*3340 Affiliation granted.
*1402 By these proceedings the Metasap Chemical Co. seeks a redetermination of a deficiency in income and excess-profits taxes for the year 1921 in the amount of $1,059.21 and the National Oil Products Co. petitions for a redetermination of a deficiency in income tax for the years 1920 and 1921, in the amount of $1,754.10. The only question involved is whether the petitioners were affiliated during the taxable years. The cases were consolidated for hearing and decision.
FINDINGS OF FACT.
The petitioners are New Jersey corporations with principal offices at Harrison, N.J. The National Oil Products Co., hereinafter referred to as the Products Company, was organized in April 1912, and during the year 1920 was engaged in the manufacture of soaps, oils *1403 and chemicals. The Metasap Chemical Co., hereinafter called the Chemical Company, was incorporated in January, 1917, with an authorized capital stock of $10,000, consisting of 100 shares of a par value of $100 each, and in 1921 was engaged in the production of*3341 chemicals for the manufacture of soap.
The outstanding stock of the two corporations in 1920, prior to January 27, and on and from that date to the close of 1921, was held as follows:
| National Oil Products Co. | ||||
| To Jan. 27, 1920 | After Jan. 27, 1920 | |||
| Stockholders | Shares | Percentage | Shares | Percentage |
| A. Phillips | 527 1/2 | 23.35 | ||
| C. P. Gulick | 577 1/2 | 25.55 | 577 1/2 | 33 1/3 |
| R. Boehringer | 577 1/2 | 25.55 | 577 1/2 | 33 1/3 |
| M. A. Richards | 577 1/2 | 25.55 | 577 1/2 | 33 1/3 |
| Total | 2,260 | 100 | 1,732 1/2 | 100 |
| Metasap Chemical Co. | ||||
| To Jan. 27, 1920 | After Jan. 27, 1920 | |||
| Stockholders | Shares | Percentage | Shares | Percentage |
| A. Phillips | 20 | 20 | ||
| C. P. Gulick | 20 | 20 | 20 | 25 |
| R. Boehringer | 20 | 20 | 20 | 25 |
| M. A. Richards | 20 | 20 | 20 | 25 |
| W. E. Wadman | 20 | 20 | 20 | 25 |
| Total | 100 | 100 | 80 | 100 |
On January 27, 1920, the petitioners purchased the stock held by A. Phillips and never reissued it. Richards was president of both corporations.
W. E. Wadman entered the employ of the Products Company during the year 1915 or the early part of 1916. At first his duties were of an indefinite character and were confined*3342 to experimental work in the laboratory of the chemical department of the business. Subsequently he became, and during the years 1920 and 1921 was, "work manager" of the plant of the petitioners, but was on the pay roll of the Products Company.
In January, 1917, the stockholders of the Products Company, in order to retain the services of W. E. Wadman and to give him a working interest in the business, organized the Chemical Company to perform the work then being done by the chemical department of the corporation and issued 20 shares of stock to Wadman without consideration. *1404 Thereafter, and during the taxable years in question, the Products Company operated the Chemical Company as the chemical department of its business. Salesmen of the Products Company sold the products of the Chemical Company without cost to the latter; the Products Company kept its books, paid its clerical help, telephone and telegraph bills, purchased and paid for all of the material required in connection with its business and billed the price thereof to the Chemical Company at cost; the executive officers of the Products Company performed the administrative work of the Chemical Company without*3343 compensation, and the latter used the former's plant and equipment in the conduct of its business without cost to it. Goods of the Chemical Company sold by salesmen of the Products Company were billed by the former corporation. The selling policies of each company were the same and the same officers controlled both companies.
Wadman has never received any dividends on the stock held by him.
The respondent has held that the petitioners are not affiliated and, therefore, not entitled to file consolidated returns for the years 1920 and 1921. He did not, however, find a deficiency against the Products Company for the year 1921.
OPINION.
ARUNDELL: It appears from the deficiency letter attached to the petition filed herein by the Products Company, that no deficiency has been found against that corporation for the year 1921. The petition of the Products Company is accordingly dismissed in so far as it relates to the year 1921.
Whether the petitioners are affiliated, and, therefore, entitled to file consolidated returns, within the meaning of section 240(b) of the Revenue Act of 1918 and the corresponding provision of the 1921 Act, is a question of fact to be decided from*3344 all the facts and circumstances. , and other cases cited therein on the same point.
In the instant case we find that prior to January 27, 1920, the four stockholders of the Products Company owned 80 per cent of the capital stock of the Chemical Company. On January 27, 1920, the petitioners purchased the stock held by A. Phillips, and did not subsequently reissue it. On and after that date, the three remaining stockholders of the Products company held 75 per cent of the outstanding stock of the Chemical Company. The balance of the stock was held by Wadman.
The stockholders of the Products Company organized the Chemical Company in order to retain the services of Wadman; to give him a *1405 working interest in the business, and thereby give effect to an understanding Wadman had with the Products Company, by the terms of which he was to receive 20 per cent of the profits of the chemical department, and to operate the chemical branch of the corporation's business. Our findings of fact clearly show the close business relationship existing between the petitioners. The Products Company operated the Chemical Company as the chemical*3345 branch or department of its business and the two corporations were otherwise conducted as one business unit.
Wadman was an employee of the Products Company and never took any part in the management of either corporation. The record shows that he merely regarded his stock as evidence of a legal right to receive a percentage of the profits of the chemical producing branch of the business unit. We are satisfied that the three owners of all the stock of the Products Company and 75 per cent of the stock of the Chemical Company, also controlled the stock held by Wadman in the latter corporation.
We have heretofore held that, "The object sought to be accomplished by Congress, in enacting section 240 of the Revenue Act of 1918, was to tax as a business unit what really was a business unit." .
We are convinced from a careful consideration of all the facts that the petitioners were affiliated during the years 1920 and 1921.
Judgment will be entered under Rule 50.