*2612 Companies held affiliated in 1919.
*293 This is a proceeding for the redetermination of deficiencies for 1919 in the amounts of $23,993.60 and $1,191.22 asserted against the Keeler Brass Co. and the Keeler Realty Co., respectively. The deficiencies result from the refusal of the respondent to treat the Keeler Realty Co. as a member of an affiliated group, consisting of that company, the Keeler Brass Co. and the Weber-Knapp Co. The Keeler Brass Co. and the Keeler Realty Co. joined in the petition; the Weber-Knapp Co. is not a party to the proceeding. Petitioner also raises the question of the statute of limitations, as well as contending that if affiliation is granted, the tax liability of the affiliated corporations must be computed by apportioning the tax between such corporations in proportion to net income.
FINDINGS OF FACT.
The Keeler Brass Co. was incorporated under the laws of Michigan in 1911 with Miner S. Keeler as president, I. H. Keeler, his brother, as vice president*2613 and treasurer, and C. N. Webb as secretary. The stock of 2,500 shares of $100 par value common was owned 75 per cent by Miner S. Keeler and 25 per cent by I. H. Keeler. At about the time of incorporation a few shares were sold to employees, such stock being issued three-fourths from the holdings of Miner S. Keeler and one-fourth from the holdings of I. H. Keeler. At the time each employee with one exception, noted below, acquired stock, a contract was executed between Miner S. Keeler and I. H. Keeler on the one side, and the employees on the other. One of such contracts is as follows:
*294 THIS AGREEMENT made this 10 day of Jan. A.D. 1912, by and between Miner S. Keeler and Isaac H. Keeler, first parties, and C. N. Webb second party, WITNESSETH:
First parties, for and in consideration of the sum of One Dollar, and other valuable considerations, including those expressly hereinafter stated, hereby sells, assign and set over unto second party 10 shares of stock in Keeler Brass Company, represented by Certificate No. 18.
Second party agreeing that the said sale and transfer is made partly in consideration of and on account of his position with the said Keeler Brass Company, *2614 agrees that as further consideration of said sale and transfer, he will not sell the said stock, or the Certificate representing the same, to any person whatsoever excepting first parties, unless under the conditions hereinafter mentioned; and that in case his employment with the said Keeler Brass Company shall be at any time terminated for any reason whatsoever, he will re-sell said stock and all of the same, and the Certificate representing the same, to the said first parties or either of them, for its book value as shown by the Company's last inventory, plus 6% annual interest from the date of such Inventory, to the date of sale.
To effectuate this agreement, second party agrees that in case of termination of his employment, or a desire to sell the said stock or any of it, during employment, he will notify the said first parties in writing, offering to sell them or either of them the said stock at the price above mentioned, and hereby agrees to accept cash for the same at any time within five days from the service of such notice upon said first parties; and further agrees to assign the said stock absolutely to them, either jointly or severally, upon the tender of payment as aforesaid.
*2615 Should first parties not purchase said stock when offered as aforesaid, and within the time aforesaid, second party shall have the right to sell said stock, free and clear of any limitation by this agreement imposed.
It is further agreed that first parties shall have a lien upon said stock for the performance of this agreement.
IN WITNESS WHEREOF, the parties hereunto have set their hands this day and year first above written.
MINER S. KEELER.
ISAAC H. KEELER.
C. N. WEBB.Other employees, except Carl C. Kusterer, purchasing stock, executed similar agreements.
Carl C. Kusterer, prior to 1912, had a small manufacturing business and the Keeler Brass Co. bought him out. At that time he acquired $4,000 par value of stock free of any agreement to resell. During his employment, however, he purchased 10 additional shares as to which he signed a contract identical in its terms to the contract recited above. When he left the employment of the Brass Company in 1913, he resold the 10 shares so acquired. He did not attend any corporate meetings of the Brass Company in the year 1919 or vote his stock in any way.
The stockholdings in the Keeler Brass Co. and Keeler*2616 Realty Company as of January 1, 1919, and December 31, 1919, were as follows:
| Keeler Brass Co. | Keeler Realty Co. | |||||
| Common stock holdings | Per cent to total | Common stock holdings | Preferred stock holdings | Total | Per cent to total | |
| As at Jan. 1, 1919 | ||||||
| M. S. KEELER FAMILY | ||||||
| 1. M. S. Keeler | 697 | 27.88 | 749 | 750 | 1,499 | 74.95 |
| 2. Gertie S. Keeler, wife of 1 | 750 | 30.00 | ||||
| 3. I. S. Keeler, son of 1 and 2 | 125 | 5.00 | ||||
| 4. G. E. Keeler, son of 1 and 2 | 40 | 1.60 | ||||
| 5. W. L. Clarke, nephew of 1 | 100 | 4.00 | ||||
| 6. E. S. Clarke, nephew of 1 | 90 | 3.60 | ||||
| Group total | 1,802 | 72.08 | 749 | 750 | 1,499 | 74.95 |
| I. H. KEELER FAMILY | ||||||
| 7. I. H. Keeler, brother of 1 | 403 | 16.12 | 200 | 200 | 400 | 20.00 |
| 8. Susan A. Keeler, wife of 7 | 100 | 4.00 | 50 | 50 | 100 | 5.00 |
| 9. B. K. Gale, daughter of 7 | 35 | 1.40 | ||||
| Group total | 538 | 21.52 | 250 | 250 | 500 | 25.00 |
| EMPLOYEES | ||||||
| 10. C. N. Webb | 50 | 2.00 | 1 | 1 | .05 | |
| 11. G. W. Shields | 70 | 2.80 | ||||
| 12. C. C. Kusterer | 40 | 1.60 | ||||
| Group total | 160 | 6.40 | 1 | 1 | .05 | |
| Grand total | 2,500 | 100.00 | 1,000 | 1,000 | 2,000 | 100.00 |
| As at Dec. 31, 1919 | ||||||
| M. S. KEELER FAMILY | ||||||
| 1. M. S. Keeler | 817 | 32.68 | 749 | 500 | 1,249 | 41.64 |
| 2. Gertie S. Keeler | 570 | 22.80 | 773 | 773 | 25.77 | |
| 3. I. S. Keeler | 155 | 6.20 | 100 | 100 | 3.33 | |
| 4. G. E. Keeler | 70 | 2.80 | 100 | 100 | 3.33 | |
| 5. W. L. Clarke | 100 | 4.00 | 1 | 1 | .03 | |
| 6. E. S. Clarke | 90 | 3.60 | 1 | 1 | .03 | |
| Group total | 1,802 | 72.08 | 749 | 1,475 | 2,224 | 74.13 |
| I. H. KEELER FAMILY | ||||||
| 7. I. H. Keeler | 403 | 16.12 | 200 | 349 | 549 | 18.30 |
| 8. Susan A. Keeler | 100 | 4.00 | 50 | 175 | 225 | 7.50 |
| 9. B. K. Gale | 35 | 1.40 | 1 | 1 | .03 | |
| Group total | 538 | 21.52 | 250 | 525 | 775 | 25.83 |
| EMPLOYEES | ||||||
| 10. C. N. Webb | 50 | 2.00 | 1 | 1 | .03 | |
| 11. G. H. Shields | 70 | 2.80 | ||||
| 12. C. C. Kusterer | 40 | 1.60 | ||||
| Group total | 160 | 6.40 | 1 | 1 | .03 | |
| Grand total | 2,500 | 100.00 | 1,000 | 2,000 | 3,000 | 99.99 |
*2617 *295 C. N. Webb was an employee of the Keeler Brass Co. and had been secretary of the company from its beginning. He had been connected with the business prior to incorporation since 1895. All of his stock in 1919 was held subject to resale to M. S. Keeler and I. H. Keeler.
W. L. Clarke and E.S. were nephews of M. S. Keeler's wife and lived at the home of M. S. Keeler. Their stock was held subject to resale to M. S. Keeler and I. H. Keeler. E. S. Clarke had been an *296 employee of the Keeler Brass Co. and its predecessor business for 27 years.
G. W. Shields had been an employee for several years and held his stock subject to a similar contract for resale.
The Keeler Realty Co. was organized in 1911 as a Michigan corporation, with 1,000 shares of $100 par common and 1,000 shares of $100 par preferred, both voting, to build a 7-story building in Grand Rapids for the exhibiting of furniture by manufacturers of that city and other furniture centers. The stock, except one qualifying share, was owned three-fourths by Miner S. Keeler and one-fourth by I. H. Keeler. Grand Rapids is known as a great furniture market and manufacturers from all furniture centers*2618 exhibit their merchandise there during the semiannual sales and sometimes throughout the year.
The Keeler Brass Co. manufactured metal furniture trimmings which were sold to furniture manufacturers throughout the country. The organizers of the Keeler Realty Co. built the furniture building because it was felt that their acquaintance with furniture manufacturers would enable that company to get good tenants and at the same time increase the prestige of the Keeler Brass Co. with the trade. In renting space in the building, preference was given to the Keeler Brass Co.'s best customers in order to bring that company into closer touch with such customers. The road salesmen of the Brass Company assisted, without pay to the Brass Company or expense to the Realty company, in renting the space of the Realty Company. The companies were considered so identical that no such compensation was ever considered, each company did for the other whatever would benefit it.
During the year 1919, the officers of the Brass Company were M. S. Keeler, president, I. H. Keeler, vice president and treasurer, C. N. Webb, secretary, and Isaac S. Keeler, son of M. S. Keeler, second vice president. During*2619 the same year the officers of the Realty Company were M. S. Keeler, president, I. H. Keeler, vice president and treasurer, C. N. Webb, secretary. The directors of the company were the officers and G. W. Shields, E. S. Clarke and W. L. Clarke.
During the year 1919, George E. Keeler, son of M. S. Keeler, became a director of the Brass Company.
Gertie S. Keeler is the wife of M. S. Keeler and received a total of 750 shares of stock in the Brass Company as gifts from time to time prior to 1919 from her husband. She is not a business woman and has never been active in any way in the affairs of the Brass Company and always acted under the advice and control of her husband as to her stock holdings. She never attended meetings and her husband, M. S. Keeler, always voted her stock by proxy.
*297 Of the 125 shares of stock in the Brass Company, Isaac S. Keeler, son of M. S. Keeler, acquired 20 shares of stock by purchase from his father and received the rest by gift from his father and his mother. On the receipt of the gift from his father, he recognized a moral obligation, concurred in by his wife, to offer the stock to his father on resale, in case of trouble or death. *2620 This son acted under the advice, control and authority of his father insofar as his stock was concerned.
George E. Keeler, a son of M. S. Keeler, was employed by the Brass Company in January, 1919, on his return from the Army. He was 22 years old and lived at home with his father. The 40 shares of stock of the Brass Company standing in his name were given to him by his father when the son received his commission in the Army.
Susan A. Keeler was the wife of I. H. Keeler and acquired 100 shares of stock in the Brass Company and 50 shares of common and 50 shares of preferred in the Realty Company by gift from her husband. She never attended any meetings of either company but gave her proxy to her husband.
Bernice K. Gale was the daughter of I. H. Keeler, never attended any corporate meetings of the Brass Company, but gave her proxy to her father.
M. S. Keeler and I. H. Keeler, by written agreement, contracted that M. S. Keeler would not sell any of his stock without selling a proportionate part of that of I. H. Keeler. This was done because I. H. Keeler did not want to remain in the brass business if his brother were not in it. This agreement was in effect in 1919, and*2621 was carried out in the case of sales to employees. No other sales were made except to M. S. Keeler's sons and such sales were made with permission of I. H. Keeler.
When G. S. Keeler received her stock by gift from her husband, she executed the following instrument:
In consideration of making over to me Seven Hundred and Fifty (750) shares of the stock of the Keeler Brass Company I agree that the same is not to be transferable only as the same is done subject to an agreement covering this stock given by Miner S. Keeler to Isaac H. Keeler.
Also that in case of the death of Miner S. Keeler I will hold this stock subject to the actions of his trustees in a way that the balance of the stock of the Keeler Brass Company is held under his will, with the understanding to make their holdings a control of the majority stock of said corporations.
(Signed) GERTRUDE S. KEELER.
GRAND RAPIDS, MICHIGAN, May 29, 1917.
During the year 1919 the Realty Company increased its preferred stock by issuing an additional 1,000 shares. There were various adjustments made in stock ownership in that year by exchanges of stock in the Brass Company for stock in the Realty Company Gertrude *298 *2622 S. Keeler exchanged some of her common stock in the Brass Company for preferred stock in the Realty Company.
M. S. Keeler controlled the policies and was the active manager of both companies. His control was never questioned. He chose the officers and directors of both companies, decided when dividends should be paid and in all respects transacted the business of both companies as if he were the sole owner. The books of the Realty Company were kept in the office of the Brass Company, rent statements of the Realty Company were sent out from the Brass Company office, employees of the Brass Company performed services without compensation to the Brass Company in maintenance of the Realty Company building. Services were performed for the Brass Company without expense to that company by I. H. Keeler, who drew a salary from the Realty Company but none from the Brass Company. Similarly M. S. Keeler, who drew no salary from the Realty Company, devoted considerable time to the affairs of that company for which no charge was made to that company. Supplies for the building of the Realty Company were purchased and paid for by the Brass Company and no charge was made for the services. Whenever*2623 either company had idle money, the other company used it, paying no interest, but replacing the capital only when it was needed.
Relations between the families of M. S. Keeler and I. H. Keeler were very cordial. The families lived near each other and all of the members of both families looked to M. S. Keeler for the management of both companies and acted entirely in accordance with his desires. C. N. Webb and G. W. Shields also relied entirely on M. S. Keeler, the former having been associated with him in business for many years, the latter being a close personal friend.
Substantially all the stock of the Keeler Brass Co. and of the Keeler Realty Co. was owned or controlled by the same interests throughout the year 1919. A consolidated income and profits-tax return for both companies for 1919 was filed March 15, 1920.
Petitioner's and the Commissioner entered into four consents purporting to extend the statute of limitations for 1919, as follows:
NOVEMBER 15, 1924.
INCOME AND PROFITS TAX WAIVER
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921 Keeler Realty Company, of Grand Rapids, Michigan and the Commissioner of Internal*2624 Revenue, hereby consent to a determination, assessment, and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of the said for the year 1919 under the Revenue Act of 1921, under prior income, excess profits, or war-profits tax Acts, or under Section 38 of the Act entitled *299 "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909. This waiver is in effect from the date it is signed by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation, or the statutory period of limitation as extended by any waivers already on file with the Bureau, within which assessments of taxes may be made for the year or years mentioned.
KEELER REALTY COMPANY,
Taxpayer.
D. S. KEELER,Vice-President.
D. H. BLAIR,Commissioner.
INCOME AND PROFITS TAX WAIVER
In pursuance of the provisions of existing Internal Revenue Laws, Keeler Realty Company, a taxpayer, of Grand Rapids, Michigan, and the Commissioner of Internal Revenue, hereby consent to extend the*2625 period prescribed by law for a determination, assessment, and collection of the amount of the income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year 1919 under the Revenue Act of 1924, or under prior income, excess-profits, or war-profits tax Acts, or under Section 38 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909. This waiver is in effect from the date it is signed by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation within which assessments of taxes may be made for the year or years mentioned, or the statutory period of limitation as extended by Section 277(b) of the Revenue Act of 1924, or by any waivers already on file with the Bureau.
KEELER REALTY COMPANY,
Taxpayer.
By D. S. KEELER,
Vice-President.
D. H. BLAIR,Commissioner.
NOVEMBER 15, 1924.
INCOME AND PROFITS TAX WAIVER
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, Keeler Brass Company, of Grand*2626 Rapids, Michigan, and the Commissioner of Internal Revenue, hereby consent to a determination, assessment, and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of the said for the years 1919 under the Revenue Act of 1921, or under prior income, excess-profits, or war-profits tax Acts, or under Section 38 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909. This waiver is in effect from the date it is signed by the taxpayer and will remain in effect for a *300 period of one year after the expiration of the statutory period of limitation, or the statutory period of limitation as extended by any waivers already on file with the Bureau, within which assessments of taxes may be made for the year or years mentioned.
KEELER BRASS COMPANY,
Taxpayer.
By D. S. KEELER, Vice-President.
D. H. BLAIR, Commissioner.
INCOME AND PROFITS TAX WAIVER
For Taxable Years Ended Prior to January 1, 1922
NOVEMBER 24, 1925.
In pursuance of the provisions of existing Internal Revenue Laws Keeler Brass*2627 Co. & Keeler Realty Company, a taxpayer of Grand Rapids, Michigan, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) 1919 under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
KEELER BRASS COMPANY,
Taxpayer.
By D. S. KEELER, Vice-President.
D. H. BLAIR, Commissioner.
OPINION.
SIEFKIN: The evidence shows that the two companies were operated as a business unit with numerous intercompany dealings and*2628 a real ownership and control of all the stock of both companies by one individual. The companies were affiliated in 1919.
We can not now pass on the contention of petitioner that, should we find that the grounds for affiliation exist, the tax should be allocated to the three companies making up the affiliated group in the proportion that the net income of each bears to the consolidated net income. That question is not now before us. One member of the affiliated group, as determined by respondent, is not a party to this proceeding. Further, we can not anticipate that the respondent, in computing the tax as the result of this decision, will not follow the *301 requirements of the statute. Again, it may be that there has been a consent to a different allocation. There is no allegation of fact or proof of fact to the contrary.
In view of our decision upon the merits, we deem it unnecessary to determine the question as to whether the assessment or collection is barred.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.