John Scowcroft & Sons Co. v. Commissioner

JOHN SCOWCROFT & SONS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. John Scowcroft & Sons Co. v. Commissioner Docket No. 29583. United States Board of Tax Appeals 18 B.T.A. 532; 1929 BTA LEXIS 2021; December 18, 1929, Promulgated *2021 Where two corporations are affiliated the consolidated net income is to be computed as for one corporation and the sale by one of such corporations of some of its stockholdings in the other, affiliation continuing, should be treated, for the purpose of the income tax, as a sale by the affiliated group of its capital stock and as a capital transaction, giving rise to neither a taxable gain nor a deductible loss. Lincoln G. Kelly, Esq., for the petitioner. P. M. Clark, Esq., for the respondent. SEAWELL *532 The Commissioner determined a deficiency in income tax for the calendar year 1923 in the sum of $832.32. The petitioner and the Scowcroft Investment Co. were affiliated corporations in 1923, and the deficiency in tax results from the Commissioner including as taxable income $8,243.66, the excess of selling price over cost of 429 shares of stock of petitioner sold by the Scowcroft Investment Co. in 1923. The petitioner contends there was a capital transaction, resulting in neither gain nor loss. The case is submitted on the pleadings and certain facts stipulated. FINDINGS OF FACT. The petitioner and the Scowcroft Investment Co. are*2022 Utah corporations, with their principal offices in Ogden, Utah. During all of the calendar year 1923 they were affiliated within the purview of section 240 of the Revenue Act of 1921 and the regulations of the Commissioner applicable thereto. They filed a consolidated tax return for the calendar year 1923. During 1919 the Scowcroft Investment Co. acquired by purchase and by stock dividend 1,597.5 shares of the capital stock of the John Scowcroft & Sons Co. at a net cost per share of $80.784. In 1923 the Scowcroft Investment Co. sold at $100 per share 429 shares of the stock so acquired. The deficiency in tax as determined by the Commissioner arises from the inclusion as taxable income for the year 1923 of the amount of $8,243.66, representing the excess of the amount received by the Scowcroft Investment Co. over the cost to it of the said 429 shares of the capital stock of the John Scowcroft & Sons Co. sold by the former in 1923. OPINION. SEAWELL: The record shows that the petitioner and the Scowcroft Investment Co. were affiliated throughout the taxable year 1923. *533 The sale by the Scowcroft Investment Co. of 429 shares of the capital stock of petitioner*2023 which it owned did not destroy such affiliation. They filed a consolidated return for the taxable year in question. They were, for the purpose of the income tax for that year, one and the same taxpayer. The sale was a capital transaction which could not give rise to a taxable gain or a deductible loss, and this is true whether the sale of the stock was to members of the Scowcroft family or to others. The Commissioner erred in treating the excess of the selling price over the cost of the 429 shares of the capital stock of the petitioner as taxable income to the Scowcroft Investment Co. and the affiliated group. Our decision of the issue involved in this appeal is governed by the decisions of the Board in the following appeals: ; ; . See also , in which the three first-named cases are cited approvingly; and , distinguished and followed. Upon the authority of these cases, *2024 supra, it is held that no taxable gain was realized by the petitioner from the sale of the 429 shares of the capital stock of petitioner held and sold by the Scowcroft Investment Co. in 1923, and the Commissioner's determination of the deficiency arising from the inclusion of $8,243.66 as a gain from the sale of such stock and treating it as taxable income was erroneous. Judgment will be entered under Rule 50.