
    Appeal of MONROE FURNITURE CO., LTD., ET AL.
    
    Docket No. 2543.
    Submitted June 17, 1925.
    Decided September 30, 1925.
    Tbe taxpayer and three other corporations held to be affiliated for the calendar year 1919.
    
      Samuel Kaplam, for the taxpayer.
    
      P. S. Crewe, Esq., for the Commissioner.
    . Before Smith and Littleton.
    This appeal is from the determination of a deficiency in income and profits tax for the year 1919 in the amount of $5,454.73. The only question in issue is the right of the taxpayer to file a consolidated return for the year 1919 with Southern Furniture Co., American Furniture Co., and Kaplan Furniture Co.
    FINDINGS OF FACT.
    The Monroe Furniture Co. was incorporated under the laws of the State of Louisiana in 1899. Its principal place of business is at Monroe. It was founded by Samuel Kaplan. Kaplan desired to open a branch store at Shreveport, La., and in 1914 the branch store was incorporated as the American Furniture Co. Kaplan furnished substantially all of the capital to found this company. In 1916 the Southern Furniture Co. was organized at Lake Charles, La. Kap-lan also furnished the money to start this company. A nephew of Kaplan established the Kaplan Furniture Co. at Alexandria, La.
    In 1918 the nephew died and Samuel Kaplan acquired 150 shares of the 300 shares of the outstanding stock of that company. In payment therefor he turned over to Mrs. L. L. Kaplan 40 shares'of the stock of the Monroe Furniture Co., 40 shares of the stock of the Southern Furniture Co., and 40 shares of the stock of the American Furniture Co. Mrs. L. L. Kaplan retained 120 shares of stock of the Kaplan Furniture Co. At the time of acquiring the stock of the Kaplan Furniture Co., Samuel Kaplan entered into an agreement with Mrs. L. L. Kaplan whereby he was to assume the entire management of the company on the same basis as he was managing the other companies. The purchasing, general supervision, and financing were to be on the same basis as the American Furniture Co. and Southern Furniture Co, The shares of stock of the Monroe Furniture Co., the Southern Furniture Co., the American Furniture Co., and the Kaplan Furniture Co. were held in 1919 as follows:
    
      Stockholders Sanuel Kaplan. J. M. Cobb. G. O. Milford. Mrs. L. L. Kaplan. Others. Year 1919 Monroe Furniture Go. Shares 745 117 10 40 1,000 Southern Furniture Co. Ameri- Kaplan can Fur- Furniture niture Co.| Co. Shares 135 20 20 40 35 250 Shares 150 10 20 40 30 Shares 150 10 120 20 250 | 300
    It will be noted from the foregoing table that Samuel Kaplan, J. M. Cobb, G. C. Milford, and Mrs. L. L. Kaplan owned 91.2 per cent of the shares of stock of the Monroe Furniture Co., 86 per cem of the shares of stock of the Southern Furniture Co., 88 per cent of the shares of stock of the American Furniture Co., and 93y3 per cent of the shares of stock of the Kaplan Furniture Co. The balance of the stock of each company was held by employees originally in the employ of Samuel Kaplan. The certificates representing their ownership were endorsed in blank and attached to notes given to Kaplan or to the Monroe Furniture Co. as security for the payment of the stock. The stock was to be paid for out of the earnings of the company. Practically every share of the stock owned by the employees was under the care, custody, and control of Kaplan or of the Monroe Furniture Co. during the entire year 1919.
    All of the pur chasing for the Southern Furniture Co., American Furniture Co., and the Kaplan Furniture Co. was done in the name of the Monroe Furniture Co. The merchandise was purchased in most cases in large lots and sent to the Monroe Furniture Co. at Monroe. The managers of the subsidiary companies went to Monroe and made selections of such merchandise as they thought their trade required. The merchandise at the Monroe store was sold to the other companies at cost plus actual handling charges, with a commission not to exceed 1 or 1 y2 per cent.
    The banks and creditors of the Monroe Furniture Co. required consolidated statements of all the companies for credit purposes. The banks from which Samuel Kaplan borrowed money required him to endorse the paper of each of the companies personally.
    The Commissioner has determined the deficiency in tax for the year 1919 upon the basis of a consolidated return of the Monroe Furniture Co. and the Southern Furniture Co.
    DECISION.
    The deficiency, if any, should be determined in accordance with the following opinion. Final determination will be settled on consent or on 15 days’ notice, in accordance with Rule 50.
    
    
      
       The following affiliated corporations are parties to this appeal: Southern Furniture Co., American Furniture Co., Kaplan Furniture Co.
    
   OPINION.

Smith:

The Commissioner has determined that the Monroe Furniture Co. and the Southern Furniture Co. are affiliated for the year 1919, and has determined a deficiency in tax upon the ground that the American Furniture Co. and the Kaplan Furniture Co. are not affiliated with the first two-named companies. The reason for excluding the American Furniture Co. from the affiliated group is not apparent. It would seem to be affiliated with the Monroe Furniture Co. if the Southern Furniture Co. is. Apparently the reason for excluding the Kaplan Furniture Co. from the consolidation is the difference in the percentages of stock owned by the four principal stockholders in the first three companies and in the last company; whereas Mrs, L. L. Kaplan’s interest in the Monroe Furniture Co. was only 4 per cent of the total, it was 40 per cent of the total of the Kaplan Furniture Co. We do not think, however, that this discrepancy in stock ownership alone is enough to exclude the Kaplan Furniture Co. from the consolidation. The evidence shows that the four companies were operated as a business unit and that there was the utmost harmony among the stockholders. Samuel Kaplan managed the entire group of companies and by virtue of his agreement with Mrs. L. L. Kaplan controlled the shares held by her. Her interest was not adverse to that of Samuel Kaplan. We think that substantially all of the stock of the four companies was owned or controlled by the same interests. We, therefore, are of the opinion that the taxpayer is legally entitled for the year 1919 to file a consolidated return with the Southern Furniture Co., the American Furniture Co., and the Kaplan Furniture Co.

ARTjndell not participating.  