Hutt Contracting Co. v. Commissioner

HUTT CONTRACTING CO. AND HUTT CATTLE CO., PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hutt Contracting Co. v. Commissioner Docket No. 26433. United States Board of Tax Appeals 17 B.T.A. 818; 1929 BTA LEXIS 2237; October 9, 1929, Promulgated *2237 1. Where, upon organization, a new corporation becomes affiliated with another corporation, there being no period for which the new corporation is required to file a separate return, a single consolidated return is to be filed for the two corporations for the taxable year. Automatic Fire Alarm Co.,13 B.T.A. 1195, followed. 2. Where a corporation sustained a net loss in 1921, prior to becoming a member of an affiliated group in 1922, and such corporation also had a loss in 1922, held that the net loss of such corporation for 1921 is not to be deducted in computing the consolidated income of the affiliation for 1922. Alabama By-Products Corporation,16 B.T.A. 1073, followed. W. H. Cloud, Esq., for the petitioners. H. L. Jones, Esq., for the respondent. PHILLIPS *818 The Commissioner determined a deficiency of $2,559.86 in income tax of petitioner, Hutt Contracting Co., for the period from May 1 to December 31, 1922. That petitioner brings this proceeding for a redetermination of its liability, alleging that the Commissioner erred in his computation of the income of an affiliated group of which petitioner*2238 was one in disallowing as a deduction for the taxable period a net loss sustained by the Hutt Cattle Co. in 1921, and in disallowing as a deduction the actual loss sustained by the Hutt Cattle Co. in 1922, having allowed only a portion of such loss prorated from the date affiliation occurred. *819 FINDINGS OF FACT. The taxpayer, Hutt Contracting Co., was a Missouri corporation, with its principal office in Kansas City, Mo. The Hutt Cattle Co. was a Texas corporation, with its principal business office in Kansas CityMo. The Hutt Cattle Co. was incorporated in January, 1917, and the Hutt Contracting Co. in May, 1922. The Hutt Contracting Co. was incorporated to conduct the business of the partnership operated prior to the incorporation of the Hutt Contracting Co. as "J. E. Hutt Contracting Company." The stockholdings of the two corporations were by the same parties in approximately the same proportions and theCommissioner of Internal Revenue ruled the corporations to be a class B affiliation for the calendar year 1922. The Hutt Cattle Co. sustained in the calendar year 1921 a net loss of $15,085.68, and for the year 1922 a loss of $15,650.17. The Hutt Contracting*2239 Co. was incorporated May 1, 1922, and a consolidated return for the two companies was filed for the calendar year 1922, in which said return there was deducted from the consolidated income of the two corporations the loss sustained by the Hutt Cattle Co. for the year 1922 in the sum of $15,650.17, plus the net loss sustained by the Hutt Cattle Co. for the year 1921 in the sum of $15,085.68, which was carried forward into the year 1922 and into the consolidation. The Commissioner of Internal Revenue disallowed the net loss sustained by the Hutt Cattle Co. for the year 1921 and prorated the loss sustained by the Hutt Cattle Co. for the year 1922 from May 1, 1922, to December 31, 1922, by taking two-thirds of the total loss sustained by the Hutt Cattle Co. in the year 1922. The Hutt Cattle Co. was engaged in the business of owning and operating a large cattle ranch in Texas, and its books and accounts were kept in such a way that it is impossible to determine in what period or portion of the year its losses are sustained. OPINION. PHILLIPS: The Hutt Cattle Co. was incorporated January, 1917. On May 1, 1922, the Hutt Contracting Co. was incorporated. *2240 These two companies filed a consolidated return for 1922. The Commissioner determined that a separate return should be filed by the Hutt Cattle Co. for the period prior to May 1, 1922, and a consolidated return for the balance of the year. The petitioner urges that this was erroneous; that one return is all that is required. We have previously held that where a corporation is organized during the taxable *820 year, its first return is a return for the entire year, ; ; and that where, upon organization, it became affiliated with another corporation, there being no period for which the new corporation is required to file a separate return, a single consolidated return is to be filed for the two corporations for the taxable year. . The deficiency for 1922 should be recomputed accordingly. During 1921, as well as 1922, the Hutt Cattle Co. sustained a net loss in the operation of its business. Such a loss would be available to it under section 204(b) of the Revenue Act of 1921 as a deduction from its*2241 income for 1922, . It had no income but a loss for that year. it is urged, however, that the loss in 1921 can be carried over and used as a deduction in 1922 against the income of the affiliated corporations; in substance, that the net loss of the Hutt Cattle Co. for 1921 may serve to reduce the taxable income of the Hutt Contracting Co. in 1922 because these two were affiliated in the later year. This must be denied on the authority of our decisions in ;; ; and . Decision will be entered under Rule 50.