DECISIONS OF THE UNITED STATES BOARD OF TAX APPEALS J. A. FOLGER & COMPANY, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. FOLGER ESTATE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket Nos. 22212, 30721, 31200, 35147. Promulgated November 4, 1932. 1. Held, that the petitioners were not affiliated with J. A. Folger & Company, a California corporation, at any time in either of the taxable years. 2. The tax liability of each of the petitioners for the year 1921 was extinguished by the statute of limitations prior to the issue of the notices asserting deficiencies for that year. 3. In the determination of their true deficiencies for the several taxable years the petitioners are entitled to credit for each year in the several amounts which they paid to their parent corporation in discharge of their share of the taxes shown on the consolidated returns for each of such years. 4. Special assessment denied. James S. Y. Ivins, Esq., Joseph H. Brady, Esq., and II. Edwin Nowell, C. P. A., for the petitioners. Eugene Meacham, Esq., for the respondent. The respondent asserted deficiencies against J. A. Folger & Company, a Nevada corporation, for the fiscal years ended November 30. 1921, 1922, and 1923, in the respective amounts of $106,474.09, $32,740.79, and $2,145.78, and against the Folger Estate Company for $1,481.10, $1,681.79, and $1,698.72. The several proceedings were onsolidated for hearing. The issues pleaded, as summarized in petitioners' brief, are: (1) Whether the respondent erred in ruling that the petitioners were not affliated during the taxable years with J. A. Folger and Company, a California Corporation which is not a party to this proceeding. (2) In the alternative, and only in the event the Board should deny petitioners' claims for affiliation, the Board will have for decision the questions whether the respondent erred: (a) In failing to hold that deficiencies for the fiscal year 1921 were barred by the statute of limitations; (b) In failing to give petitioners proper credit for taxes paid by them through their parent company, J. A. Folger and Company (California) with whom they filed a consolidated return for each of the years under review; (c) In failing to grant special assessment to petitioner J. A. Folger (Nevada) for the fiscal year 1921 and for the month of December, 1921. FINDINGS OF FACT. The petitioner, J. A. Folger & Company, hereinafter sometimes called the Nevada Company, was organized in 1908 to act as a distributing agent for J. A. Folger & Company of San Francisco, California, hereinafter sometimes called the parent corporation. The petitioner, Folger Estate Company, a California corporation, was organized in 1904 by interests closely affiliated with the parent corporation. In the taxable periods the outstanding common stock of these corporations was held as shown in the following table: In the same periods the parent corporation had outstanding preferred stock, held as follows: The relationship of these parties is as follows: C. E. L. Folger, sister-in-law of president E. R. Folger; Elizabeth M. Folger, wife of president E. R. Folger; E. B. Tibbitts, sister of president E. R. Folger; Emma F. Platt, widow of a former pensioned employee of the Folger interests; A. K. Munson, employee of the Folger interests from 1880 until death in 1924; R. R. Vail, employee of the Folger interests from 1880 until retired on pension December 31, 1921; E. P. Atha, vice president and general manager of the Nevada Company and employee of the Folger interests since 1899; John M. Cunningham, son of Mrs. C. E. L. Folger, under a prior marriage and employed by the California Company. This preferred stock, under the California laws, had voting powers equal to common stock, but carried no rights of participation in the profits of the corporation in excess of 7 per cent, except in case of liquidation of the corporation, in which event, the holders were preferred to the extent of the par value, plus 22 per cent. It was all callable by the corporation at 1022 per cent, plus accrued dividends, on any quarterly dividend date upon 30 days notice; and after the date fixed in such notice for such redemption, all rights of the holders, other than to receive the amounts then due, ceased, except in case the corporation defaulted in providing money for redemption. At all times material here the parent corporation was financially able to redeem all of its outstanding preferred stock and to liquidate in cash all of its obligations incident thereto. For the periods involved the parent corporation filed consolidated income tax returns for itself and these petitioners, which attributed income to the latter companies as follows: The consolidated return for the fiscal year ended November 30, 1921, was filed February 16, 1922. Thereafter, on October 19, 1925, the parent corporation and the Commissioner of Internal Revenue entered into an agreement in writing which waived the statutory time for making any assessment of income and war profits tax due under any return made on behalf of that taxpayer for 1921 and extended it to December 31, 1926. On March 4, 1926, these petitioners, separately, executed waivers to the Commissioner of Internal Revenue extending the time for making tax assessments against each of them in respect to the same period until December 31, 1926. On December 14, 1926, new waivers covering this period were executed. by all three corporations and the Commissioner of Internal Revenue, which further extended the time for making tax assessments against each taxpayer to December 31, 1927. The deficiency notices for the fiscal year ended November 30, 1921, were mailed to the Folger Estate Company and J. A. Folger & Company on November 12, 1926, and July 20, 1927, respectively. The consolidated return for 1921 disclosed a tax liability of $82.537.67, payable on consolidated net income of $386,328.73 made up as follows: J. A. Folger & Company (California). J. A. Folger & Company (Nevada). $89, 102. 77 280, 414.99 16, 810. 97 The entire amount of tax shown on such return was paid in the year 1922 by the parent corporation and in the same year the petitioner. J. A. Folger & Company (Nevada) paid to such parent corporation the amount of $73,637.67 on account of its proportion of the tax shown on the return. The consolidated return for 1922 disclosed a tax liability of $31,482.26, payable on a net income of $248,142.80 made up as follows: J. A. Folger & Company (California) (loss). $67.52 232, 528. 03 The entire amount of tax shown on such return was paid by the parent corporation in 1923. In the same year the petitioner, J. A. Folger & Company (Nevada) and the Folger Estate Company paid to such parent corporation the respective amounts of $30,000 and $1,482.86 on account of their tax liabilities for the fiscal year 1922. The consolidated return for 1923 disclosed a tax liability of $27,100.08 on a consolidated net income of $216,800.66, made up as follows: J. A. Folger & Company (California) (loss). $19, 166. 27 220, 377. 14 The entire amount of tax shown on such return was paid by the parent corporation in 1924, except that portion which was satisfied by credit of an overassessment of $3,863.65 which was paid May 21, 1926. In the same year J. A. Folger & Company (Nevada) and the Folger Estate Company paid the parent company the amounts of $27,547.14 and $1.948.72 on account of tax liability for 1923. Each of the petitioners filed Form 1122 for each of the taxable periods here involved, and gave the name and address of the parent company as J. A. Folger and Company, 101 Howard Street, San Francisco, California. In the space provided for question (7) for the statement of, "The amount of income and profits taxes for the taxable period to be assessed against the subsidiary or affiliated cor |