*2344 The petitioner and the Interstate Coal Co. were no affiliated during the taxable year.
*153 The respondent has asserted a deficiency in income taxes for the year 1922 in the amount of $2,827.29. The only question to be determined in this proceeding which was instituted for a redetermination of the deficiency asserted, is whether the petitioner and the Interstate Coal Co. were affiliated and entitled to make a consolidated return for the taxable year involved.
FINDINGS OF FACT.
The petitioner is an Oklahoma corporation, with its principal office at Muskogee, Okla. It is engaged in the coal business.
The Interstate Coal Co. is an Oklahoma corporation, with its principal office at Muskogee. It is engaged in mining and selling semianthracite smokeless coal.
The stock certificate books of the two corporations show the stockholdings during the taxable year to have been as follows:
| McAlester Colliery Co. on and after - | ||||||
| Stockholder | Jan. 1, 1922 | June 27, 1922 | July 13, 1922 | |||
| Shares | Per cent | Shares | Per cent | Shares | Per cent | |
| R. T. Price | 260 | 52.0 | 300 | 60.0 | 325 | 65.0 |
| H. C. Croft, jr | 28 | 5.6 | 28 | 5.6 | 28 | 5.6 |
| John W. Brown | 30 | 6.0 | 30 | 6.0 | 30 | 6.0 |
| E. W. Smartt, jr | 28 | 5.6 | 28 | 5.6 | 28 | 5.6 |
| M. G. Young | 28 | 5.6 | 28 | 5.6 | 28 | 5.6 |
| James L. Powell | 28 | 5.6 | 28 | 5.6 | 28 | 5.6 |
| N. C. Ownby | 28 | 5.6 | 28 | 5.6 | 28 | 5.6 |
| H. P. Rivers | 40 | 8.0 | ||||
| William Jones | 15 | 3.0 | 15 | 3.0 | ||
| William Redpath | 10 | 2.0 | 10 | 2.0 | ||
| Fred M. Jones | 5 | 1.0 | 5 | 1.0 | 5 | 1.0 |
| J. T. Buckner | ||||||
| H. G. Kelley | ||||||
| Total | 500 | 100 | 500 | 100 | 500 | 100 |
| Stockholder | Interstate Coal Co. | |
| Shares | Per cent | |
| R. T. Price | 1,104 | 55.2 |
| H. C. Croft, jr | 302 | 15.1 |
| John W. Brown | ||
| E. W. Smartt, jr | ||
| M. G. Young | ||
| James L. Powell | ||
| N. C. Ownby | ||
| H. P. Rivers | ||
| William Jones | ||
| William Redpath | ||
| Fred M. Jones | ||
| J. T. Buckner | 554 | 27.7 |
| H. G. Kelley | 40 | 2.0 |
| Total | 2,000 | 100 |
H. G. Kelley, who appears above as the record owner of 40 shares of stock in the Interstate Coal Co., was not in fact a stockholder during the taxable year since he had left the employ of the company prior thereto and surrendered his stock certificate to Price, properly endorsed.
*154 H. C. Croft, Jr., is the nephew of Price by marriage and has been associated with him as an employee since 1916 or 1917. Croft voted his stock in accordance with Price's directions.
J. T. Buckner, who appears as the record owner of 554 shares of stock in the Interstate Coal Co., had moved from Oklahoma to Kansas City, Mo., prior to the taxable year. Sometime during the taxable year there was correspondence between Buckner and Price relative to the contribution of additional funds by the former. He agreed either*2346 to put up more money or to surrender his stock. The stock was surrendered some time subsequent to the taxable year.
On August 28, 1922, the following agreement was entered into with respect to stock in the Interstate Coal Co.:
The undersigned, being all of the stockholders of the Interstate Coal Company do hereby mutually agree to surrender enough of our individual stock in proportion to our holdings of the Interstate Coal Company at par to be used for the payment of any money advanced to the Interstate Coal Company by the McAlester Colliery Co., any time between now and April 1, 1923, provided proper arrangements can be made with the stockholders of the McAlester Colliery Company on this basis.
In case it is deemed advisable to consolidate the Interstate Coal Company and the McAlester Colliery Company it is understood this same arrangement as outlined above will apply. As an example: Say on April 1, 1923, or before, the McAlester Colliery Company will have advanced the Interstate Coal Company $75,000.00; if the stockholders of the McAlester Colliery Co. will agree to accept stock of the Interstate Coal Company in lieu of this advance, the stockholders of the Interstate Coal*2347 Co., agree to surrender sufficient amount of stock in proportion to their holdings to offset the amount advanced by the McAlester Colliery Co.
(Signed.) R. T. PRICE.
H. C. CROFT, JR. J. T. BUCKNER.The stock referred to in the agreement was issued on May 10, 1923.
Price organized both the petitioner and the Interstate Coal Co. He had acquired all of the capital stock of the latter in exchange for certain leases and coal mines. The stock was then issued as he directed to Buckner, Croft, and Kelley. All of the business of both companies was handled by Price in his office at Muskogee. Money was advanced from one corporation to the other, depending upon the needs of each.
The petitioner and the Interstate Coal Co. filed a consolidated return for 1922, which was rejected by the respondent, on the ground that the two corporations were not affiliated within the meaning of section 240 of the Revenue Act of 1921.
*155 OPINION.
LANSDON: Petitioner contends that approximately 70 per cent of its stock and all of the stock of the Interstate Coal Co. was owned or controlled during the taxable year by the "same interests" and that such amounts constitute "substantially*2348 all" of the stock within the meaning of section 240(c) of the Revenue Act of 1921, which provides as follows:
For the purpose of this section 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.
During the taxable year Price and Croft owned from 57.6 per cent to 70.6 per cent of the stock of petitioner. It is not alleged, nor does the petitioner contend, that these parties controlled any of the minority interests which varied from 29.4 per cent to 42.2 per cent. We think the petitioner must lose on such facts, even assuming that Price and Croft owned or controlled 100 per cent of the stock of the Interstate Coal Co. Stock ownership of 70 per cent does not constitute "substantially all" as required by the statute. ; *2349 ; , affirming ; , affirming ; ; ; ; . In its opinion in , the Circuit Court said:
To say that 68% of the stock is substantially all the stock would not only pervert the statutory language but would defeat the purpose of the enactment. * * * The test is not declared to be control of the business or the policies of the subsidiary corporation but substantial identity of interest in the enterprise. * * *
We are not convinced that Price and Croft owned or controlled 100 per cent of the stock of the Interstate Coal Co. Of the 2,000 shares outstanding Price owned 1,104, or 55.2 per cent, while Croft owned 302, or 15.1 per cent. We have found above that the 40 shares of stock*2350 standing in Kelley's name on the books of the corporation were in fact owned by Price, which brings the percentage of stock owned by Price and Croft to 72.3 per cent. The remaining 554 shares, or 27.7 per cent, were owned by J. T. Buckner. Price testified that he voted Buckner's stock during the taxable year, but he did not know whether he voted it by proxy or pursuant to an agreement of any kind. No proxy or agreement showing control *156 of Buckner's stock has been offered. In the agreement of August 28, 1922, which we have set out in our findings of fact, Buckner's signature appears as one of the three stockholders of the Interstate Coal Co. We think the petitioner has failed to establish that Buckner's stock was controlled by Price. The stock owned by the "same interests," therefore, amounts to 72.3 per cent of the stock of the Interstate Coal Co. and to varying amounts of from 57.6 per cent to 70.6 per cent of the stock in petitioner. The corporations were not affiliated during the taxable year within the meaning of the statute.
Decision will be entered for the respondent.