral security for the payment of the balance of the purchase price.
The officers and directors of both companies, as elected in 1919, were:
| Cunningham-Beckemeier Supply Co. | Norborne Fuel, Ice & Light Co. | |
| President | W. W. Williams | Alwine Beckemeier. |
| Vice president | Ella M. Cunningham | Ella M. Cunningham. |
| Secretary | Katherine Cunningham | Katherine Cunningham |
| Treasurer | Chas. Wehking, jr | Chas. Wehking, jr. |
| Directors | Ella M. Cunningham | Ella M. Cunningham. |
| W. W. Williams | ||
| Newlan Conkling | ||
| Katherine Cunningham | Katherine Cunningham. | |
| Chas. Wehking, jr | Alwine Beckemeier. |
*3012 The foregoing officers and directors were reelected by both companies at a meeting of February 28, 1920, except that Charles Wehking, Jr., was dropped as treasurer of both companies and Katherine Cunningham succeeded him, she serving in the capacity of both secretary and treasurer.
Newlan Conkling, director of the petitioner, was attorney for the Cunninghams, Beckemeiers, and Westbrooks.
*995 Both companies occupied offices in the store of the petitioner, the same bookkeeper was used, and usually the directors of both met at the same time and place. The petitioner purchased its electric current and ice from the Norborne Fuel, Ice & Light Co. and that company purchased all its hardware and supplies either from or through the petitioner. Consumers of electric current and ice customarily paid their bills at the office of the Norborne Fuel, Ice & Light Co. and because of the joint office arrangement of the two companies the petitioner benefited by sales to said consumers when in the store for that purpose.
The petitioner duly filed a consolidated return for the year in question, including therein the Norborne Fuel, Ice & Light Co. The respondent's deficiency notice*3013 denies the right of affiliation to these companies, for the reason, as stated in his deficiency notice, that the minutes of the stockholders' meeting show that a minority stockholder was elected president and director.
OPINION.
MORRIS: The reason assigned by the respondent in his deficiency notice for denying the right of affiliation of these companies, that is, that a minority stockholder was elected president and director during the taxable year, is wholly untenable. The test for determining whether two or more corporations are affiliated within the meaning of the Act is not whether a minority or a majority stockholder is at the head of the corporation or exercising influence or control by virtue of his position as such officer, but, as provided in section 240(b) of the Revenue Act of 1918, whether (a) one corporation owns directly or controls through closely affiliated interests or by nominees substantially all of the stock of another, or (b) substantially all the stock of two or more corporations is owned or controlled by the same interests.
The admitted facts show that 746 shares of the capital stock of the petitioner, of the total issue of 750 shares, were recorded*3014 in the names of Ella M Cunningham, mother of F. S. Cunningham and Mrs. Willie A. Westbrook, F. S. Cunningham, who died in 1918, and Mrs. Willie A. Westbrook; that 99 of the total issue of 100 shares of capital stock of Norborne Fuel, Ice & Light Co. were recorded in the name of the aforesaid Ella M. Cunningham, F. S. Cunningham, Mrs. Willie A. Westbrook, and Alwine Beckemeier; and that the stock recorded in the name of F. S. Cunningham, who died in 1918, was voted by his widow, Katherine Cunningham, administratrix of his estate.
The respondent, in his brief, calls attention to the fact that Alwine Beckemeier held 16 per cent of the stock of the Norborne Fuel, Ice & *996 Light Co. and that she was not a stockholder in the petitioner during the taxable year, and he contends that where there is a 16 per cent uncontrolled minority interest and where the holder of said minority interest is president of the company and where the two companies to be affiliated are in entirely dissimilar businesses, there can be no affiliation. The respondent cites no authority in support of this contention, nor do we find any justification in the statute, or in the decided cases, for such a rule. *3015 The test laid down by the statute affecting the facts of this case is whether substantially all of the stock of these two corporations is owned or controlled by the same interests, and if we so find from the facts, we have no other alternative than to order the corporations affiliated for tax purposes.
Considering the number of shares of stock held by the three principal stockholders of the two companies, their relationship with each other, and with the minority stockholders, and all other surrounding circumstances, we are of the opinion that the test of the statute requiring that substantially all of the stock of two or more corporations be owned or controlled by the same interests has been amply met, and that the respondent erred in denying the petitioner the right of affiliation with the Norborne Fuel, Ice & Light Co. during the year 1920.
Judgment will be entered under Rule 50.