*2648 1. Wells Brothers Co. of Illinois and Wells Brothers Construction Co. were not affiliated during the year 1917; they were affiliated during the years 1918 and 1920.
2. Wells Brothers Construction Co. is not entitled to include in invested capital for 1917, 1918, and 1920, the value of certain building contracts and certain contracts for the services of its principal stockholders and officers which it claims it acquired in exchange for shares of its capital stock.
3. Assessment and collection of the additional tax for the years 1917 and 1918 involved herein are not barred by the statute of limitations.
*79 These proceedings, which are duly consolidated for hearing and decision, are for the redetermination of deficiencies in income and profits taxes asserted by the respondent for the years 1917, 1918, and 1920. The deficiency as to Wells Brothers Co. of Illinois is for the year 1917 only and is in the amount of $5,153.75. It arises from the respondent's disallowance of the petitioner's claim that it was affiliated*2649 with the Wells Brothers Construction Co. during the year 1917. The deficiencies asserted against the Wells Brothers Construction Co. are $12,525.42 for 1917, $8,639.80 for 1918, and $15,893.42 for 1920. They arise from the respondent's disallowance of (1) the petitioner's claim that it was affiliated with the Wells Brothers Co. of Illinois during each of the years 1917, 1918, and 1920; (2) a claim that certain contracts for which the petitioner issued its capital stock should be included in invested capital; and (3) a claim that stock issued to E. A. Wells, F. A. Wells, and H. L. Wells for services in excess of the amount of money paid them during 1917 and 1918 should be included in invested capital. The pleadings also raised the issue as to whether assessment and collection of the additional taxes for the years 1917 and 1918 are barred by the statute of limitations. At the hearing, on motion of the Wells Brothers Co. of Illinois and the Wells Brothers Construction Co., the Wells Brothers Co. of New York was made a party to the proceedings.
*80 FINDINGS OF FACT.
The Wells Brothers Co. of Illinois, hereinafter called the Illinois Company, was incorporated in 1902 with*2650 a paid-up capital stock of $250,000. In 1904 the Wells Brothers Co. of New York, hereinafter called the New York Company, was incorporated with a paid-up capital stock of $100,000. Due to overexpansion, both of these companies were insolvent in the latter part of 1916. Steps were then taken by A. E., F. A., and H. L. Wells, the principal stockholders of the two companies, which resulted in the incorporation on Frbruary 12, 1917, of the Wells Brothers Construction Co., hereinafter called the Maine Company, under the laws of Maine. Its capital stock was $500,000, divided into three classes, to-wit, common stock, $150,000; first preferred stock, $150,000; second preferred stock, $200,000. All of the second preferred stock was originally issued to A. E. Wells and F. A. Wells, as trustees. They in turn issued the greater part of this stock to creditors of the Illinois Company and the New York Company, in consideration of the assignments to the Maine Company of the claims of the various creditors. The second preferred stock was redeemable by the corporation at a certain price. The first preferred stock was issued to members of the Wells family, to business associates of A. E., F. *2651 A., and H. L. Wells, and to employees of the corporation. All employees purchasing the first preferred stock agreed in writing that upon the termination of their employment for any cause, they would sell their stock to the corporation at its book value. The business of the three companies named was that of general construction work.
All of the capital stock of the Maine Company had voting rights. Each class, voting separately as a class, was entitled to choose directors as follows: the common stock, three directors; the first preferred stock, two directors; and the second preferred stock, two directors. In fact, however, the directors were always selected by the members of the Wells family, who conducted the company and had entire charge and management of its affairs. A. E. Wells and his sons, in advance of corporate meetings, sent out proxies, prepared motions and resolutions, and selected the persons who were to present and second such motions and resolutions. The direction, policy and management of the three companies were left entirely to the Wells family by the other stockholders. The percentages of the capital stock of the three corporations held by the Wells family, *2652 employees, business associates of the Wellses, and by creditors, were as follows:
| 1917 | |||
| Illinois Co. | New York Co. | Maine Co. | |
| 1. A. E. Wells | 40 | 37 | 19.30 |
| 2. F. A. Wells, brother of A. E. Wells | 40 | 35 | 19.30 |
| 3. H. L. Wells, son of A. E. Wells | 5 | 7.5 | 19.30 |
| 4. P. A. Wells, son of A. E. Wells | 5 | 7.5 | |
| 5. E. G. Wells, wife of No. 4 | 2 | 7.5 | 0.63 |
| 6. Ida K. Wells, wife of No. 2 | 3.30 | ||
| 7. Helen K. Wells, wife of No. 3 | 0.63 | ||
| Total held by Wells family | 92 | 94.5 | 62.46 |
| Employees and business associates | 8 | 5.5 | 8.90 |
| Creditors | 28.64 | ||
| Total | 100 | 100 | 100 |
| 1918 | |||
| 1. A. E. Wells | 40 | 37 | 15.36 |
| 2. F. A. Wells, brother of A. E. Wells | 40 | 35 | 15.36 |
| 3. H. L. Wells, son of A. E. Wells | 5 | 7.5 | 15.36 |
| 4. P. A. Wells, son of A. E. Wells | 5 | 7.5 | |
| 5. E. G. Wells, wife of No. 4 | 2 | 7.5 | 0.75 |
| 6. Ida K. Wells, wife of No. 2 | 3.43 | ||
| 7. Helen K. Wells, wife of No. 3 | 0.75 | ||
| 8. Alice M. Wells, wife of No. 1 | 0.28 | ||
| Total held by Wells family | 92 | 94.5 | 51.49 |
| Employees and business associates | 8 | 5.5 | 11.01 |
| Creditors | 37.50 | ||
| 100 | 100 | 100 | |
| 1920 | |||
| 1. A. E. Wells | 40 | 37 | 11.52 |
| 2. F. A. Wells, brother of A. E. Wells | 40 | 35 | 16.00 |
| 3. H. L. Wells, son of A. E. Wells | 5 | 7.5 | 11.50 |
| 4. P. A. Wells, son of A. E. Wells | 5 | 7.5 | |
| 5. E. G. Wells, wife of No. 4 | 5.07 | ||
| 6. Ida K. Wells, wife of No. 2 | 3.00 | ||
| 7. Helen K. Wells, wife of No. 3 | 5.07 | ||
| 8. Alice M. Wells, wife of No. 1 | 5.67 | ||
| Total held by Wells family | 92 | 94.5 | 57.83 |
| Employees and business associates | 8 | 5.5 | 13.10 |
| Creditors | 29.07 | ||
| Total | 100 | 100 | 100 |
*2653 *81 The stock standing in the names of E. G. Wells, Ida K. Wells, Helen K. Wells, and Alice M. Wells, belonged to their respective husbands.
*82 The Illinois Company and the Maine Company occupied the same offices, had the same officers and employees, carried on the same business; and tools, equipment, and funds were used in common.
From 1914 to 1916 the Illinois Company and the New York Company had building contracts in various parts of the United States. Because of the war they suffered heavy losses, and had to stop taking contracts. About December 1, 1916, Montgomery Ward & Co. informed A. E. Wells and H. L. Wells that if they would organize a new company, Montgomery Ward & Co. would enter into contracts with it for the construction of new buildings in Kansas City and Chicago. A. E. Wells thereupon commenced ordering material in the early part of 1917 in the name of "Wells Brothers" as agents for Montgomery Ward & Co., with the understanding between them and the sellers that the orders for material would be transferred by "Wells Brothers, Agents" to the Wells Brothers Construction Co., as soon as that company could be organized, and the general contracts*2654 signed with Montgomery Ward & Co. The new company, the Maine Company above mentioned, was incorporated on February 12, 1917, and on February 15, 1917, it entered into a contract with Montgomery Ward & Co. to construct for the latter company two nine-story and basement reenforced concrete buildings in Chicago. The Maine Company was unable to secure permission to do business in the State of Missouri in time to take the contract to build the Kansas City building for Montgomery Ward & Co., and on February 26, 1917, Montgomery Ward & Co. entered into a contract with Wells Brothers to erect said buildings. This contract was made and performed by Wells Brothers as individuals, but in reality they were acting as agents for the Maine Company. The two contracts mentioned carried when made, assured profits of $53,750.
On March 9, 1917, A. E. Wells, F. A. Wells and H. L. Wells entered into the following agreement with the Maine Company:
MEMORANDUM OF AGREEMENT made and entered into this ninth day of March 1917 by and between WELLS BROTHERS CONSTRUCTION CO., a corporation organized and existing under the laws of the State of Illinois, party of the first part, and A. E. WELLS, F. A. WELLS, *2655 and H. L. WELLS, parties of the second part, WITNESSETH:
WHEREAS, The parties of the second part have secured contracts with Montgomery Ward & Company for the construction of two buildings in the city of Chicago and one building in Kansas City, Missouri, from which contracts there should arise profits of upwards of the sums of thirty-five thousand ($35,000) dollars and Eighteen Thousand Seven Hundred and Fifty ($18,750) Dollars, respectively; and
WHEREAS, Said parties of the second part have also secured various jobbing contracts upon which there are agreed profits of eight per cent (8%) of the cost of the work; and
WHEREAS, The Board of Directors of the party of the first part has, by resolution duly adopted at a meeting of the board of directors held on the *83 ninth day of March, 1917, authorized the issuance to said parties of the second part of $200,000 of the Second Preferred Stock of the party of the first part and $150,000 of the Common Stock of said party of the first part in consideration of said parties of the second part entering the employ of said party of the first part for a period of not less than two (2) years from and after the first day of March, 1917, *2656 and an assignment to the party of the first part of the several contracts hereinabove referred to.
NOW, THEREFORE, In consideration of the issuance to said parties of the second part of the Second Preferred Stock of Wells Brothers Construction Company to the amount of $200,000 and of the Common Stock of said Company to the amount of $150,000, and in further consideration of the mutual covenants and agreement hereinafter contained, it is agreed by and between the parties hereto as follows:
FIRST: The parties of the second part hereby enter the employ of the party of the first part for a period of not less than two (2) years from and after the first day of March 1917 at annual salaries to be fixed from time to time by the board of directors of said party of the first part;
SECOND: The parties of the second part hereby agree that they will secure from Montgomery Ward & Company a contract or contracts for the construction of two (2) buildings in the city of Chicago and one building in Kansas City, Missouri, from which contracts there should arise profits of upwards of the sum of Thirty Five Thousand ($35,000) Dollars and Eighteen Thousand Seven Hundred and Fifty ($18,750) Dollars, *2657 respectively, and that said parties of the second part will assign said contracts to the party of the first part and will hold said contracts, or either of them for the sole benefit and profit of said party of the first part;
THIRD: The parties of the second part further covenant and agree that they will assign to the party of the first part any and all jobbing contracts which they now own or which they may hereafter secure for work to be done on a percentage basis or on any other basis satisfactory to the party of the first part.
IN WITNESS WHEREOF, the party of the first part has caused these presents to be signed in its name by its president and attested to by its secretary who has affixed the corporate seal hereto and the parties of the second part have set their hands and seals the day and year first above written.
WELLS BROTHERS CONSTRUCTION COMPANY.
By: A. E. WELLS, President.
A. E. WELLS (SEAL) F. A. WELLS (SEAL) H. L. WELLS (SEAL)Attest:
H. L. WELLS,Secretary.
Prior to the formation of the Maine Company the salaries paid to A. E. Wells, F. A. Wells, and H. A. Wells by the Illinois and New York Companies were $15,000, $15,000 and $6,000 per*2658 year, respectively. In each of the years 1917 and 1918 there were paid by the Maine Company under the agreement mentioned, salaries as follows: A. E. Wells, $8,400; F. A. Wells, $7,200, and H. A. Wells, $5,200.
The Illinois Company filed its income and profits-tax return for the year 1917 on March 29, 1918. The Maine Company filed an income and profits-tax return for the year 1917 on March 28, 1918, *84 and on May 13, 1919, it filed an income and profits-tax return for the year 1918.
The following waivers or consents in writing were entered into by the Illinois Company and the Commissioner of Internal Revenue:
INCOME AND PROFITS TAX WAIVER.
2/14/24.
IT:CR:E
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, Wells Brothers Company of Illinois, of Chicago, Illinois, 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 company for the years 1917 and 1918 under the Revenue Act of 1921, or under prior income, excess-profits, or war-profits tax Acts, or under*2659 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, irrespective of any period of limitations.
WELLS BROTHERS COMPANY OF ILLINOIS
Taxpayer.
By: H. L. WELLS, V.P. & Treas.
D. H. BLAIR, Commissioner.
This waiver will be effective only for one year from the date of signing.
INCOME AND PROFITS TAX WAIVER.
(For taxable years ended prior to March 1, 1921)
IT:CR:E
In pursuance of the provisions of existing Internal Revenue Laws, WELLS BROTHERS COMPANY OF ILLINOIS, a taxpayer of 53 West Jackson Blvd., Chicago, Ill., and the COMMISSIONER OF INTERNAL REVENUE, hereby waive the time prescribed by law for making any 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 (s) 1916, 1917, 1918 and 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, 1925, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer*2660 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.
WELLS BROTHERS COMPANY OF ILLINOIS,
Taxpayer.
H. L. WELLS, Vice-President.
D. H. BLAIR, Commissioner.
*85 DECEMBER 4, 1925.
INCOME AND PROFITS TAX WAIVER.
(For taxable years ended prior to Jan. 1, 1922)
In pursuance of the provisions of existing Internal Revenue Laws, WELLS BROTHERS COMPANY OF ILLINOIS, a taxpayer of Chicago, Illinois, and the COMMISSIONER OF INTERNAL REVENUE hereby waive the time prescribed by law for making any 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) 1917 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*2661 that if notice of a deficiency in tax is sent to said taxpayer by registered mail before said date (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.
WELLS BROTHERS COMPANY,
F. A. WELLS, Vice President,
Taxpayer.
D. H. BLAIR, Commissioner.
The following waivers or consents in writing were entered into by the Maine Company and the Commissioner of Internal Revenue:
INCOME AND PROFITS TAX WAIVER.
RECEIVED FEB. 17, 1923. CON. RET. SUBDIVISION.
IT:SA-CR-E:SPJ
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, WELLS BROTHERS CONSTRUCTION COMPANY, of Chicago, Illinois, and the COMMISSIONER OF INTERNAL REVENUE, hereby consent to a proper 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 Wells Brothers Construction Company for the year 1917*2662 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, at any time prior to January 1, 1924, irrespective of any period of limitation, this waiver being expressly limited to any such determination, assessment and collection being made prior to such last mentioned date.
WELLS BROTHERS CONSTRUCTION COMPANY,
By: H. L. WELLS, Vice-President.
D. H. BLAIR, Commissioner.
Attest:
E. E. POOLE,Assistant Secretary.
*86 INCOME AND PROFITS TAX WAIVER
FEBRUARY 11, 1924.
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, WELLS BROTHERS CONSTRUCTION CO, of Chicago, Illinois, 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 Company for the years 1917 and 1918 under the Revenue Act of 1921 or under prior income, excess-profits, or*2663 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, 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.
WELLS BROTHERS CONSTRUCTION COMPANY,
Taxpayer.
By: H. L. WELLS, Vice-Pres. & Treas.,
D. H. BLAIR, Commissioner.
Attest:
E. E. POOLE:Ass'y. Sec'y.
INCOME AND PROFITS TAX WAIVER
Section E
(For taxable years ended prior to Marc. 1, 1921)
FEB. 3, 1925.
In pursuance of the provisions of existing Internal Revenue laws, Wells Brothers Construction Company, a taxpayer of 53 West Jackson Blvd., Chicago, Illinois, and the Commissioner of Internal Revenue, hereby waive the time prescribed by law for making any assessment of the amount of income, excess profits, or war profits taxes due under any*2664 return made by or on behalf of said taxpayer for the year (s) 1917, 1918, and 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, 1925, 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.
WELLS BROTHERS CONSTRUCTION COMPANY,
Taxpayer.
By: H. L. WELLIS, Vice President.
D. H. BLAIR, Commissioner.
*87 INCOME AND PROFITS TAX WAIVER
(For taxable years ended prior to Jan. 1, 1922)
IT:CR:E:
WHJ
DECEMBER 4, 1925.
In pursuance of the provisions of existing Internal Revenue Laws, WELLS BROTHERS CONSTRUCTION COMPANY, a taxpayer of Chicago, Illinois, and the COMMISSIONER OF INTERNAL REVENUE, hereby waive the time prescribed by law for making*2665 any 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) 1917, 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.
WELLS BROTHERS CONSTRUCTION COMPANY
By: H. L. WELLS, Vice President.
E. H. BLAIR, Commissioner.
INCOME AND PROFITS TAX WAIVER
(For taxable years ended prior to Jan. 1, 1922)
DECEMBER 4, 1925.
In pursuance of the provisions of existing Internal Revenue Laws, WELLS BROTHERS CONSTRUCTION COMPANY, a taxpayer of Chicago, Illinois, and the COMMISSIONER OF INTERNAL REVENUE, hereby waive*2666 the time prescribed by law for making any 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) 1918 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, 1925, 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 no 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.
WELLS BROTHERS CONSTRUCTION COMPANY
By: H. L. WELLS, Vice Pres., Taxpayer.
D. H. BLAIR, Commissioner.
The respondent, upon audit of the petitioner's returns for the years 1917 to 1920, inclusive, determined that there is a deficiency in tax against the Illinois Company for the year 1917 in the amount *88 of $5,153.75; and that there are deficiencies*2667 in tax against the Maine Company in the amounts of $12,525.42 for the year 1917; $8,639.80 for the year 1918, and $15,893.42 for the year 1920. The petitioners were notified of the respondent's determination by registered letters dated November 17, 1925. The petitions in these proceedings were filed January 16, 1926.
OPINION.
MARQUETTE: These proceedings present for decision four questions which will be discussed in the following order: (1) Are assessment and collection of the additional tax asserted by the respondent for the years 1917 and 1918 barred by the statute of limitations? (2) Were the petitioners affiliated during the years 1917, 1918, and 1920? (3) and (4) What amount, if any, is the Maine Company entitled to include in its invested capital on account of the contracts and services which it claims it acquired from the Wells in consideration of the issuance of its capital stock? Other issues were raised by the pleadings, but were abandoned by the petitioners.
The evidence herein establishes that the income and profits-tax return of the Illinois Company for the year 1917 was filed on March 29, 1918. The Maine Company filed its income and profits-tax return for*2668 1917 on March 28, 1918, and on May 13, 1919, it filed its return for the year 1918. The five-year statutory period for assessment and collection of any tax due from the Illinois Company for 1917 therefore expired on March 29, 1923, and assessment and collection became barred on that date unless the period was extended by waivers or consents. As to the Maine Company, the statutory periods for collection of any tax due for 1917 and 1918 expired on March 28, 1923, and May 13, 1924, respectively. The statutory time for assessment and collection of taxes for the years mentioned was, however, extended by written waivers or consents entered into by the petitioners and the respondent. It may be observed that the first waiver covering the liability of the Illinois Company for the year 1917 was executed more than five years after the return was filed, and that the second waiver was not made until after the expiration of the first waiver. In the case of the Maine Company, the first waiver for 1917 was executed within the five-year period, but the second waiver was not executed until subsequent to the expiration of the first. *2669 In other words, there was as to both companies, a time when the statute of limitations had run against the 1917 taxes. But we find that on December 4, 1925, which was prior to the enactment of the Revenue Act of 1926, both companies and the respondent entered into written waivers or consents for the year in question. In , the principle was laid down that *89 waivers or consents filed subsequent to the expiration of the statutory period for assessment and collection but prior to the Revenue Act of 1926, were valid and operated to extend the period within which assessment and collection of the tax might be made. On appeal to the Court of Appeals of the District of Columbia this decision was reversed, , apparently upon the ground that the statute did not contemplate a consent after the statutory period had expired. Since the statute related to the remedy and did not attempt to extinguish the liability as did the Revenue Act of 1926, we find no reason to limit the right of the respective parties to consent to a later determination, assessment and collection of the tax to a period prior to the expiration*2670 of the period limited by the statute. There is nothing in the evidence herein which indicates that the consents were not freely and fairly made with full knowledge of all the facts, and while we are of opinion that the question of consideration is immaterial, in view of the express authority granted by Congress, if it is material it is to be found in the antecedent liability. We believe this to be in conformity with the rules applied generally to statutes of limitation relating to the remedy as well as to the rule that such statutes are to be construed in favor of the Government. . In our opinion, the waivers or consents relating to the year 1917 were valid and served to extend the period for assessment and collection of the tax for that year.
As to the year 1918, no extended discussion is necessary. The evidence clearly shows that a written consent to the extension of the period for assessment and collection of the tax for that year was entered into by the Maine Company and the respondent prior to the expiration of the statutory period. Before that waiver expired another was made, and so on until the last waiver*2671 was executed on December 4, 1925, and within the period as extended by the waiver of December 4, 1925, the deficiency letter was mailed to the petitioners and an appeal was taken by them to this Board. Assessment and collection of the additional tax for 1918 are, therefore, not barred.
The next question is whether the petitioners were affiliated during the years 1917, 1918, and 1920, and entitled to file consolidated returns of income and invested capital. The petitioners contend that A. E. Wells, F. A. Wells, H. L. Wells, and P. A. Wells, owned or controlled substantially all of the capital stock of the three companies during the years 1917, 1918, and 1920, and that the companies were affiliated within the purview of the revenue acts applicable to those years. The respondent concedes that the Illinois Company and the New York Company were affiliated, but denies that they were affiliated with the Maine Company.
*90 The Revenue Act of 1917 contains no provision relative to affiliation of corporations or the filing by them of consolidated returns. However, provisions for consolidated returns for 1917 were made by section 1331 of the Revenue Act of 1921, which is as follows:
*2672 SEC. 1331. (a) That Title II of the Revenue Act of 1917 shall be construed to impose the taxes therein mentioned upon the basis of consolidated returns of net income and invested capital in the case of domestic corporations and domestic partnerships that were affiliated during the calendar year 1917.
(b) For the purpose of this section a corporation or partnership was affiliated with one or more corporations or partnerships (1) when such corporation or partnership owned directly or controlled through closely affiliated interests or by a nominee or nominees all or substantially all the stock of the other or others, or (2) when substantially all the stock of two or more corporations or the business of two or more partnerships was owned by the same interests: Provided, That such corporations or partnerships were engaged in the same or a closely related business, or one corporation or partnership bought from or sold to another corporation or partnership products or services at prices above or below the current market, thus effecting an artificial distribution of profits, or one corporation or partnership in any way so arranged its financial relationships with another corporation*2673 or partnership as to assign to it a disproportionate share of net income or invested capital. For the purposes of this section, public service corporations which (1) were operated independently, (2) were not physically connected or merged and (3) did not receive special permission to make a consolidated return, shall not be construed to have been affiliated; but a railroad or other public utility which was owned by an industrial corporation and was operated as a plant facility or as an integral part of a group organization of affiliated corporations which were required to file a consolidated return, shall be construed to have been affiliated.
(c) The provisions of this section are declaratory of the provisions of Title II of the Revenue Act of 1917.
It is obvious that the Maine Company was not affiliated with the two other petitioners for the year 1917 under section 1331(b)(1) of the Revenue Act of 1921, since one corporation neither owned nor controlled any of the capital stock of the other corporations. Nor do we think that they were affiliated within the meaning of section 1331(b)(2). It will be observed that the section provides that two or more corporations were affiliated*2674 in 1917 when substantially all of their stock "was owned by the same interests." The evidence shows that during the year 1917 the Wells family owned only 62.5 per cent of the capital stock of the Maine company which, it may be stated without argument, was not substantially all of the stock of that company. They may have controlled the remaining stock of the company, but they did not own it. It is the province of this Board to construe the law as enacted by Congress, but we can not legislate. The section of law just quoted is clear and unambiguous. It provides for affiliation when substantially all the stock of two corporations is "owned by the same interests," but it does not provide *91 for affiliation when the stock of two or more corporations is controlled by the same interests. In order to sustain the petitioners' contention that they were affiliated it would be necessary for us to read into the section of the statute just quoted the words "or controlled." This we may not do. The remedy, if any, lies with the legislative branch of the Government, not with this Board. We are of opinion that ownership, not control, is the essential basis of a "Class B" affiliation - *2675 which is claimed here - for 1917, and that as substantially all of the stock of the Maine Company was not owned by the same interests that owned the capital stock of the two other petitioners, it was not affiliated with them. .
As to the years 1918 and 1920, a different situation exists than obtained in the year 1917. By section 240(b) of the Revenue Act of 1918 the definition of affiliation is broadened. That section provides:
(b) * * * two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all the stock of the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests.
This Board has frequently held that there is no hard and fast rule as to what constitutes control but that each case must be governed by its own facts and circumstances. ; *2676 ; .
The three petitioners constituted a real and very complete business and economic unit. They were essentially the same business. The Maine Company was organized, not to perform or carry on a different function or business, but to act as a financial shield for the Illinois Company, and for that reason only they had separate structures and separate existence. Due to the exigencies of the situation, that is, to the need which brought the Maine Company into existence, the stockholders were not wholly identical. However, the Wells family, their employees and business friends look upon the petitioners as a business unit, which they constituted in fact. The Maine Company was no more than a branch of the Illinois Company, separately incorporated. The Wells family dominated the affairs of both corporations, conducted the business of both as one enterprise, and ran the corporations as though they owned them in their entirety. Even stockholders' meetings were mere perfunctory affairs carried out by the Wellses. *2677 The capital stock of the corporation owned by employees was controlled by the Wellses through written agreements obligating employees to sell their stock to the Wellses upon the termination of their employment. The business associates of the Wellses *92 and creditors who owned stock in the Maine Company were content that the Wellses should have control, and they constituted a satisfied and quiescent minority. The situation here as to the years 1918 and 1920 is very similar to that found in , and , wherein we held that affiliation existed. We are of opinion that the Wells family owned or controlled substantially all of the capital stock of the three petitioners during the years 1918 and 1920, and that they were affiliated and entitled to file consolidated returns of income and invested capital for those years.
The next question is whether the Maine Company may include in its invested capital any amount on account of the Montgomery-Ward buildings contracts mentioned in the findings of fact. It is the contention of the petitioners that these contracts were secured by A. *2678 E. Wells, F. A. Wells, and H. L. Wells; that they were worth $53,750, that they were assigned by A. E. Wells, F. A. Wells, and H. L. Wells to the Maine Company in consideration of the issuance to them of $200,000 of the company's capital stock, and that company is entitled to include the contracts in its invested capital at $53,750. The evidence relative to this issue is not as clear as might be desired. It establishes, however, one of two things - either the contracts in question were secured by A. E. Wells, F. A. Wells, and H. L. Wells as agents for the Maine Company, or they were secured by A. E. Wells, F. A. Wells, and H. L. Wells for themselves, and were assigned to the Maine Company on March 9, 1917. In either event the Maine Company is not entitled to include in its invested capital any amount or account of these contracts. If the contracts were made by A. E. Wells, F. A. Wells, and H. L. Wells for the Maine Company it was the same as if the Maine Company itself had made the contracts with Montgomery Ward & Co. In that case no one could contend seriously that they could be included in the invested capital of the Maine Company. If the contracts were secured by A. E. Wells, *2679 F. A. Wells, and H. L. Wells for themselves and were assigned to the Maine Company by the contract of March 9, 1917, the Maine Company can not include any amount in invested capital on account thereof because of section 331 of the Revenue Act of 1918 which provides:
SEC. 331. In the case of the reorganization, consolidation, or change of ownership of a trade or business, or change of ownership of property, after March 3, 1917, if an interest or control in such trade or business or property of 50 per centum or more remains in the same persons, or any of them then no asset transferred or received from the previous owner shall, for the purpose of determining invested capital, be allowed a greater value than would have been allowed under this title in computing the invested capital of such previous owner if such asset had not been so transferred or received: * * *.
*93 The contracts with Montgomery Ward & Co. cost A. E. Wells, F. A. Wells, and H. L. Wells nothing, and they owned on March 9, 1917, more than 50 per cent of the capital stock of the Maine Company. The situation therefore comes squarely within the inhibition of section 331, supra, and the petitioners' claim*2680 as to this issue must be denied.
The petitioner, the Maine Company, also claims the right to include in invested capital a certain amount on account of the stock issued to A. E. Wells, F. A. Wells, and H. L. Wells for their services in excess of the amount of money actually paid to them during the years 1917 and 1918. The evidence shows that these three men agreed to work for the Maine Company for the years 1917 and 1918 at salaries which were less than they had received in prior years. The salaries paid were as follows:
| Paid by Illinois Company | Paid by Maine Co. | ||||
| 1916 | 1917 | 1918 | 1919 | 1920 | |
| A. E. Wells | $15,000 | $8,400 | $8,400 | $12,000 | $30,000 |
| F. A. Wells | 15,000 | 7,200 | 7,200 | 10,800 | 30,000 |
| H. L. Wells | 6,000 | 5,200 | 5,200 | 7,200 | 20,000 |
The apparent saving in salaries to the Maine Company on account of this contract was $30,400 for the years 1917 and 1918. The petitioners rely upon , to support their claim. In that case Limbert, who was the chief factor in an established manufacturing company, became dissatisfied and decided to go into other work. In order to retain his services*2681 the company voted him a large block of stock, he agreeing to remain for ten years and to allow the name of the company to continue unchanged. The Board held that the contract was permanent in character, was worth what the company paid Limbert, and that the amount so paid was properly invested capital - a necessary expenditure to maintain the then status of the company and its business. That case is not controlling here. There is no indication that the Maine Company was obliged to issue stock to the Wellses in order to retain their services. It was not a case where A. E. Wells, A. F. Wells, and H. L. Wells might leave the Maine Company to its detriment, to benefit themselves. They were practically bound to the petitioner. It was their company, organized to save their original corporation from extinction. Every consideration of self-interest would have compelled them to give their services unstintingly to the petitioner, wholly irrespective of the issuance to them of corporate stock. Furthermore, *94 there is nothing in the record to show that because the Wellses were paid certain salaries prior to 1917 their services were worth the same amount to the new corporation under*2682 the circumstances existing in 1917 and 1918. We can see no ground for allowing the petitioners' claim as to this item.
The petitioners' income and profits taxes for the years 1917, 1918, and 1920 should be computed in accordance with this opinion.
Reviewed by the Board.
Judgment will be entered under Rule 50.
SMITH, dissenting: I dissent from so much of the opinion as holds that a tax due for 1917 is not barred by the statute of limitations. Section 250(d) of the Revenue Act of 1921 provides that taxes under prior revenue acts:
* * * Shall be determined and assessed within five years after the return was filed, unless both the Commissioner and the taxpayer consent in writing to a later determination, assessment, and collection of the tax; and no suit or proceeding from the collection of any such taxes * * * shall be begun, after the expiration of five years after the date when such return was filed, * * *.
In , the court, commenting upon this provision, said:
* * * A reasonable view of the matter is that it was the intention of Congress by the clause here in question*2683 to protect taxpayers against any proceeding whatsoever for the collection of tax claims not made and pressed within five years.
The bar of the statute of limitations with respect to the tax due for 1917 had fallen prior to the giving of any consent to a later determination of the tax by the taxpayer. There was no consideration for the giving of the consent, in my opinion. The taxpayer may repudiate the consent.
I entirely agree with the decision of the Court of Appeals of the District of Columbia in , that a waiver of the statute of limitations in order to be effective must be given before the bar of the statute of limitations has fallen. The language of section 250(d) of the Revenue Act of 1921 requires that construction.
TRUSSELL and LOVE agree with this dissent.
MURDOCK: I dissent in so far as affiliation is allowed for the years 1918 and 1920.