*1347 Net loss of a separate corporation for 1923 may not be deducted in computing consolidated net income for 1924 and 1925.
Woolford Realty Co. v. Rose,286 U.S. 319">286 U.S. 319, followed.
*196 These proceedings, duly consolidated for hearing, involve deficiencies in income taxes as follows:
| Petitioner | Year | Deficiency |
| Hennessy Realty Company | 1924 | $2,638.83 |
| Do | 1925 | 164.92 |
| Whitecourt Construction Company | 1924 | 77.92 |
| Greycourt Realty Company | 1924 | 868.24 |
| Do | 1925 | 25.72 |
*197 The question for decision is whether a net loss sustained in 1923 by the 46 West 83rd Street Corporation may be deducted in computing consolidated net income of petitioners for 1924 and 1925. The facts were stipulated.
FINDINGS OF FACT.
Each of the above named petitioners, and also the 46 West 83rd Street Corporation, are corporations organized under the laws of the State of New York, and are engaged in the real estate business with their principal office and place of business at 247 Park Avenue, New York City.
The Hennessy*1348 Realty Company, Greycourt Realty Company, and 46 West 83rd Street Corporation were incorporated prior to the year 1923. For the calendar year 1923 each of the said corporations filed a separate return. The 46 West 83rd Street Corporation sustained a net loss for the calendar year 1923 in the amount of $50,605.15, as computed in accordance with the provisions of section 204(a) of the Revenue Act of 1921.
The outstanding capital stock of said corporations was owned by the same interests during the calendar years 1924 and 1925. The Whitecourt Construction Corporation was organized in March, 1924, and its outstanding capital stock for the year 1924 (from date of organization) and for the calendar year 1925, was owned by the same interests as owned the capital stock of the Hennessy Realty Company, Greycourt Realty Company and 46 West 83rd Street Corporation.
A consolidated return was filed for the calendar year 1924, including the income of Hennessy Realty Company, Greycourt Realty Company and 46 West 83rd Street Corporation for the full calendar year, and including the income of the Whitecourt Construction Corporation from date of organization to December 31, 1924.
A consolidated*1349 return was filed for all four corporations for the calendar year 1925.
The net loss of 46 West 83rd Street Corporation for the calendar year 1923 was deducted in full in arriving at the combined net income of the four corporations on the tax return filed for the calendar year 1924. The excess of this net loss over the combined net income (computed without such deduction) of all four corporations *198 for the calendar year 1924 was deducted in arriving at the combined net income of the four corporations for the calendar year 1925.
The respondent determined the net income of each of the petitioners for each of the calendar years 1924 and 1925 on the basis of a consolidated return, but allowed no portion of the 1923 net loss of the 46 West 83rd Street Corporation as a deduction in either year.
Consolidated net income for the calendar years 1924 and 1925, without deduction of any portion of the 1923 net loss of the 46 West 83rd Street Corporation is as follows:
| Calendar year 1924: | |
| Hennessy Realty Company | $21,110.59 |
| Greycourt Realty Company | 6,945.76 |
| Whitecourt Construction Corporation | 623.36 |
| 46 West 83rd Street Corporation | 13,498.54 |
| Consolidated net income | 42,178.25 |
| Calendar year 1925: | |
| Income: | |
| Hennessy Realty Company | $12,706.76 |
| Greycourt Realty Company | 1,981.79 |
| 46 West 83rd Street Corporation | 31,660.73 |
| Net Loss: | |
| Whitecourt Construction Company | 39,721.95 |
| Consolidated net income | 6,627.33 |
*1350 OPINION.
ARUNDELL: As stated above, the question for decision is whether the 1923 net loss of the 46 West 83rd Street Corporation may be deducted in computing consolidated net income for 1924 and 1925. The salient facts of the stipulation are that the three corporations in existence in 1923 filed separate returns for that year; that in 1924 and 1925 the stock of all four corporations was owned by the same interests, and for those years consolidated returns were filed. In this situation it must be held, following , that the net loss of the 46 West 83rd Street Corporation for 1923 may not be deducted in computing consolidated income for the subsequent years.
At the hearing counsel for the respondent conceded the possibility of error in making no allowance for the 1923 net loss of the 46 West 83rd Street Corporation based on its own net income in subsequent years. See ; . The parties were agreed that this matter could be settled by stipulation and for this purpose the proceedings*1351 will be left open for settlement under Rule 50.
Decision will be entered under Rule 50.