Wilson Co. v. United States, (1936)

Full title: WILSON CO., Inc., v. UNITED STATES

Court: United States Court of Federal Claims

Date published: Jan 6, 1936

15 F. Supp. 332 (Fed. Cl. 1936)

Opinion

No. H-227.

January 6, 1936.

Suit by Wilson Co., Inc., against the United States.

Petition dismissed.

This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:

1. Plaintiff is a corporation organized November 30, 1925, under the laws of the state of Delaware.

2. The United States District Court for the Southern District of New York on the 26th day of August, 1924, appointed Julius M. Mayer, Robert Lee Morrell, and Thomas E. Wilson receivers for Wilson Co., Inc., a New York corporation, and on the 1st day of December, 1925, the said court, being advised of the death of Julius M. Mayer, entered an order continuing the said Robert Lee Morrell and the said Thomas E. Wilson as receivers for the said Wilson Co., Inc., a New York corporation. On the 23rd day of January 1926, the said United States District Court for the Southern District of New York entered an order directing the sale of all the properties and assets of every kind and character, wheresoever situated, tangible and intangible, rights, claims, demands, and choses in action, of the said Wilson Co., Inc., a New York corporation; and pursuant to the said order, the said properties were sold to the plaintiff on the 23d day of February 1926, and on the 26th day of February, 1926, and the said court did approve and confirm the sale of all the said assets to the plaintiff.

Unless otherwise indicated, the name "plaintiff" will be used indiscriminately herein as applying to Wilson Co., Inc., the aforementioned New York corporation, and plaintiff, the successor corporation, which bears the same name but which was organized under the laws of Delaware.

3. Throughout the calendar years 1918 and 1919 plaintiff was affiliated with certain other corporations as follows:

During both years with Wilson Co. (N. J.); Thos. E. Wilson Company; Hollister-Wilson Laboratories; the Sells Sporting Goods Company; Central Products Corporation; T. M. Sinclair Co.; Sinclair Provision Company; Sinclair Sales Company; Albert Lea Packing Company; Atlantic Lard Company; Central Union Stock Yards Company; Connellsville Stock Yards Company; Continental Cartage Company; Drexel Packing Company; Empire Provision Produce Company; Fame Canning Company; General Rendering Company; Gotham Hotel Supply Company; Haberman Company, Inc.; Mississippi Packing Company; Morton-Gregson Company; Nebraska City Union Stock Yards Company; Pennsylvania Investors' Company; John Reardon Sons Company; Paul O. Reymann Company; South Dakota Provision Company; Standard Beef Company; Standard Provision Company; Steifel O'Mara Company, Inc.; Sulzberger Products Company; Union Lard Corporation; Wilson Co. of California; Wilson Co. of Louisiana; Wilson Co. of Oklahoma; Wilson Co. of Tennessee; Wilson Car Lines; Wilson Commission Company.

During 1918 with Ashland Rendering Company; Central Rendering Company; Joseph Levy Co., Inc.; Merchants Cold Storage Warehouse Company; United States Fertilizer Company; Wilson Co. of Louisville.

During 1919 with Altamont Packing Provision Company; California Nevada Cattle Company; Freeport Condensed Milk Company.

Plaintiff owned all of the stock of the other affiliated corporations (which will be sometimes referred to as "subsidiary corporations") and controlled the policy and managed the business of each. The books of the subsidiary corporations were kept and their income tax returns were made under the direct supervision and control of plaintiff, the parent corporation. In many instances the officers of the subsidiary corporations were also officers of the parent corporation.

4. September 15, 1919, plaintiff filed a consolidated income and profits tax return for 1918 for itself and the subsidiary corporations, which disclosed a tax due for the consolidated group of $1,759,431.43. In this return it referred to itself as the taxpayer. The entire tax was assessed against plaintiff, and plaintiff made payments thereon in installments as follows:

March 15, 1919 .................... $286,149.75 June 15, 1919 ..................... 286,149.75 December 15, 1919 ................. 170,502.11 ---------- Total .......................... 742,801.61

Plaintiff filed a claim in abatement for the balance of the tax, namely, $1,016,629.82, and no part of that amount was thereafter paid. No assessments were made against, and no payments were made by, the subsidiary corporations of any of the income and profits taxes of the consolidated group for 1918.

5. On or about June 13, 1919, each member of the affiliated corporations in the consolidated group, except the parent, filed an information return, form 1122, for the year 1918. The answer inserted on form 1122 by each of the affiliated corporations after the question, "9. State the amount of income and profits taxes for the taxable year apportioned to the subsidiary or affiliated corporation making the return," was "None."

6. June 25, 1920, plaintiff filed a consolidated income and profits tax return for itself and the subsidiary corporations for the calendar year 1919 which disclosed a loss for the consolidated group for that year, and accordingly that there was no tax due.

7. August 24, 1920, plaintiff filed a claim for refund for 1918 of $376,919.54 and assigned as the principal basis therefor that a net loss had been sustained for the consolidated group for 1919 of $2,854,596.58, which should be deducted from the consolidated net income as shown on the consolidated return for 1918. The claim further stated that, when the loss was applied in the manner requested by plaintiff, the tax liability of the consolidated group for 1918 would be $365,882.07 instead of $1,759,431.43, as shown on the original return. Since $742,801.61 had been paid on account of the tax liability as shown on the original return and a claim in abatement filed for the balance, $1,016,629.82, plaintiff asked that the difference between that previously paid and that now shown due, namely, $376,919.54, be refunded and that the balance, $1,016,629.82, be abated. The Commissioner's attention was further called to the fact that the amount now asked to be abated was the same as that asked to be abated at the time of filing the consolidated return for 1918. See finding 4.

8. January 22, 1924, plaintiff filed a waiver of its right to have taxes due for 1918 determined and assessed within five years after the consolidated return was filed.

9. February 28, 1924, plaintiff filed a claim for refund of $742,801.61 for 1918 and assigned the following basis therefor:

"The income was overstated on the return. The amortization of war facilities was understated in the return and the taxpayer requests a redetermination of the deduction on account of amortization as provided in section 214(9), Revenue Act of 1921 ( 42 Stat. 239, 240); art. 187 of Regulations 62. The net loss of the taxpayer for the taxable year ending Dec. 31, 1919, was understated on form 46 and is deductible from the income of the taxable year ending Dec. 31, 1918, section 204, Revenue Act 1918 ( 40 Stat. 1060); art. 1603, Reg. 45. For details see schedules attached and marked:

"'Schedule 1. Amended return for taxable year ending December 31, 1918.

"'Schedule 2. Detailed statement of income for year ending December 31, 1918.

"'Schedule 3. Net loss for taxable year ending December 31, 1919.

"'Schedule 4. Amortization of war facilities, 1918.

"'Schedule 5. Amortization of war facilities, 1919.

"'Schedule 6. Amortization explanatory notes, 1918-1919.

"'Schedule 7. A 18. Depreciation, taxable year, 1918.

"'Schedule 8. Statements for overtime depreciation, 1918.

"'Schedule 9. Miscellaneous.'"

The amount which plaintiff sought to have refunded was the entire tax which it had paid for the consolidated group for 1918 on the ground that the following summary of its claims showed a loss for the consolidated group for 1918 after the allowance of the additional deductions claimed and after the application of the net loss for 1919 for the consolidated group had been allowed as a deduction from the consolidated net income for 1918:

Net loss for taxable year ending Dec. 31, 1919 .................................. $3,727,874.42 Amortization of war facilities, 1918 ........................ $2,319,146.13 Less amortization of war facilities deducted on return 393,217.31 ---------- Additional amortization of war facilities, 1918 ....................... 1,925,928.82 Amortization of war facilities, 1919 ....... 557,385.73 Additional depreciation as per schedule .... 182,075.53 Additional depreciation due to overtime operation ................................. 700,933.96 Expense items charged against depreciation reserve ...................... 352,278.60 Decrease in nondeductible reserves ......... 86,839.63 Miscellaneous items as per schedule ........ 55,195.44 ------------ Total ................................... 7,588,512.03 Net income as per original return .......... 5,927,631.60 ------------ Net loss as recomputed .................. 1,660,880.43

Since the claim as submitted showed no tax liability for the consolidated group, plaintiff asked that the claim be considered as a claim for refund of the entire amount of tax paid for 1918, $742,801.61, and a claim in abatement of the balance of the tax which had been assessed for 1918 but which had not been paid, namely, $1,016,629.82.

10. June 4, 1925, after an examination by revenue agents, the Commissioner advised plaintiff of the determination of an additional tax for the consolidated group of $1,159,409.79 for 1918 and made an immediate assessment of that amount against plaintiff. In that determination the Commissioner determined a net income or a net loss for each member of the affiliated group for 1918 and 1919. For 1918 the total net income of the corporations which had net income was $11,311,261.43 and the aggregate losses of the other corporations for the same year were $694,161.18; thus showing an aggregate net income for the consolidated group for 1918 of $10,617,100.25. The Commissioner also determined a combined statutory net loss for the consolidated group for 1919 of $4,733,630.95, which he deducted from the aggregate net income of the consolidated group for 1918, thus showing a taxable consolidated net income for 1918 of $5,883,469.30.

11. August 26, 1925, plaintiff, on behalf of itself and its subsidiary corporations, filed a brief in protest against the additional assessment referred to in finding 10, and submitted further evidence in support of its claims for refund and abatement. Thereafter the Commissioner held hearings and gave consideration to the evidence and protest so submitted.

12. September 27, 1927, the Commissioner issued a certificate of overassessment to plaintiff showing an overassessment in its favor of $2,715,774.98, which was based upon the net income and invested capital of the consolidated group as finally determined by the Commissioner, and included consideration of all claims and protests theretofore filed by plaintiff. The certificate set out the amount of the overassessment as follows:

Tax previously assessed: Original .......................... $1,759,431.43 Additional ........................ 1,159,409.79 ------------ Total assessments .............. 2,918,841.22 Correct tax liability ................ 203,066.24 ------------ Amount of overassessment ....... 2,715,774.98

The certificate of overassessment showed that $2,175,539.61 represented tax which had been assessed and not collected and therefore would be abated. The balance represented an overpayment which was credited or refunded as follows: April 17, 1928, a refund was made to plaintiff of $456,758.98 (representing $170,502.11 from the third installment of original tax paid by plaintiff December 15, 1919; $286,149.75 from the installment paid June 15, 1919; and $107.12 from the installment paid March 15, 1919), together with interest of $221,414.59. On the same day, April 17, 1928, the balance of the overpayment was credited in satisfaction of outstanding tax liabilities of plaintiff and/or the other affiliated corporations for 1917 and 1922.

In the determination of the tax due as shown by the foregoing certificate of overassessment, the Commissioner determined a taxable consolidated net income for 1918 of $1,716,236.42, which was arrived at by first determining a consolidated net income for plaintiff and the other affiliated corporations for 1918 of $6,890,404.52 and deducting therefrom a consolidated net loss for plaintiff and the other affiliated corporations of $5,174,168.10.

13. The net income or net loss of each of the members of the consolidated group for the calendar year 1918 as shown by the consolidated return for the calendar year 1918, as determined by the Commissioner of Internal Revenue in his letter of June 4, 1925, notifying the taxpayer of the additional assessment, as determined in the certificate of overassessment dated September 27, 1927, and as adjusted with taxpayer's contention, is as follow, to wit:

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- As shown on return As determined June 4, 1925 As determined September 27, 1927 As adjusted with taxpayer's contentions ---------------------------------------------------------------------------------------------------------------------------------------------------------------- Name of Company Income after Income after absorption absorption Income Loss Income Loss Income Loss of losses Income Loss of losses ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Wilson Co., Inc. (New York) .......... $4,046,819.68 ........... $8,650,495.93 ........... $4,957,978.31 ........... $4,501,294.49 $2,186,714.09 ........... $2,003,908.42 Wilson Co. (New Jersey) .............. 115,467.15 ........... 203,269.60 ........... 198,641.28 ........... 180,344.25 210,019.00 ........... 192,461.76 Thomas E. Wilson Co. ................. ............. $161,625.79 ............. $163,615.24 ............. $163,691.45 None ............. $164,531.50 None Hollister-Wilson Laboratories .......... 49,975.17 ........... 50,548.98 ........... 50,548.98 ........... 45,892.87 54,462.11 ........... 49,909.17 Sells Sporting Goods Company ........... 29,645.06 ........... 29,911.01 ........... 29,596.37 ........... 26,870.22 29,596.37 ........... 27,122.16 Central Products Company ............... 26.40 ........... 26.40 ........... 26.40 ........... 23.97 1,425.69 ........... 1,306.50 T. M. Sinclair Company ............... 1,213,088.29 ........... 1,192,860.84 ........... 1,188,609.81 ........... 1,079,125.90 1,180,574.90 ........... 1,081,880.80 Sinclair Provision Company ............. ............. 3,510.50 ............. 3,827.58 ............. 3,827.58 None ............. 3,827.58 None Sinclair Sales Company ................. 269.27 ........... 1,199.94 ........... 1,199.94 ........... 1,089.41 1,199.94 ........... 1,099.63 Albert Lea Packing Company ............. 80,727.50 ........... 70,046.71 ........... 69,489.24 ........... 63,088.52 163,639.40 ........... 149,959.43 Ashland Rendering Company .............. ............. 509.57 ............. 509.57 ............. 509.57 None ............. 509.57 None Atlantic Lard Company .................. 3,913.25 ........... 3,906.87 ........... 3,906.87 ........... 3,547.00 3,906.87 ........... 3,580.27 Central Rendering Company .............. 1,473.37 ........... 1,063.57 ........... 1,063.57 ........... 965.60 3,261.00 ........... 2,988.38 Central Union Stock Yards Company ...... 17,760.26 ........... 51,087.38 ........... 50,966.54 ........... 46,271.97 50,966.54 ........... 46,705.82 Connellsville Stock Yards Company ...... 3,913.01 ........... ............. 2,583.47 ............. 2,583.47 None ............. 2,583.47 None Continental Cartage Company ............ ............. 2,023.83 ............. 3,297.17 ............. 3,297.17 None ............. 3,297.17 None Drexel Packing Company ................. 8,211.20 ........... 8,407.76 ........... 8,232.45 ........... 7,474.15 8,114.32 ........... 7,435.98 Empire Provision Produce Company ..... None ........... None ........... None ........... None None ........... None Fame Canning Company ................... 265,954.32 ........... 275,721.82 ........... 275,721.82 ........... 250,324.84 289,606.81 ........... 265,396.16 General Rendering Company .............. 37,571.56 ........... 37,432.05 ........... 37,432.05 ........... 33,984.15 43,334.81 ........... 39,712.09 Gotham Hotel Supply Company ............ ............. 4,290.56 ............. 4,524.12 ............. 4,524.12 None ............. 4,524.12 None Haberman Company ....................... 30,766.83 ........... 24,217.25 ........... 24,217.25 ........... 21,986.58 41,369.10 ........... 37,910.71 Joseph Levy Company .................. 1,388.12 ........... 1,072.81 ........... 1,072.81 ........... 973.99 2,041.80 ........... 1,871.11 Merchants Cold Storage Warehouse Co. . 10,732.81 ........... 15,405.16 ........... 15,405.16 ........... 13,986.18 18,036.30 ........... 16,528.50 Mississippi Packing Company ............ ............. 142,822.45 ............. 151,211.45 ............. 151,211.45 None ............. 148,452.10 None Morton Gregson Company ................. 437,575.75 ........... 451,769.20 ........... 445,883.07 ........... 404,812.38 562,749.70 ........... 515,704.76 Nebraska City Union Stock Yards Co. .... 6,522.87 ........... 6,301.60 ........... 6,301.60 ........... 5,721.15 6,301.60 ........... 5,774.80 Pennsylvania Investors Company ......... 804.90 ........... 5,525.03 ........... 5,525.03 ........... 5,016.12 17,299.77 ........... 15,853.54 John Reardon Sons Company ............ 21,752.69 ........... 29,792.99 ........... 28,713.32 ........... 26,068.51 47,945.85 ........... 43,937.65 Paul O. Reymann Company ................ ............. 134,319.46 ............. 139,122.85 ............. 139,122.85 None ............. 116,025.30 None South Dakota Provision Company ......... 70,215.76 ........... 83,660.27 ........... 83,660.27 ........... 75,954.25 88,894.22 ........... 81,462.81 Standard Beef Company .................. 42.64 ........... ............. 4,006.57 ............. 4,006.57 None ............. 3,594.00 None Standard Provision Company ............. None ........... ............. 2,026.87 ............. 2,270.26 None ............. 2,270.26 None Steifel O'Mara Company ................. ............. 1,492.19 ............. 2,154.28 ............. 2,154.28 None ............. 2,154.28 None Sulzberger Products Company ............ 35,753.88 ........... 35,753.88 ........... 35,753.88 ........... 32,460.56 43,577.25 ........... 39,934.26 Union Lard Company ..................... 4,258.59 ........... 4,322.56 ........... 4,322.56 ........... 3,924.41 17,878.88 ........... 16,384.23 United States Fertilizer Company ....... None ........... None ........... None ........... None None ........... None Wilson Co. of California ............. 8,379.97 ........... 42,413.02 ........... 31,582.95 ........... 28,673.82 147,937.35 ........... 135,570.03 Wilson Co. of Louisville ............. ............. 371.22 ............. 371.22 ............. 371.22 None ............. 371.22 None Wilson Co. of Louisiana .............. 13,821.63 ........... 23,114.96 ........... 23,114.96 ........... 20,985.82 23,114.96 ........... 21,182.59 Wilson Co. of Oklahoma ............... ............. 104,201.84 ............. 142,178.09 ............. 142,178.09 None 305,270.76 ........... 279,750.63 Wilson Co. of Tennessee .............. 15,063.12 ........... 11,933.84 ........... 10,511.65 ........... 9,543.41 124,694.01 ........... 114,269.80 Wilson Car Lines ....................... ............. 158,304.77 ............. 65,590.21 ............. 70,183.05 None ............. 12,891.76 None Wilson Commission Company .............. ............. 9,142.49 ............. 9,142.49 ............. 9,142.49 None ............. 9,299.08 None ---------------------------------------------------------------------------------------------------------------------------------------------------------------- Consolidated group .................. 6,531,925.05 722,614.67 11,311,261.43 694,161.18 7,589,478.14 699,073.62 6,890,404.52 5,673,933.40 474,331.41 5,199,601.99 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 14. (a) The net income or net loss of each member of the consolidated group for the calendar year 1919, as determined by the Commissioner of Internal Revenue in the certificate of overassessment dated September 27, 1927, and as adjusted with taxpayer's contentions, is as follows, to wit: ----------------------------------------------------------------------------------------------------------- As determined September 27, 1927 ------------------------------------------------------------- Name of company Loss after absorption of Income Loss income ----------------------------------------------------------------------------------------------------------- Wilson Company, Inc. (New York) .......... ................... $3,863,272.17 $3,328,009.85 Wilson Company (New Jersey) .............. $36,985.22 ................... None Thomas E. Wilson Company ................. ................... 37,719.55 32,493.45 Hollister-Wilson Laboratories .............. ................... 90,954.91 78,352.97 Sells Sporting Goods Company ............... 17,486.02 ................... None Central Products Company ................... 1,262.89 ................... None T.M. Sinclair Company, Ltd. .............. ................... 94,125.68 81,064.42 Sinclair Provision Company ................. ................... 643.95 554.73 Sinclair Sales Company ..................... ................... 1,237.66 1,066.19 Albert Lea Packing Company ................. ................... 46,230.96 39,825.59 Ashland Rendering Company .................. None None None Altamont Packing Produce Company ......... 300.00 ................... None Atlantic Lard Company ...................... ................... 8,332.74 7,178.23 Central Rendering Company .................. None None None California-Nevada Cattle Feeding Company ... ................... 4.88 4.20 Central Union Stock Yards Company .......... 2,459.04 ................... None Connellsville Stock Yards Company .......... 20,289.79 ................... None Continental Cartage Company ................ ................... 3,087.27 2,659.52 Drexel Packing Company ..................... 21,667.44 ................... None Empire Provision Company ................... None None None Fame Canning Company ....................... 153,238.83 ................... None General Rendering Company .................. 36,921.39 ................... None Gotham Hotel Supply Company ................ ................... 34,008.17 29,296.29 Haberman Company, Inc. ..................... 39,764.72 ................... None Joseph Levy Company, Inc. ................ None None None Merchants Cold Storage Warehouse Company . None None None Mississippi Packing Company ................ ................... 153,544.92 132,271.03 Morton-Gregson Company ..................... 71,390.19 ................... None Nebraska City Union Stock Yards Company .... 7,306.33 ................... None Pennsylvania Investors Company ............. 4,049.51 ................... None John Reardon Sons Company ................ ................... 6,417.24 5,528.12 Paul O. Reymann Company .................... ................... 239,521.27 206,335.23 South Dakota Provision Company ............. ................... 107,097.16 92,258.68 Standard Beef Company ...................... ................... 32,896.54 28,338.67 Standard Provision Company ................. ................... 586.33 505.09 Steifel O'Mara Company ..................... 7,000.26 ................... None Sulzberger Products Company ................ 20,045.31 ................... None Union Lard Company ......................... ................... 14,474.57 12,469.10 United States Fertilizer Company ........... None None None Wilson Co. of California ................. ................... 380,472.30 327,757.28 Wilson Co. of Louisville ................. None None None Wilson Co. of Louisiana .................. 16,331.67 ................... None Wilson Co. of Oklahoma ................... ................... 653,642.51 563,079.35 Wilson Co. of Tennessee .................. 340,950.95 ................... None Wilson Car Lines ........................... ................... 227,436.07 195,924.45 Wilson Commission Company .................. ................... 10,651.46 9,175.68 Freeport Condensed Milk Company ............ 34,740.65 ................... None ------------------------------------------------------------- 832,190.21 6,006,358.31 5,174,168.10 ----------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- As adjusted with taxpayer's contentions ----------------------------------------------------------------- Name of company Loss after absorption of Income Loss Income --------------------------------------------------------------------------------------------------------------- Wilson Company, Inc. (New York) .......... ................... $5,767,271.25 $4,317,039.08 Wilson Company (New Jersey) .............. $571,571.77 ................... None Thomas E. Wilson Company ................. ................... 37,719.55 28,234.63 Hollister-Wilson Laboratories .............. ................... 70,336.35 52,649.64 Sells Sporting Goods Company ............... 17,486.02 ................... None Central Products Company ................... 1,517.68 ................... None T. M. Sinclair Company, Ltd. ............. ................... 87,802.27 65,723.60 Sinclair Provision Company ................. ................... 643.95 482.02 Sinclair Sales Company ..................... ................... 1,237.66 926.44 Albert Lea Packing Company ................. 78,660.02 ................... None Ashland Rendering Company .................. None None None Altamont Packing Produce Company ......... 1,893.88 ................... None Atlantic Lard Company ...................... ................... 7,514.51 5,624.92 Central Rendering Company .................. None None None California-Nevada Cattle Feeding Company ... 3,434.14 ................... None Central Union Stock Yards Company .......... 2,459.04 ................... None Connellsville Stock Yards Company .......... 20,289.79 ................... None Continental Cartage Company ................ ................... 3,087.27 2,310.95 Drexel Packing Company ..................... 22,361.28 ................... None Empire Provision Company ................... None None None Fame Canning Company ....................... 143,691.99 ................... None General Rendering Company .................. 44,783.15 ................... None Gotham Hotel Supply Company ................ ................... 27,826.42 20,829.22 Haberman Company, Inc. ..................... 47,087.87 ................... None Joseph Levy Company, Inc. ................ None None None Merchants Cold Storage Warehouse Company . None None None Mississippi Packing Company ................ ................... 105,254.81 78,787.54 Morton-Gregson Company ..................... 181,981.64 ................... None Nebraska City Union Stock Yards Company .... 7,306.33 ................... None Pennsylvania Investors Company ............. 24,629.55 ................... None John Reardon Sons Company ................ 23,377.14 ................... None Paul O. Reymann Company .................... ................... 172,223.30 128,916.20 South Dakota Provision Company ............. ................... 81,320.11 60,871.44 Standard Beef Company ...................... ................... 32,545.18 24,361.40 Standard Provision Company ................. ................... 586.33 438.89 Steifel O'Mara Company ..................... 7,949.95 ................... None Sulzberger Products Company ................ 32,014.64 ................... None Union Lard Company ......................... ................... 14,474.57 10,834.81 United States Fertilizer Company ........... None None None Wilson Co. of California ................. ................... 214,828.37 160,807.85 Wilson Co. of Louisville ................. None None None Wilson Co. of Louisiana .................. 31,987.84 ................... None Wilson Co. of Oklahoma ................... ................... 108,372.87 81,121.54 Wilson Co. of Tennessee .................. 435,063.13 ................... None Wilson Car Lines ........................... ................... 153,203.89 114,679.40 Wilson Commission Company .................. ................... 10,651.46 7,973.05 Freeport Condensed Milk Company ............ 34,740.65 ................... None ----------------------------------------------------------------- 1,734,287.50 6,896,900.12 5,162,612.62 --------------------------------------------------------------------------------------------------------------- (b) When the allowable net losses of the various affiliated companies for 1919 are applied to the net income of the appropriate companies in 1918, results are shown as set out in the following tabulation: ------------------------------------------------------------------------------------------------------- Income after absorption of Name of company Income (1918) Loss (1918) loss (1918) ------------------------------------------------------------------------------------------------------- Wilson Co., Inc. (New York) .......... $2,186,714.09 ................... $2,003,908.42 Wilson Co. (New Jersey) .............. 210,019.00 ................... 192,461.76 Thos. E. Wilson Co. .................. ................... $164,531.50 None Hollister-Wilson Laboratories .......... 54,462.11 ................... 49,909.17 Sells Sporting Goods Co. ............... 29,596.37 ................... 27,122.16 Central Products Co. ................... 1,425.69 ................... 1,306.50 T. M. Sinclair Co. ................... 1,180,574.90 ................... 1,081,880.80 Sinclair Provision Co. ................. ................... 3,827.58 None Sinclair Sales Co. ..................... 1,199.94 ................... 1,099.63 Albert Lea Packing Co. ................. 163,639.40 ................... 149,959.43 Ashland Rendering Co. .................. ................... 509.57 None Atlantic Lard Co. ...................... 3,906.87 ................... 3,580.27 Central Rendering Co. .................. 3,261.00 ................... 2,988.38 Central Union Stock Yards Co. .......... 50,966.54 ................... 46,705.82 Connellsville Stock Yards Co. .......... ................... 2,583.47 None Continental Cartage Co. ................ ................... 3,297.17 None Drexel Packing Co. ..................... 8,114.32 ................... 7,435.98 Empire Provision Produce Co. ......... None ................... None Fame Canning Co. ....................... 289,606.81 ................... 265,396.16 General Rendering Co. .................. 43,334.81 ................... 39,712.09 Gotham Hotel Supply Co. ................ ................... 4,524.12 None Haberman Co. ........................... 41,369.10 ................... 37,910.71 Joseph Levy Co. ...................... 2,041.80 ................... 1,871.11 Merchants Cold Storage Warehouse Co. . 18,036.30 ................... 16,528.50 Mississippi Packing Co. ................ ................... 148,452.10 None Morton Gregson Co. ..................... 562,749.70 ................... 515,704.76 Nebraska City Union Stock Yards Co. .... 6,301.60 ................... 5,774.80 Pennsylvania Investors Co. ............. 17,299.77 ................... 15,853.54 John Reardon Sons Co. ................ 47,945.85 ................... 43,937.65 Paul O. Reymann Co. .................... ................... 116,025.30 None South Dakota Provision Co. ............. 88,894.22 ................... 81,462.81 Standard Beef Co. ...................... ................... 3,594.00 None Standard Provision Co. ................. ................... 2,270.26 None Steifel O'Mara Co. ..................... ................... 2,154.28 None Sulzberger Products Co. ................ 43,577.25 ................... 39,934.26 Union Lard Co. ......................... 17,878.88 ................... 16,384.23 United States Fertilizer Co. ........... None ................... None Wilson Co. of California ............. 147,937.35 ................... 135,570.03 Wilson Co. of Louisville ............. ................... 371.22 None Wilson Co. of Louisiana .............. 23,114.96 ................... 21,182.59 Wilson Co. of Oklahoma ............... 305,270.76 ................... 279,750.63 Wilson Co. of Tennessee .............. 124,694.01 ................... 114,269.80 Wilson Car Lines ....................... ................... 12,891.76 None Wilson Commission Co. .................. ................... 9,299.08 None Altamont Packing Produce Co. ......... ................... ................... None California-Nevada Cattle Feeding Co. ... ................... ................... None Freeport Condensed Milk Co. ............ ................... ................... None ------------------------------------------------------------- 5,673,933.40 474,331.41 5,199,601.99 ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ Loss after Loss not absorption of applicable to 1918 taxable Name of company income (1919) 1918 (1919) Income ------------------------------------------------------------------------------------------------ Wilson Co., Inc. (New York) .......... $4,317,039.08 $2,313,130.66 None Wilson Co. (New Jersey) .............. None $192,461.76 Thos. E. Wilson Co. .................. 28,234.63 28,234.63 None Hollister-Wilson Laboratories .......... 52,649.64 2,740.47 None Sells Sporting Goods Co. ............... None ................... 27,122.16 Central Products Co. ................... None ................... 1,306.50 T. M. Sinclair Co. ................... 65,723.60 ................... 1,016,157.20 Sinclair Provision Co. ................. 482.02 482.02 None Sinclair Sales Co. ..................... 926.44 ................... 173.19 Albert Lea Packing Co. ................. None ................... 149,959.43 Ashland Rendering Co. .................. None ................... None Atlantic Lard Co. ...................... 5,624.92 2,044.65 None Central Rendering Co. .................. None ................... 2,988.38 Central Union Stock Yards Co. .......... None ................... 46,705.82 Connellsville Stock Yards Co. .......... None ................... None Continental Cartage Co. ................ 2,310.95 2,310.95 None Drexel Packing Co. ..................... None ................... 7,435.98 Empire Provision Produce Co. ......... None ................... None Fame Canning Co. ....................... None ................... 265,396.16 General Rendering Co. .................. None ................... 39,712.09 Gotham Hotel Supply Co. ................ 20,829.22 20,829.22 None Haberman Co. ........................... None ................... 37,910.71 Joseph Levy Co. ...................... None ................... 1,871.11 Merchants Cold Storage Warehouse Co. . None ................... 16,528.50 Mississippi Packing Co. ................ 78,787.54 78,787.54 None Morton Gregson Co. ..................... None ................... 515,704.76 Nebraska City Union Stock Yards Co. .... None ................... 5,774.80 Pennsylvania Investors Co. ............. None ................... 15,853.54 John Reardon Sons Co. ................ None ................... 43,937.65 Paul O. Reymann Co. .................... 128,916.20 128,916.20 None South Dakota Provision Co. ............. 60,871.44 ................... 20,591.37 Standard Beef Co. ...................... 24,361.40 24,361.40 None Standard Provision Co. ................. 438.89 438.89 None Steifel O'Mara Co. ..................... None ................... None Sulzberger Products Co. ................ None ................... 39,934.26 Union Lard Co. ......................... 10,834.81 ................... 5,549.42 United States Fertilizer Co. ........... None ................... None Wilson Co. of California ............. 160,807.85 25,237.82 None Wilson Co. of Louisville ............. None ................... None Wilson Co. of Louisiana .............. None ................... 21,182.59 Wilson Co. of Oklahoma ............... 81,121.54 ................... 198,629.09 Wilson Co. of Tennessee .............. None ................... 114,269.80 Wilson Car Lines ....................... 114,679.40 114,679.40 None Wilson Commission Co. .................. 7,973.05 7,973.05 None Altamont Packing Produce Co. ......... None ................... None California-Nevada Cattle Feeding Co. ... None ................... None Freeport Condensed Milk Co. ............ None ................... None ------------------------------------------------------ 5,162,612.62 2,750,166.90 2,787,156.27 ------------------------------------------------------------------------------------------------ 15. In December, 1918, plaintiff issued, at 95, $20,000,000 par value ten-year convertible sinking fund 6 per cent. gold bonds dated December 1, 1918, and maturing December 1, 1928, bearing interest at the rate of 6 per cent. per annum from December 1, 1918, payable semiannually on the 1st day of June and the 1st day of December in each year. In the trust indenture securing these bonds, the company covenanted that the assets of it and its affiliated corporations should be liable for the payment of the said bonds and should be maintained at a stated amount, and that it, the parent, would continue its entire ownership and control of the stock of its affiliated corporations.

Plaintiff entered into an underwriting agreement with a syndicate of bankers to underwrite the above issue for an agreed compensation of 4 per cent. of the issue, or $800,000. Under the terms of the agreement, plaintiff delivered to the syndicate its check for $800,000 on December 27, 1918, which was paid in due course.

In connection with the issuance of these bonds and with other financing, plaintiff incurred costs, the full amount of which was not known in 1918.

Such costs were:

Paid in 1918: Commission ................................ $800,000.00 Tax on new financing ...................... 5,000.00 Mortgage tax on new bond issue ............ 5,669.00 Tax in connection with new bond issue ..... 5,000.00 Paid in 1919: Legal expense ............................. 42,504.53 Bond engraving ............................ 780.00 Bond engraving ............................ 1,125.00 Bond engraving ............................ 832.50 Engraving expense ......................... 2,075.00 Expense preparing list of stockholders .... 901.56 Legal expense recording mortgage bonds .... 241.00 Recording mortgage ........................ 111.50 Sundry charges — Guaranty Trust Co. . 4,199.12 Recording fee ............................. 6.00 Registration fees, cable, postage, insurance ................................ 3,029.50 Recording mortgages ....................... 144.01 Authentication of $20,000,000 bonds ....... 6,000.00 Services as agent in selling bonds ........ 3,000.00 Fees listing bonds on N. Y. Stock Exchange ................................. 1,050.00 Services of sinograph on bonds ............ 300.00 Taxi, express, postage, insurance, and registrar, trustee, and certification .... 8,961.52 Cost of printing bonds .................... 5,192.08 Certification fee ......................... 2,012.50 Printing applications for listing bonds ... 122.50 Postage and insurance ..................... 217.49 Correcting postage and insurance .......... 9.12 ---------- Total .................................. 898,483.93 Credits: Interest ....................... $365.59 Express charge ................. 28.71 ------- 394.30 ---------- Total costs paid .................... 898,089.63

In his determinations of June 4, 1925, and September 27, 1926, the Commissioner amortized the foregoing costs over the life of the bonds to which they were applicable, and allowed deductions to plaintiff on account of such amortization of $7,538.58 for 1918 and $88,721.08 for 1919.

16. During the year 1918 plaintiff and its affiliated corporations incurred liabilities for interest due to persons not members of the consolidated group in the amount of $5,594,452.94. During the year 1919 plaintiff and its affiliated corporations incurred liabilities for interest due to persons not members of the consolidated group in the amount of $6,098,378.16.

The interest for the years 1918 and 1919 was set up as a liability on the books of the parent, being charged to a "general interest account." Against this interest there was from time to time credited that portion of such interest as was by agreement between the parent and its affiliated corporations charged against such affiliated corporations.

The respective amounts so charged against the affiliated corporations were as follows:

-------------------------------------------------------------- Net amount charged against the affiliated corporation during the year Name of affiliated corporation against which interest was charged ---------------------------- 1918 1919 --------------------------------------------------------------

Albert Lea Packing Company ..... $66,137.66 $70,790.64 Altamont Produce Packing Company ....................... ............ 1,593.88 Atlantic Lard Company .......... ............ 818.23 California-Nevada Cattle Company ............ 3,439.02 Central Products Corporation ... 1,399.29 254.79 Drexel Packing Company ......... ............ 828.35 Fame Canning Company ........... 364.84 9,546.84 Gotham Hotel Supply Company, Inc. .......................... ............ 6,181.75 Haberman Company Inc. .......... 8,220.32 3,064.51 Hollister-Wilson Laboratories .. 3,913.13 15,032.59 Joseph Levy Company, Inc. .... 341.15 ............ Merchants Cold Storage Warehouse Corp. ............... 92.78 ............ Mississippi Packing Company, Inc. .......................... 15,089.81 22,591.67 Morton-Gregson Company ......... 79,530.00 48,780.08 Pennsylvania Investors Company . 11,774.74 20,580.04 John Reardon Sons Company .... 10,989.36 17,698.48 Paul O. Reymann Company ........ 19,890.87 41,522.50 South Dakota Provision Company . 4,061.84 12,807.64 Standard Beef Company .......... 412.57 351.36 Steifel O'Mara Company, Inc. ... ............ 949.69 Sulzberger Products Company .... 1,823.09 5,969.05 Union Lard Corporation ......... 7,262.85 ............ Wilson Car Lines ............... 104,325.33 70,165.85 Wilson Company ............... 11,377.72 ............ Wilson Company (New Jersey) .. ............ 534,586.55 Wilson Company, Inc., of Louisiana ..................... ............ 15,656.17 Wilson Co., Inc., of California .................... 69,096.45 88,739.79 Wilson Co., Inc., of Tennessee 92,959.48 57,275.89 Wilson Co., Inc., of Oklahoma 349,087.57 288,162.75 ---------------------------- Totals ....................... 857,994.26 1,318,294.43 --------------------------------------------------------------

The Commissioner of Internal Revenue in the audit letter of June 4, 1925, and in the certificate of overassessment of September 27, 1927, in computing the separate net incomes or net losses of the members of the affiliated group, did not deduct from the income of plaintiff the amounts ($857,994.26 for 1918 and $1,318,294.43 for 1919) so charged against its affiliated corporations, but did deduct from the income of each of such affiliated corporations the amount so charged against it.

The amount of interest with which each of such affiliated corporations was to be charged was determined by computing each month interest at 6 per cent. on the balances then outstanding between the parent corporation and the affiliated corporations. This procedure resulted in the above-mentioned net charges for the year being made against the affiliated corporations above named, and also resulted in there being a net credit to Wilson Commission Company for the year 1918 of $156.59, which the Commissioner treated as income of Wilson Commission Company and as an allowable deduction from the income of plaintiff.

There was during the year 1918 credited by plaintiff on its books to Frigorifico Wilson de la Argentina, a foreign corporation, whose entire capital stock was owned by plaintiff, the sum of $322,543.22 as interest. In making the consolidated tax return for 1918, plaintiff deducted the said $322,543.22, as interest accrued, and the Commissioner of Internal Revenue in his audit letter dated June 4, 1925, disallowed the said deduction and included the sum of $322,724.05 in income for the stated reason that the facts collected in this case did not indicate that these particular debits to income conformed to the form of interest contemplated by section 214 of the Revenue Act of 1918 ( 40 Stat. 1066). The difference between the amount deducted by the taxpayer on its return and the amount included in income by the Commissioner of Internal Revenue is due to an adjustment not taken into account in his audit letter.

17. During the year 1918 plaintiff incurred liabilities for salaries of its officers and executives and for other general administrative expenses such as traveling expenses, national advertising, legal expenses, etc., payable to persons not members of the consolidated group, in the amount of $1,668,614.92. During the year 1919 plaintiff incurred similar liabilities in the sum of $2,256,573.29.

These expenses were set up as liabilities on the books of the parent, and against them was credited from time to time that portion of such expenses as was by arrangement between the parent and its affiliated corporations charged against such affiliated corporations. The respective amounts so charged against the affiliated corporations were as follows:

-------------------------------------------------------------- Amount charged during the year Name of affiliated corporation ------------------------ against which expense is charged 1918 1919 --------------------------------------------------------------

Albert Lea Packing Company ......... $26,507.40 $55,615.91 Central Rendering Company .......... 2,197.43 ........... Fame Canning Company ............... 13,520.15 ........... General Rendering Company .......... 5,902.76 7,861.76 Haberman Company, Inc. ............. 6,950.10 6,158.10 Hollister-Wilson Laboratories ...... ........... 5,585.97 Joseph Levy Company .............. 627.84 ........... Merchants Cold Storage Warehouse Company ........................... 2,538.36 ........... Mississippi Packing Company ........ 5,332.95 8,045.03 Morton-Gregson Company ............. 37,336.63 61,811.37 John Reardon Sons Company ........ 8,243.17 12,095.90 Paul O. Reymann Company ............ 16,486.30 12,672.24 South Dakota Provision Company ..... 2,367.87 11,786.69 Sulzberger Products Company ........ 6,000.28 6,000.28 Union Lard Corporation ............. 6,293.47 ........... Wilson Car Lines ................... 4,230.82 ........... Wilson Company of California ..... 50,590.33 73,605.12 Wilson Company of Oklahoma ....... 148,935.50 238,111.51 Wilson Company of Tennessee ...... 25,214.35 32,844.85 ------------------------ Total ........................... 369,275.71 532,194.73 -------------------------------------------------------------- The Commissioner of Internal Revenue in the audit letter of June 4, 1925, and in the certificate of overassessment of September 27, 1927, in computing the separate net incomes and net losses of the members of the affiliated group, did not deduct from the income of plaintiff $369,275.71 for the year 1918 and $532,194.73 for the year 1919 charged as aforesaid against the affiliated corporations, but he did deduct from the income of each of the affiliated corporations the amount so charged against it.

18. (a) Plaintiff and certain of its subsidiary corporations made expenditures after April 6, 1917, for facilities contributing to the prosecution of the war, and in the consolidated return as filed for 1918 claimed a deduction for amortization on such facilities of $393,217.31. In the first examination of the deduction for amortization the examining engineer of the Bureau of Internal Revenue recommended its disallowance in its entirety on the ground that plaintiff had failed to furnish information to substantiate the amount claimed. February 28, 1924, plaintiff filed the claim for refund referred to in finding 9, in which a deduction was claimed for amortization of $2,319,146.13 for 1918 and $557,385.73 for 1919. Thereafter an engineer of the Bureau of Internal Revenue made an examination of the claim for amortization, and on November 20, 1924, submitted a report recommending an allowance for amortization of $537,049.11. The report was thereafter considered by the Commissioner in connection with audits which were made for 1918 and 1919. In his letter of June 4, 1925, referred to in finding 10 and in the certificate of overassessment issued September 27, 1927, referred to in finding 12, the Commissioner in computing the separate net income or net losses of certain members of the affiliated group allowed deductions from gross income on account of amortization as follows:

-------------------------------------------------------------- 1918 1919 --------------------------------------------------------------

Wilson Co., Inc. ................ $233,906.63 $31,784.34 Thomas E. Wilson Co. ............ 5,905.74 ........... T. M. Sinclair Co., Ltd. ........ 13,039.01 6,316.76 Albert Lea Packing Co., Inc. ...... 9,962.06 229.03 Haberman Co., Inc. ................ 6,226.20 ........... Mississippi Packing Co., Inc. ..... 16,867.05 17,653.41 Paul O. Reymann Co. ............... 6,657.10 13,103.23 South Dakota Provision Co. ........ 16,886.32 1,182.72 Wilson Co., Inc., of California . 4,316.21 3,299.02 Wilson Co., Inc., of Oklahoma ... 67,594.43 17,319.50 Wilson Co., Inc., of Tennessee .. 971.67 11,042.96 ------------------------- Total .......................... 382,332.42 101,931.47 --------------------------------------------------------------

(b) Prior to the issuance of the aforementioned certificate of overassessment on September 27, 1927, namely, June 2, 1927, plaintiff filed its original petition in this suit, in which it contended that it was entitled to have the entire amount of tax paid for 1918 refunded to it because it and the other affiliated corporations had sustained net losses for 1919 which, when applied to the consolidated net income for 1918, were more than sufficient to extinguish all tax liability for 1918. While this suit was pending, plaintiff, in May, 1928, requested the Bureau of Internal Revenue to make a recomputation of the allowance for amortization in accordance with the decision of the United States Board of Tax Appeals in the Appeal of Manville Jenckes Company, 4 B.T.A. 765, and submitted certain data and a brief in support of its contention. No action, however, was taken on that request until after August 8, 1928, at which time of the General Counsel of the Bureau of Internal Revenue made the following request for a recomputation by the Income Tax Unit:

"There is returned herewith the administrative file in the above-entitled case for further consideration by the Audit Review Section.

"As the Commissioner has acquiesced in the decision of the Board in the Manville Jenckes Case, it might be possible that a reaudit in the light of that decision would settle the amortization question. It is the opinion of this office that it will be agreeable to the taxpayer to have the amortization question determined in accordance with the Manville Jenckes Case.

"It would seem possible for your Section to handle the claims arising under the intercompany transactions and make any proper adjustments in that regard.

"Your attention is called to the question of sale of stock of affiliated companies, and you are requested to take that question under consideration in your reaudit.

"There will be found in the file a brief recently submitted by counsel for the taxpayer, in which all of the above questions are discussed. Your attention is particularly directed to that brief.

"You are requested to make a reaudit of this case as expeditiously as possible and when the same has been completed return the case to this office, together with report of your conclusions."

(c) Upon receipt of the request from the General Counsel, the case was referred to an amortization engineer for a recomputation of the amortization allowance under the decision of the Board referred to and on the basis of the data submitted by plaintiff. Thereafter, as a result of a request on the part of the amortization engineer, additional data was submitted by plaintiff. The additional data was submitted in a letter of September 19, 1928, one paragraph of which reads as follows: "We trust that you will be able to submit tentative recomputation at an early date as we are quite anxious to get this whole case out of the way and finally disposed of."

No new examination was made by the engineer, the auditor, or by any other representative of the Bureau of Internal Revenue for the purpose of the recomputation, but the recomputation was based upon the information theretofore available and that submitted by plaintiff in connection with its request for reconsideration.

(d) November 10, 1928, an amortization engineer submitted a revised report which stated that "the allowances recommended in this report as amortization of war facilities are only tentative, being made at the request of the office of the General Counsel." The amortization as computed for allowance in that report was as follows:

Wilson Co., Inc. ....................... $564,806.51 Thomas E. Wilson Co. ................... 6,745.79 T. M. Sinclair Co., Ltd. ............... 21,073.92 Albert Lea Packing Company ............... 10,201.56 Haberman Co., Inc. ....................... 6,144.23 Mississippi Packing Co., Inc. ............ 34,530.46 Paul O. Reymann Company .................. 19,936.72 South Dakota Provision Company ........... 18,082.08 Wilson Co., Inc., of California ........ 7,648.59 Wilson Co., Inc., of Oklahoma .......... 118,168.65 Wilson Co., Inc., of Tennessee ......... 12,014.06 Drexel Packing Company ................... 252.64 Wilson Car Lines ......................... 51,264.86 ---------- Total ................................. 870,870.67

The report was signed by the amortization engineer, the chief of the section to which the amortization engineer was assigned, and also by a reviewer from an audit section. A copy of the report was forwarded to plaintiff November 12, 1928, but no further action was taken thereon by the Bureau of Internal Revenue, and the additional allowances set out therein have not been made by the Commissioner.

19. During the year 1919 the corporations named below received nontaxable incomes and in amounts as follows, to wit:

Wilson Co., Inc., a New York Corporation . $135,821.89 T. M. Sinclair Co., Ltd. ................... 3,274.34 Steifel O'Mara Co. ......................... 55.40 Sulzberger Products Co. .................... 28.00

20. Wilson Co. (N. J.), an affiliated corporation, had during the year 1919 set up on its books as an asset claims against plaintiff amounting to $198,912.61; Wilson Co., Inc., of Louisiana, an affiliated corporation, had during the year 1919 set up on its books as an asset claims against plaintiff amounting to $10,011.14, or a total of $208,923.75.

In preparing the tax return for 1919, plaintiff deducted $161,156.61, representing branch house claims. The Commissioner of Internal Revenue disallowed this entire amount of $161,156.61, thereby adding that amount back to the taxable income reported.

21. The invested capital of the consolidated group for 1918 as finally determined by the Commissioner was $27,711,367.47. The excess profits credits was $2,219,90940, and the war profits credit was $2,774,136.75.

22. The evidence shows that the conduct of the plaintiff in its transactions with the defendant was such as would naturally cause the defendant's officials to believe that there was an agreement that plaintiff should pay the consolidated tax of the group for 1918 and that plaintiff acquiesced in this tax being assessed against it. The evidence further shows that the officials of the defendant acted in accordance with such belief in all of the transactions had with the plaintiff with reference to the consolidated taxes of the affiliated group for the years 1918 and 1919.

23. From all of the evidence, the court finds as an ultimate fact that there was an agreement between Wilson Co., the parent corporation, and the subsidiary corporations that the consolidated tax for 1918 should be paid by the plaintiff.

William R. Brown, of Chicago, Ill. (Covington, Burling Rublee, of Washington, D.C. on the briefs), for plaintiff.

John W. Hussey, of Washington, D.C. and Frank J. Wideman, Asst. Atty. Gen. (T. H. Lewis, of Washington, D.C. on the brief), for the United States.

Before BOOTH, Chief Justice and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.

GREEN, Judge.

The plaintiff is the successor to the corporation of the same name engaged in what is commonly called the packing house business and seeks to recover income and profits tax which was paid by its predecessor for the year 1918. For convenience both in the findings and the opinion the name "plaintiff" is used as applying both to the old corporation, which was a New York corporation existing in 1918 and continuing in existence until 1926, and also to the plaintiff in this action, a Delaware corporation of the same name which acquired the assets of the New York corporation.

The original corporation owned all the stock of some forty-four corporations, the names of which appear in the findings, and for each of these years filed on behalf of itself and these corporations a consolidated return for income and profits tax purposes. The return for 1918 showed a consolidated net income for the group upon which a tax was paid by plaintiff. The return for 1919 made in the same manner showed a loss. In 1919 the plaintiff paid part of the tax shown to be due for 1918 and filed a claim in abatement for the balance amounting to $1,016,629.82, and about June 13, 1919, each member of the affiliated corporations in the consolidated group except the plaintiff, as parent corporation, filed an information return for the year 1918, and in reply to a question propounded on the form used as follows: "9. State the amount of income and profits taxes for the taxable year apportioned to the subsidiary or affiliated corporation making the return," made answer, "None." After the filing of the returns mentioned above and before this suit was commenced, there were proceedings on behalf of the plaintiff and the government, and among others the plaintiff filed claims for refund and abatement, the revenue officers made examination of the returns, and the Commissioner determined and assessed an additional tax for 1918. This suit was begun June 7, 1927, by filing a petition in which plaintiff sought to recover the entire tax paid for 1918 on the ground that the consolidated group for which it had made a return had sustained a net loss for 1919 which should be deducted from the net income of the group for 1918, and that, when such application was made as provided by section 204 of the Revenue Act of 1918 ( 40 Stat. 1060), the result would show no tax liability for 1918, and accordingly the tax paid that year by plaintiff should be refunded. The Commissioner considered the claims and protests filed by plaintiff, and on September 27, 1927, issued a certificate of overassessment which showed that a part of the tax paid for 1918 was refundable, and refund was accordingly made to the plaintiff. The suit, however, was continued, as plaintiff still contended that the whole amount which it had paid should be refunded. March 21, 1932, the amended and supplemental petition upon which the case is now submitted was filed. The amended petition alleged many errors in computing the taxes of the plaintiff and its subsidiaries for the years 1918 and 1919, which, if corrected in accordance with plaintiff's contentions, would show that no taxes whatever were due from the plaintiff for the year 1918. It is not necessary at this point to set out these claims in detail, but it should be said that the amended petition introduced an issue which defendant claims was not covered by the original petition and at least had not been mentioned in the proceedings between the parties up to the time of the filing of the amended petition. This issue relates to the manner in which the Commissioner computed the consolidated tax for the year 1918, all of which was assessed against the plaintiff. The precise nature of plaintiff's claim will appear when we consider further the facts in the case. Much of the argument made by the respective parties is devoted to questions relating to the propriety of certain allowances and deductions which plaintiff claims should have been made in computing the taxes in controversy. It will not be necessary, however, to consider these matters until other issues which may be decisive of the case have been determined.

The plaintiff contends that it was not liable for any taxes whatever for the year 1918. The defendant insists, on the contrary, that under the facts in the case the plaintiff was obligated to pay all of the taxes due for that year from the several members of the affiliated group and also that the plaintiff cannot now be heard to deny its liability for these taxes. In discussing the issues so raised, it will be necessary to state the facts more in detail.

The consolidated return which was filed for the year 1918 by the plaintiff on behalf of itself and the affiliated companies showed that in that year the plaintiff and most of the affiliated companies realized a profit, but some of the companies sustained a loss, and similar results were shown when the Commissioner made his final determination of the tax on September 27, 1927. In making his computation, the Commissioner simply deducted the aggregate net losses of the several companies which had not been profitable from the total net income of the other companies for the same year. The difference was $6,890,404.52, which he determined was the net income of all of the affiliated corporations for 1918 before applying the 1919 net loss. The Commissioner proceeded in the same manner in determining the situation in 1919. In that year the total of the losses exceeded the aggregate net income by $5,174,168.10, which the Commissioner found was the consolidated net loss for that year. The Commissioner then deducted the total consolidated net loss for 1919 from the total consolidated net income for 1918, thus showing a taxable consolidated net income for 1918 of $1,716,236.42. Upon this revised consolidated net income he computed the tax liability for the group, and, since the tax thus determined was less than the tax which had been paid by plaintiff, the difference was refunded to plaintiff. In so computing the tax, the Commissioner was in error. In the case of Swift Co. v. United States, 38 F.2d 365, 69 Ct.Cl. 171, 191, we held that in an affiliated group the individual corporations are the taxpayers, that the group is merely a tax computing unit and not a taxable unit, and that accordingly no basis exists under section 204 of the Revenue Act of 1918 for a group application of a consolidated net loss for 1919 to a consolidated net income for 1918 for the purpose of ascertaining the tax. The Commissioner of Internal Revenue has acquiesced in the rule laid down in Swift Co. v. United States, supra, and it has been approved by the courts. Cf. Delaware Hudson Co. v. Commissioner, 26 B.T.A. 520, affirmed (C.C.A.) 65 F.2d 292, Woolford Realty Co. v. Rose, 286 U.S. 319, 52 S.Ct. 568, 76 L.Ed. 1128, and Planters' Cotton Oil Co. v. Hopkins, 286 U.S. 332, 52 S.Ct. 509, 76 L. Ed. 1135. It follows in cases like the one before us that, where an affiliated company sustained a net loss for 1919, it should be deducted from the individual net income of the same company for 1918, and, if it had no income for that year, there could be no deduction.

Plaintiff contends that certain adjustments other than those made by the Commissioner should have been allowed in computing its income. For the purposes of the argument, it may be assumed that these adjustments should have been made, and we have set out in findings 13 and 14 an itemized statement of the determination of the Commissioner with reference to the income or loss of each company for the years 1918 and 1919 and also a computation thereof in accordance with the contentions of the taxpayer for each of these years. Finding 14(b) also includes a computation of 1918 taxable income in which allowable net losses of the various affiliated companies for 1919 are applied to the net income of the appropriate companies for 1918. From this computation it appears that a substantial part of the net loss of the group for 1919 is not allowable as a deduction for 1918, with the result that the consolidated net income for 1918, after applying the net losses of the several companies for 1919 to the extent to which they are allowable, is $2,787,156.27. The Commissioner's determination of the tax was based upon his computation of a consolidated net income of $1,716,236.42, but the recomputation of the tax liability for the group as set out in finding 14(b) shows an aggregate liability for the affiliated group for a greater amount than that previously determined by the Commissioner. In other words, so far as the total tax which should have been paid by the group as a whole is concerned, it has been underpaid instead of being overpaid.

Plaintiff does not question that, even when effect is given in its favor of all of the adjustments contended for, and the principles of the Swift Co. Case are applied, the total of the tax liabilities of all of the affiliated companies would be greater than the amount which was finally collected as the tax upon the group as a whole. The argument is that, so far as plaintiff individually is concerned, its allowable net loss for 1919 was in excess of its net income for 1918, that under the law as it then stood it was entitled to have its loss for 1919 deducted or set off against the income for 1918,¹ and therefore it had no income for 1918. Upon this basis it is insisted that plaintiff is not liable for any tax whatever for the year 1918 and that the whole amount paid by it should be refunded. Plaintiff paid all of the tax which has been paid for the group. The affiliated companies paid nothing, and it is contended that plaintiff cannot be liable for the taxes of the affiliated corporations unless there was an agreement between all parties concerned that a tax should be paid by the parent company. It is insisted that there was no such agreement and consequently no liability.

1 See section 204(b), Revenue Act of 1918 ( 40 Stat. 1061).

Whether there was such an agreement is obviously a question of fact to be determined from all of the evidence. The conclusion of the Commissioner as to the method of computing the tax is prima facie correct, and the burden of establishing the nonexistence of such an agreement is upon the plaintiff. On this point it may be said that it is not necessary that the agreement should be in writing. It may be implied or inferred from the established facts in the case and the conduct of the parties under all of the circumstances shown by the evidence. In this case plaintiff, as parent of the affiliated group, owned all the stock of the subsidiary corporations and controlled the policy and managed the business of each. The books of the affiliated corporations were kept and their tax returns were made under the direct supervision and control of plaintiff. In many instances the officers of the subsidiary corporations were also officers of the parent corporation. The consolidated return for 1918, which included the net income of plaintiff and the other corporations, was filed by plaintiff, and no indication was made therein other than that the tax should be assessed against and paid by plaintiff. On the contrary, it stated that plaintiff was the taxpayer, and the tax was accordingly so assessed. Plaintiff paid a part of the tax and filed a claim in abatement for the balance. No question was raised as to the propriety of the assessment against or payment by plaintiff. The subsidiary corporations whose every action was controlled by plaintiff also filed information returns in which it was stated that none of the taxes of the consolidated group was to be apportioned to them. In accordance with these proceedings no tax was assessed against or paid by the subsidiary corporations.

At all times the tax liability in the case has been considered and dealt with by the Commissioner without any objection by plaintiff on the basis that the entire tax was to be assessed against the parent company. When the Commissioner determined a deficiency, an exhaustive protest was filed by plaintiff, not on the ground that it was not liable, but on the ground that the assessment was excessive. Acting on this protest, an overassessment was determined in favor of plaintiff and a refund made. The facts recited above amply support the conclusion that there was an agreement that the entire tax was to be apportioned to plaintiff and paid by it. The only evidence to the contrary is the testimony of the attorney who had supervision of the preparation of the returns in question and who now appears as counsel for plaintiff in this proceeding. It may be that no written or formal agreement of any kind was ever entered into as to the apportionment, but, in view of the fact that the plaintiff owned all the stock of the other affiliated corporations and controlled their actions, the filing of the consolidated and information returns and the subsequent acts of the parties in conformity therewith are clearly sufficient to establish an implied agreement and justify the Commissioner in allocating the entire tax to plaintiff. The circumstantial evidence outweighs the direct testimony.

The same question of fact has often been before the courts in other cases. The evidence presented in the instant case is at least as strong in favor of the action of the Commissioner as it was in any of them. In many of these cases an official of the parent corporation testified that there was no agreement, but it was held that this formal testimony was not sufficient to overcome the presumption in favor of the Commissioner's action and the circumstantial evidence. See Woodside Cotton Mills Co. v. Commissioner, 13 B.T.A. 266; Bermont Oil Co. v. Commissioner, 22 B.T.A. 182; Furniture Exhibition Building Co. et al. v. Commissioner, 24 B.T.A. 1279; Washburn Wire Co. v. Commissioner, 26 B.T.A. 464, and Id., 26 B.T.A. 1146, affirmed on this issue (C.C.A.) 67 F.2d 658; Himelhoch Brothers Co. v. Commissioner, 26 B.T.A. 541; In re Temtor Corn Fruit Products Co. (D.C.) 299 F. 326, and Popular Price Tailoring Co. v. Commissioner (C.C.A.) 33 F.2d 464.

It seems clear also that the plaintiff is now estopped from claiming that the taxes which it paid should be refunded. We have shown above that the plaintiff made a consolidated return referring to itself as the taxpayer in accordance with which the tax was assessed against it; that the subsidiary companies controlled by the plaintiff made only information returns stating that no part of the tax was to be paid by them; that plaintiff, not disputing its liability, paid part of the tax and filed a claim in abatement as to the remainder, which claim was allowed and no further payment made; that its protest against the deficiency assessed by the Commissioner was not on the ground that it was no liable, but under a claim that even the amount which it had paid was excessive; and that it filed a claim for refund which was allowed in part by the Commissioner and a large sum returned to plaintiff. Not until the amended and supplemental petition was filed did the defendant receive any notice that plaintiff claimed not to be liable for any tax by reason of the fact that its individual losses for 1919 exceeded its individual profits for 1918 and that the basic computation of its tax was wrong. The amended and supplemental petition was not filed until March 21, 1932. The statute of limitations had then run against the assessment of the tax against the subsidiary corporations which were liable for it individually, as plaintiff now claims.

The case of Mahoning Investment Co. v. United States, 3 F. Supp. 622, 78 Ct.Cl. 231, certiorari denied 291 U.S. 675, 54 S. Ct. 526, 78 L.Ed. 1064, was in many respects like the one now before us. There were two affiliated companies. The Mahoning Investment Company was the parent company and owned all the stock of the subsidiary company, the Rochester Pittsburgh Coal Iron Company. The parent company filed a return showing that the company itself had no taxable income and that the consolidated income was the income of the coal company. The Commissioner made a deficiency assessment against the parent company although no taxes were due from it and the basis of the assessment was the profits realized by the subsidiary. The parent company, however, notified the Commissioner that it would pay the tax and did so pay it. In general, it accepted the situation, although its officers knew that it was not liable and there was no agreement that it should pay the tax. In the case cited we held that the conduct of the parent company and its acquiescence in the proceedings taken by the defendant to collect the tax were such as would naturally mislead the defendant and cause it to continue in the course which it had begun, and that it was not necessary for the party claiming the estoppel to show that the other party intended to mislead, or that direct proof should be offered that it was in fact misled. It is sufficient if this fact is found as a natural and ordinary inference from all of the circumstances shown by the evidence, and we have made such a finding in the case now before us. In the Mahoning Case, supra, 3 F. Supp. 622, 630, 78 Ct.Cl. 231, at page 248, we said: "The doctrine of equitable estoppel, or more properly as we think quasi estoppel, is gradually being extended by the modern courts to prevent a wrong being done `wherever, in good conscience and honest dealing,' a party ought not to be permitted to repudiate his previous statements and declarations."

We are clear that the rule applies in this case. After holding itself out as the proper party to pay the tax, the plaintiff now, when the statute of limitations has run, seeks to repudiate the representations of itself and its associates when it is too late to apply what it claims to be the correct rule of law. If its position were sustained, the affiliated group would not only escape the payment of any taxes whatever for 1918, but the plaintiff would receive a refund on what had been paid, although it was less than was actually due on the consolidated liability of the affiliated group which consisted of corporations all owned by the plaintiff. That equity and good conscience would not permit such a result to be brought about by the conduct of plaintiff we think is manifest. Our conclusion is that plaintiff is estopped from maintaining its claim for a refund regardless of whether the evidence establishes that an agreement existed that it should pay the consolidated tax.

One other matter with reference to the findings should be mentioned. Finding 4 recites that "plaintiff filed a consolidated income and profits tax return for 1918 for itself and the subsidiary corporations." This does not follow the wording of the stipulation of the parties which recites that "Wilson Co., Inc. * * * and its affiliated companies filed a consolidated income, excess-profits, and war-profits tax return for the calendar year 1918," but we have many times held that we are not bound by the stipulation when it is contrary to a fact which appears in evidence. The finding recites the fact correctly. Finding 6 makes a similar recital with reference to filing a return for the year 1919.

Plaintiff's petition must be dismissed, and it is so ordered.