
    Standard Gas Products Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 9843.
    Promulgated January 27, 1927.
    
      Sidney J. Sayles, G. A. P., for petitioner.
    
      M. N. Fisher, Fsq., for the respondeht.
   Trammell:

This is a proceeding for the redetermination of deficiencies in income and profits taxes for 1920 and 1921, in the amounts of $95.22 and $1,427.13, respectively. The deficiencies result from the refusal of the Commissioner to permit the petitioner and the Southern Oil Treating & Hardening Co. to file a consolidated return as affiliated corporations under section 240 (b) of the Revenue Act of 1918.

FINDINGS OF FACT.

The petitioner, sometimes hereinafter referred to as the Standard Company, is a Georgia corporation organized in 1913 with its principal place of business at Atlanta. It was engaged in selling and distributing oxygen gas and supplies, such as welding and cutting apparatus and fluxes. The Southern Oil Treating & Hardening Co., sometimes hereinafter referred to as the Southern Company, is a Georgia corporation organized in 1919 with its principal office and place of business at Atlanta, and during the years involved was operated in connection with the Standard Company. It was organized for the purpose of furnishing oxygen gas to the Standard Company at a lower cost than that company was required to pay to other companies and because the company from which it had been buying it had had an explosion. In producing oxygen it simultaneously produced hydrogen, which was used in the process of hardening cotton seed oil.. The Southern Company charged the Standard Company a fixed price of $1 per cylinder or 50 cents a cubic foot. That price, which was less than the market price, was fixed by Bawling and Wilcox, the owners of the stock of the Standard Company and the officers of both companies. Wilcox and Bawling borrowed from a bank $135,000 with which to establish the plant of the Southern Company, and the Standard Company also loaned that company money to complete the plant and pay off obligations. For some of the money advanced by the Standard Company to the Southern Company, Wilcox and Bawling gave their notes and put up some of their own stock as security with Mrs.'Bawling and Mrs. Wilcox, who sold real estate to raise the money. The Southern Company gave no security for any money borrowed from the Standard Company.

The two companies occupied the same offices and had the same directors, officers, accountants and bookkeeper. Expenses were allocated between the two companies. The following is a statement of the stock holdings of the two companies during 1920 and 1921:

Clementine B. Bawling, who was the record owner of 50 shares of stock in the Southern Company during 1920, was the wife of Bawling, majority stockholder of the Standard Company, and Katharine B. Wilcox, who owned of record 150 shares in the same company, was the daughter of Bawling and the wife of Wilcox, a stockholder of the Standard Company. This stock belonged to Wilcox and Bawling but was transferred to and held by Mrs. Wilcox and Mrs. Rawling as security for money borrowed by the Standard Company for the Southern Company.

George Trippe was an employee of both the Standard Company and the Southern Company.

Shepard Bryan was attorney of both the Standard Company and the Southern Company and assisted in the organization of the latter company and in shaping its policies. He was the personal attorney of Wilcox and Rawling. T. C. Law, a chemist, acted in an advisory capacity in the Southern Company. He acquired his stock for services rendered.

J. T. Carson acquired his stock as a means of inducing the company to grant him favors in the placing of insurance.

The stock owned by H. B. Darling during 1921 was acquired for services rendered.

All of the stockholders of both companies are close business associates. Substantially all the stock of the Southern Company was owned by the Standard Company or controlled through closely affiliated interests. The two companies were affiliated within the meaning of section 240 (b) of the Revenue Act of 1918.

Judgment will be entered on 15 days’ notice, under Rule 50.  