*314 MARQUETTE: This proceeding is for the redetermination of a deficiency in income and profits taxes for the year 1921 in the amount of $1,026.97. The issue presented is whether the petitioner was, during that year, affiliated with the Harbour-Longmire Co., of Enid, Okla.
FINDINGS OF FACT.
The petitioner is a corporation organized under the laws of Oklahoma in the year 1911, with its principal office at Oklahoma City, and it is and has been at all times herein mentioned, engaged in selling furniture and house furnishings at that place. During the year 1921 its capital stock outstanding consisted of 515 shares of the par value $100of each, which were held and owned by the following persons:
| Number of shares | |
| Stockholder: | |
| W. M. Longmire | 130 |
| Mrs. W. M. Longmire | 45 |
| W. M. Longmire as guardian for Aileen Longmire | 10 |
| W. C. Chisum, Jr | 75 |
| J. F. Harbour | 100 |
| Rose Harbour Hocker | 35 |
| Jerry Harbour | 10 |
| Lee V. Sneed | 50 |
| John S. Sneed | 50 |
| A. G. Hollis | 10 |
| Total | 515 |
*315 Myrtie Longmire was the wife of W. M. Longmire, Aileen*3213 Longmire was his daughter, and W. C. Chisum, Jr., was a brother of Myrtie Longmire. Rose Hocker was a sister of J. F. Harbour, Jerry Harbour was his son, and Lee V. Sneed and John S. Sneed were his stepsons. A. G. Hollis was an employee of the corporation and held the office of secretary, J. F. Harbour was president, and W. M. Longmire, vice president of the corporation.
In the year 1920, J. F. Harbour and W. M. Longmire organized the Harbour-Longmire Co. of Enid, under the laws of Oklahoma, for the purpose of putting Rose Harbour Hocker and her husband, J. P. Hocker, and E. C. Longmire, brother of W. M. Longmire, in business at that place. The corporation at the beginning of the year 1921 had outstanding 300 shares of capital stock of the par value of $100 each, which stood in the names of the following persons:
| Shares. | |
| W. M. Longmire | 75 |
| E. C. Longmire | 50 |
| J. F. Harbour | 75 |
| Rose Harbour Hocker | 25 |
| J. P. Hocker | 25 |
| Austin Miller | 25 |
| Prentiss Price | 25 |
W. M. Longmire was president, J. P. Hocker, vice president, and E. C. Longmire, secretary of the corporation. Austin Miller was a director in the corporation. He was also manager of the Oklahoma Furniture*3214 Manufacturing Co. All the money that went into the corporation except $5,000 paid for stock by Austin Miller and Prentiss Price, was furnished by W. M. Longmire and J. F. Harbour. The stock standing in the name of E. C. Longmire was paid for by W. M. Longmire and the certificate therefor was assigned to him in May, 1922. J. F. Harbour paid for the stock standing in the name of J. P. Hocker and actually held the certificate therefor.
On February 26, 1921, J. F. Harbour transferred 30 shares of the capital stock of the Harbour-Longmire Co. of Enid, Okla., standing in his name, to his sister, Rose Harbour Hocker. On November 17, 1921, 150 additional shares of stock were issued, of which 100 shares were issued to the Harbour-Longmire Co. of Oklahoma City, and 50 shares were issued to the Oklahoma Furniture Manufacturing Co. in settlement of a debt due that company.
The capital stock of the two corporations was on January 1, 1921, held as follows:
| Harbour-Longmire Co. | Harbour-Longmire Co. of Enid | |||
| Name | Shares | Per cent | Shares | Per cent |
| W. M. Longmire | 130 | 25.24 | 75 | 25.00 |
| Myrtie Longmire | 45 | 8.74 | ||
| W. M. Longmire as guardian | 10 | 1.94 | ||
| W. C. Chisum, Jr | 75 | 14.56 | ||
| E. C. Longmire | 50 | 16.67 | ||
| Total Longmire interests | 260 | 50.48 | 125 | 41.67 |
| J. F. Harbour | 100 | 19.42 | 75 | 25.00 |
| Rose Harbour Hocker | 35 | 6.80 | 25 | 16.67 |
| Jerry Harbour | 10 | 1.94 | ||
| Lee V. Sneed | 50 | 9.71 | ||
| John S. Sneed | 50 | 9.71 | ||
| J. P. Hocker | 25 | 16.67 | ||
| Total Harbour interests | 245 | 47.58 | 125 | 41.67 |
| Total Longmire-Harbour interests | 505 | 98.06 | 250 | 83.34 |
| A. G. Hollis | 10 | 1.94 | ||
| Austin Miller | 25 | 8.33 | ||
| Prentiss Price | 25 | 8.33 | ||
| Total minority interests | 10 | 1.94 | 50 | 16.66 |
| Total of all interests | 515 | 100.00 | 300 | 100.00 |
*3215 *316 The only change in the stockholdings in the two corporations between January 1, 1911, and November 27, 1921, was that on February 26, 1921, J. F. Harbour transferred 30 shares of his stock in the Harbour-Longmire Co. of Enid to his sister, Rose Harbour Hocker. During the period November 17, 1921, to December 31, 1921, inclusive, the capital stock of the two corporations was held as follows:
| Harbour-Longmire Co. | Harbour-Longmire Co. of Enid | |||
| Shares | Per cent | Shares | Per cent | |
| W. M. Longmire | 130 | 25.24 | 75 | 16.67 |
| Myrtie Longmire | 45 | 8.74 | ||
| W. M. Longmire, guardian | 10 | 1.94 | ||
| W. C. Chisum, Jr | 75 | 14.56 | ||
| E. C. Longmire | 50 | 11.11 | ||
| Total Longmire interests | 260 | 50.48 | 125 | 27.78 |
| J. F. Harbour | 100 | 19.42 | 45 | 10.00 |
| Rose Harbour Hocker | 35 | 6.80 | 55 | 12.23 |
| Jerry Harbour | 10 | 1.94 | ||
| Lee V. Sneed | 50 | 9.71 | ||
| John S. Sneed | 50 | 9.71 | ||
| J. P. Hocker | 25 | 5.55 | ||
| Total Harbour interests | 245 | 47.58 | 125 | 27.78 |
| Harbour-Longmire Co., of Oklahoma City | 100 | 22.22 | ||
| Total Longmire and Harbour interests | 505 | 98.06 | 350 | 77.78 |
| A. G. Hollis | 10 | 1.94 | ||
| Austin Miller | 25 | 5.55 | ||
| Prentiss Price | 25 | 5.55 | ||
| Oklahoma Furniture Mfg. Co | 50 | 11.12 | ||
| 10 | 1.94 | 100 | 22.22 | |
| Total of all interests | 515 | 100.00 | 450 | 100.00 |
*3216 *317 The operations of the two corporations were controlled and managed by W. M. Longmire and J. F. Harbour. One of them visited Enid, Okla., at least once a month. Practically all of the buying for the Enid company was done by them. A part of the goods so bought was shipped direct to the Enid company and part to the Oklahoma City company, which in turn shipped it to Enid. All of the expense of such buying and supervision was borne by the Oklahoma City company. The Enid company was also furnished a part of its merchandise by the Oklahoma City company, which billed it to the Enid company at cost regardless of the market. This practice resulted in an arbitrary shifting of profits for the reason that if the market was rising the Enid company was getting its goods at less than market, and if the market was falling, it was paying more than market price for the goods.
During the latter part of the year 1921, the market was generally declining. Because of the intercompany transactions the Enid company was, by November, 1921, indebted to the Oklahoma City company in a substantial amount, and it was in partial satisfaction of that indebtedness that 100 shares of the capital*3217 stock of the Enid company were issued to the Oklahoma City company on November 17, 1921.
The shares of stock of the Oklahoma City company held by the members of W. M. Longmire's family were voted by him and the shares of stock of that company held by the members of J. F. Harbour's family were voted by him. W. M. Longmire and J. F. Harbour, with A. G. Hollis, secretary, conducted the stockholders' meetings and controlled and directed the business of the corporation.
The meetings of the stockholders of the Enid company were held in the office of the Oklahoma City company. At these meetings E. C. Longmire and J. P. Hocker were usually present and voted the stock standing in their names, although as hereinbefore stated, the certificates representing the stock of J. P. Hocker were in the possession of J. F. Harbour. The other stock belonging to members of the Longmire and Harbour families was voted by W. M. Longmire and J. F. Harbour. The record does not show that the minority stockholders of the corporation attended the stockholders' meetings, or were represented therein. Subsequent to the year 1921 the Enid company proved to be a losing venture and its liabilities were paid*3218 and its assets taken over by the Oklahoma City company. The respondent refused to permit the two corporations to file a consolidated return of income and invested capital for the year 1921.
The petitioner and the Harbour-Longmire Co. of Enid, Okla., were affiliated during the year 1921.
Judgment will be entered on 15 days' notice, under Rule 50.