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115 C. Cis. Reporter's Statement of the Case member of an affiliated group, in this case the parent corporation, which has sustained the losses; and where, nevertheless there was consolidated income for the group in 1918 and 1920 despite the losses of one subsidiary; since the parent was a member of the group which had the benefit of the subsidiary losses in 1918 and 1920, it cannot again use these losses upon

sustaining a loss on liquidation of the subsidiary in 1926. Internal Revenue en 670

Same.-Where a consolidated group sustained a net loss in 1919, which

was made up of gains and losses of members of the group including a loss by a subsidiary which was liquidated in 1926, and where, because of the large excess of losses over gains, only a portion of the loss of the subsidiary was used in 1919 in cancelling the gains of other members of the group, the parent was entitled to deduct as a loss on liquidation of the subsidiary in 1926 the balance of the subsidiary's 1919 loss not so used. See Swift and Co. v. United States, 69 C. Cls. 171, footnote at page 200. In compliance with the request of the several plaintiffs, judgment for recovery will be entered in favor of The Singer

Manufacturing Company. Internal Revenue on 670

Same; credit for foreign taxes; subsidiary's payment for foreign taxes

as agent. Where the Singer Manufacturing Company claims a credit for each of the years 1926–1933, except 1932, for income taxes paid to the Kingdom of Italy; and where it is shown that the plaintiff is an American corporation selling products in Italy through an Italian affiliate which signed an agreement with Italian taxing authorities under which the Italian government would treat as the American company's income seven per cent of the goods invoiced to the affiliate and sold during the year and would look to the affiliate for payment of taxes on behalf of the American company; it is held that the plaintiff was entitled to a credit for the amount of such taxes paid by the affiliate as plain

tiff's agent. Recovery is allowed. Internal Revenue m 703

The Reporter's statement of the case:

Mr. Albert L. Hopkins for the plaintiffs. Messrs. Winthrop, Stimson, Putnam & Roberts and Messrs. Hopkins, Sutter, Halls, DeWolfe & Owen, were on the briefs.

Mr. J. A. Rees, with whom was Mr. Assistant Attorney General Theron Lamar Caudle, for the defendant. Messrs.

162

Reporter's Statement of the Case Andrew D. Sharpe, Ellis N. Slack, and Harry Marselli, Special Assistants to the Attorney General, were on the brief.

The court made special findings of fact as follows:

1. The Singer Manufacturing Company, Singer Sewing Machine Company, Diehl Manufacturing Company, Bourne & Company, Ltd., International Securities Company, and International Fidelity Insurance Company were organized under the laws of the State of New Jersey, with their principal offices and places of business in that state. Trumann Light & Power Company was organized under the laws of the State of Arkansas, with its principal office and place of business at Trumann, Arkansas. Poinsett Lumber & Manufacturing Company was a New Jersey corporation.

2. Docket Nos. 45537, 45538 and 45539 are substantially similar petitions for the recovery of income taxes paid for the year 1926. In the first two suits The Singer Manufacturing Company and Singer Sewing Machine Company, respectively, are separate plaintiffs. In the third suit, plaintiffs are The Singer Manufacturing Company, Singer Sewing Machine Company, Diehl Manufacturing Company, Bourne & Company, Ltd., International Securities Company, International Fidelity Insurance Company and Trumann Light & Power Company. In each petition it is alleged that income taxes were overpaid by reason of disallowance of a deduction for loss on liquidation of Hamel Shoe Machinery Company, a Massachusetts corporation, and by reason of disallowance of credit for income taxes paid to the Kingdom of Italy.

3. Throughout the calendar year 1926 the plaintiffs named above, together with other corporations not now involved (because they had losses and paid no tax in 1926), were affiliated corporations within the meaning of Section 240 of the Revenue Act of 1926. The Singer Manufacturing Company was the parent corporation of the affiliated group. These corporations duly filed their consolidated income tax return for the calendar year 1926 with the United States Collector of Internal Revenue for the Fifth District of New

115 C. Cls.

Reporter's Statement of the Case

Jersey, at Newark, New Jersey. The incomes of the several affiliated corporations and the tax allocable and allocated to such corporations, as reported on the return, were as follows:

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The Singer Manufacturing Company, the parent corporation of the affiliated group, paid the tax on its own behalf and on behalf of its affiliated corporations as follows: March 15, 1927

$825,000.00 June 15, 1927

825, 000.00 September 15, 1927

731, 822. 78 December 15, 1927.

793, 940. 92

3, 175, 763. 70 4. At no time was there any agreement among these affiliated corporations as to the proportions in which the income tax for the year 1926 should be assessed as among these affiliated corporations. Accordingly, at all times pertinent hereto, the affiliated corporations and the Commissioner of Internal Revenue (hereinafter referred to as the "Commissioner") made allocations of tax on the basis of the net income properly assignable to each corporation; i. e., on the basis of the same percentage of the tax which the separate net income of each affiliated corporation was of the aggregate of the net incomes of affiliated corporations having net incomes.

5. In Docket Nos. 45790, 45791, 45792, 45793, 45794, and 45795, substantially the same affiliated group which had filed consolidated returns for the years involved sues for recovery of income taxes paid for the years 1927, 1928, 1929, 1930, 1931, and 1933 respectively. In each year, overpay

162

Reporter's Statement of the Case ment is claimed by reason of disallowance of credit for income taxes paid to the Kingdom of Italy.

6. All the various plaintiffs request that, in case of any determination in their favor, the entire amount of the judgment be rendered in favor of The Singer Manufacturing Company, the parent corporation.

7. At all times pertinent, plaintiffs kept their books on the accrual basis of accounting.

8. In 1930, the Commissioner determined and assessed deficiencies in income taxes and interest against the affiliated corporations and these deficiencies were paid by these corporations on April 16, 1930, as follows:

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9. On December 12, 1930, plaintiffs duly filed joint and separate claims for refund of income taxes and interest overpaid for 1926 on the ground that in that year The Singer Manufacturing Company had sustained a loss of $1,413,148.99 on the liquidation of Hamel Shoe Machinery Company, no part of which had been allowed as a deduction and that insufficient credits had been allowed for foreign income taxes. On April 15, 1933, plaintiffs duly filed additional and supplemental claims for refund for 1926 which claims, among other things, incorporated by reference data theretofore filed with the Commissioner in support of foreign tax credit claims. In 1939 plaintiffs' claims for refund were allowed in part and rejected in part by the Commissioner, notice of rejection or disallowance having been given to Singer Sewing Machine Company and Diehl Manufacturing Company on August 25, 1939, and to the other plaintiffs on October 12, 1939.

10. In determining the income and the income taxes assessable thereon, as a basis for the partial allowance and par115 C. Cls. Reporter's Statement of the Case tial rejection of the claims for refund, referred to in the preceding finding, the Commissioner in 1939 issued to plaintiffs a certificate of overassessment which set forth the separate and consolidated incomes or losses of plaintiffs and other corporations in the affiliated group, the income tax thereon, the income taxes theretofore paid by the affiliated corporations as above set forth, and the income tax deficiencies or overpayment of the affiliated corporations respectively. The amounts of income taxes assessable were determined on the basis of a total consolidated taxable net income of $29,993,141.07. That sum represented determined net incomes as follows:

The Singer Manufacturing Company- $26, 664, 444.99
Singer Sewing Machine Company--- 2, 611, 241. 71
Diehl Manufacturing Company--

428, 125. 98 Bourne & Company, Ltd.----

145, 836. 64
International Fidelity Insurance Co. 102, 393. 59
International Securities Company-- 39, 126. 25
Trumann Light & Power Company-- 2, 466.84
Poinsett Lumber & Manufacturing
Co---

15, 141. 21

$30,008, 777.21

Total.
Net losses :

Hamel Shoe Machinery Company-
Arkansas Short Line---

$8, 199, 37
7, 363. 20

Total -

15, 562. 57

29, 993, 214.64

Consolidated net income---
Less : Net loss of prior year of Trumann Light &

Power Co. (Section 206, Act of 1926) -

73. 57

Balance subject to tax..

29, 993, 141. 07

In the determination set out above, the Commissioner allowed as a deduction for tax purposes $551,716.11 of the loss claimed of $1,413,148.99 on account of the liquidation of the Hamel Shoe Machinery Company in 1926, and disallowed the balance of $861,432.88, as set out in finding 14.

11. In the certificate of overassessment for 1926, the Commissioner determined the total income tax on the consolidated net income to be $4,049,074.05. From that amount he allowed credit for taxes paid to foreign countries of $496,343.15 and

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