1930 BTA LEXIS 2535">*2535 The evidence failing to show that the "same interests" own as much as 95 per cent of the stock of two corporations for which affiliation is asserted by the petitioner, held, such corporations are not affiliated and the determination of the Commissioner approved.
18 B.T.A. 1055">*1055 The Commissioner determined deficiencies for the calendar years 1925 and 1926 in the respective amounts of $1,992.25 and $7,119.85.
18 B.T.A. 1055">*1056 The additional tax liabilities result from the Commissioner's determination that the petitioner was not affiliated with the Morris Machine Tool Co. during the years in issue. On motion of Commissioner, not objected to by petitioner, the case was ordered submitted for decision upon the facts alleged in the petition and admitted in the answer.
FINDINGS OF FACT.
The petitioner is a corporation organized under the laws of the State of Ohio in 1890, with its principal office in Cincinnati, Ohio, and until 1905 engaged in the business of manufacturing castings. In the year 1905 the petitioner began the manufacture1930 BTA LEXIS 2535">*2536 of machine tools. After the manufacture of machine tools for about five years the petitioner ascertained that the fact that machine tools were manufactured by a foundry company adversely affected the sale of such machine tools. The John B. Morris Machine Tool Co. was then organized as a corporation under the laws of the State of Ohio, with an authorized capital stock of $125,000, all of which was issued to the petitioner's stockholders in proportion to their stockholdings. Thereafter and prior to January 1, 1925, the name of "The John B. Morris Machine Tool Company" was changed to "The Morris Machine Tool Company," the authorized capital stock being reduced from $125,000 to $25,000 and the par value of the stock reduced from $100 to $20 per share.
The petitioner and the Morris Machine Tool Co. have at all times occupied the same building and the same offices. The bookkeeper for one corporation is the bookkeeper for the other. With the exception of the secretary for the Machine Tool Co. the officers of the two companies have always been the same. The petitioner manufactures all the castings used by the Machine Tool Co.
As the business of these two companies progressed it1930 BTA LEXIS 2535">*2537 was decided that it would be advantageous to permit certain of the employees to acquire stock. To accomplish this the majority stockholders made sales or gifts of a small number of shares.
The following tabulation shows the stock ownership of the petitioner and the Morris Machine Tool Co. during each of the calendar years 1925 and 1926:
| Stockholders | John B. Morris Foundry Co. | Morris Machine Tool Co. |
| Shares | Shares | |
| 1. Geo. McG. Morris, president | 1,260 | 685 |
| 2. S. M. Blackburn, vice president | 330 | 213 |
| 3. Alfred K. Nippert | 20 | 11 |
| 4. Mathias Boehm | 12 | 5 |
| 5. A. M. Rittenhouse, secretary | 10 | 5 |
| 6. Mrs. Emma Niehaus | 85 | 62 |
| 7. Chas. Kobmann | 20 | 9 |
| 8. Chas. Kobmann and Fred Guckenberger, trustees | 10 | 3 |
| 9. Fred Guckenberger | 5 | |
| 10. Kate Guckenberger, wife of No. 9 | 10 | 3 |
| 11. Chas. J. Miner | 93 | 12 |
| 12. Grace M. Miner, sister of No. 11 | 92 | 13 |
| 13. Mrs. Mabel S. Stonehill 1 | 79 | 44 |
| 14. Geo. M. Stearns | 79 | 43 |
| 15. Mrs. Geo. M. Stearns | 2 | 2 |
| 16. Mrs. Miriam N. Nason | 29 | |
| 17. Mrs. Miriam N. Nason, guardian for daughter | 79 | 14 |
| 18. Mrs. E. R. Morris, wife of No. 1 | 25 | |
| 19. Mrs. Minnie Minebrecker | 5 | |
| 20. Charlotte Minebrecker, duaghter of No. 19 | 10 | |
| 21. Anna C. Wessel | 30 | |
| 22. W. J. Buvinger | 30 | |
| 23. Mrs. Minnie D. Douglass | 25 | |
| 24. C. S. Blackburn, nephew of No. 2 | 12 | |
| 25. B. F. Lewis | 2 | |
| 26. A. C. Pletz, secretary | 52 | |
| 27. J. H. Heitbrink | 5 | |
| 28. Mrs. Flora Berkmeyer, widow of employee | 5 | |
| 29. E. G. Meckstroth, was an employee | 5 | |
| Total | 2,295 | 1,250 |
18 B.T.A. 1055">*1057 The petitioner and the Morris Machine Tool Co. filed a consolidated return of net income with the collector of internal revenue at Cincinnati, Ohio, for each of the calendar years 1925 and 1926.
The Commissioner has determined that the petitioner and the Morris Machine Tool Co. were not affiliated within the meaning of section 240 of the Revenue Acts of 1924 and 1926, and not entitled to file a consolidated return for each of the calendar years 1925 and 1926. The Commissioner has accordingly determined the tax liability of these corporations on the basis of separate returns for each of said years.
OPINION.
SEAWELL: Section 240(c) and (d) of the Revenue Act of 1926 is the applicable statute in the instant case. It provides:
(c) For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the voting stock of the other or others, or (2) if at least 95 per centum of the voting stock of two or more corporations is owned by the same interests. This subdivision shall be applicable to the determination of affiliation for the taxable year 1925.
(d) 1930 BTA LEXIS 2535">*2539 For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the stock of the other or others, or (2) if at least 95 per centum 18 B.T.A. 1055">*1058 of the stock of two or more corporations is owned by the same interests. As used in this subdivision the term "stock" does not include nonvoting stock which is limited and preferred as to dividends. This subdivision shall be applicable to the determination of affiliation for the taxable year 1926 and each taxable year thereafter.
Neither corporation owns any stock in the other.
The evidence shows that the stock in the two corporations is owned by 29 individuals. Each company has 22 stockholders. Only 15 stockholders own stock in both corporations.
In our findings of fact, the names of the stockholders owning stock in but one of the corporations and the number of shares so owned by each have been set out in italics. From the list of stockholders so set out, it appears that the following persons, owning the number of shares opposite their names, owned no stock whatsoever in the petitioner:
| Stockholder | Shares |
| 16. Mrs. Miriam N. Nason | 29 |
| 18. Mrs. E. R. Morris | 25 |
| 19. Mrs. Minnie Minebrecker | 5 |
| 26. A. C. Pletz | 52 |
| 27. J. H. Heitbrink | 5 |
| 28. Mrs. Flora Berkmeyer | 5 |
| 29. E. G. Meckstroth | 5 |
| Total | 126 |
1930 BTA LEXIS 2535">*2540 It is seen, therefore, that stockholders owning 126 shares of the 1,250 of the Morris Machine Tool Co., or 10.08 per cent of its stock, own no stock whatever in the petitioner.
It is argued in behalf of the petitioner that the business, blood and marital relationship existing between certain stockholders of the two corporations makes the interest of all of them the same, or that the same interests own at least as much as 95 per cent of the stock of both corporations. The evidence, however, in our opinion, does not warrant the assertion nor justify the argument. Such is assumed rather than proven to be a fact.
In , we said:
* * * In , we held that the mere fact of family and business relationship, standing alone, is insufficient to constitute control or to warrant a holding that persons standing in such relationship constitute the same interest with the majority; and evidence that the minority is quiescent and permits the majority to manage the business does not prove actual control over the minority interest.
1930 BTA LEXIS 2535">*2541 , and , are controlling in the instant case.
Since 89.92 per cent falls short of the requisite 95 per cent required by statute to warrant affiliation, the action of the Commissioner is approved.
Judgment will be entered for the respondent.
Footnotes
1. 1 family. ↩