Rockwood Sprinkler Co. v. Commissioner

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT., PETITIONER, v. Rockwood Sprinkler Co. v. Commissioner Docket No. 14937. United States Board of Tax Appeals 13 B.T.A. 393; 1928 BTA LEXIS 3251; September 19, 1928, Promulgated *3251 Held, That a deficiency in income tax for the year 1920 was properly asserted against the petitioner under the provisions of section 240(b) of the Revenue Act of 1921. Merrill S. June, Esq., for the petitioner. Eugene Meacham, Esq., for the respondent. LANSDON *393 The respondent has asserted a deficiency in income tax for the year 1920 in the amount of $4,725.60. The parties have agreed that $3,290.85 is the amount in controversy. The single issue here is whether the deficiency in question has been properly asserted against the petitioner under the provisions of section 240(b) of the Revenue Act of 1921. FINDINGS OF FACT. The petitioner is an Illinois corporation. In the taxable year it was affiliated with the Rockwood Sprinkler Co. of Massachusetts, a corporation chartered and operating under the laws of that State. The Massachusetts corporation made a consolidated income and profits-tax return for the affiliated group for the year 1920. Such return showed a consolidated income in the amount of $549,145.42, and tax due on said income in the amount of $177,433.14. The petitioner's *394 income, if determined separately, *3252 was $331,034.69, and that of the Massachusetts corporation, $218,110.73, or, respectively, 60.282 per cent and 39.718 per cent of the consolidated income. The entire tax was paid in four installments by the Massachusetts corporation. Upon audit of the consolidated return the Commissioner determined that the correct tax liability of the consolidated group for the taxable year was $182,892.23, and a deficiency for such year in the amount of $5,459.09, and proposes to assert 60.282 per cent of such deficiency against the petitioner on the basis of the proportion of its income to the income of the affiliated group. For the taxable year the petitioner made an information return on Form 1122, which included paragraph 7, as follows: 7. The department prefers that the entire tax shown on a consolidated return be paid by the parent or principal reporting corporation, instead of being apportioned among the corporations composing the affiliated group. If apportionment is made, state the amount of income and profits taxes for the taxable period to be assessed against the subsidiary or affiliated corporation making this return $ OPINION. LANSDON: There is no controversy over the*3253 facts here involved. The parties agree that, if the respondent has any authority to assert a deficiency against the petitioner for 1920, the correct amount thereof is $3,290.85. The petitioner contends that inasmuch as the original consolidated return was made by the Massachusetts corporation, and the tax shown thereon paid by it, and that as the information return made by the petitioner included no direction as to the apportionment of the tax, the Commissioner was fully advised that there was an agreement between the two members of the affiliated group that all taxes for the year in question were to be paid by the Massachusetts corporation. If this contention is sound it follows that any deficiencies determined as to the group should be asserted and assessed against such Massachusetts corporation under the plain provisions of section 240(b) of the Revenue Act of 1921, which is as follows: In any case in which a tax is assessed upon the basis of a consolidated return, the total tax shall be computed in the first instance as a unit and shall then be assessed upon the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any*3254 such agreement, then on the basis of the net income properly assignable to each. * * * In our opinion the evidence adduced, the law cited by the petitioner, and the reasoning of its counsel based thereon do not support the contention on which this proceeding is based. Even if it is the duty of the Commissioner to ascertain whether there is an agreement providing for the apportionment of the tax among the members *395 of an affiliated group, it is obvious that the failure of the petitioner to make the statement asked for in paragraph 7 of Form 1122 left the Commissioner without such information. Apparently the petitioner relies on an assumption that failure to indicate apportionment in percentages or amounts raises a conclusive presumption that all the tax was to be paid by the reporting member of the group. We do not agree with this conclusion. The Commissioner's assumption that in the absence of an agreement that all the tax was to be paid by the Massachusetts corporation, it follows that the tax liability shall be assessed on the basis of the proportional income of each of the reporting corporations, is at least equally as valid as the presumption relied on by the petitioner. *3255 The petitioner here is a taxpayer. The amount of the deficiency is not in controversy and the sole issue is whether it was within the authority of the Commissioner to assert it by the procedure adopted. Section 274(a) of the Revenue Act of 1926, under which this proceeding was initiated, provides that "If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency by registered mail." All this has been done here, and we think that in the absence of any statement as to the proration of the tax as requested in paragraph 7 of Form 1122, the deficiency, now agreed as to amount, was properly asserted against this petitioner under the provisions of section 240(b) of the Revenue Act of 1921. Cincinnati Mining Co., 8 M.T.A. 79. Reviewed by the Board. Decision will be entered for the respondent.