At the time of organization of petitioner, Sutherland owned stock of the par value of $8,500 in the Davidson Co. This stock had been purchased through W. V. Davidson and Sutherland had paid him on account thereof $3,000. A portion of the stock so held by Sutherland was disposed of at the time he acquired an interest in the Sutherland Manufacturing Co., leaving his holdings in the Davidson Co. during the years 1919 and 1920 less than 1 per cent of the outstanding stock of that company.

With the incorporation of the petitioner the Davidson Co. ceased to operate the interior finishing department of its business and this work was thereafter handled exclusively by the former. At the time the petitioner commenced business it took over from the Davidson Co. certain accounts and also all of the lumber and other material of the interior finishing department, together with the work in process. It rented the interior finishing plant and machinery and also had the use of the lumber yards of the Davidson Co. As the working capital of petitioner was inadequate to carry on its business during the early period of its life, the Davidson Co. financed it by advancing money for pay rolls and by selling it lumber on credit until such time as petitioner was able to finance itself. The assistance rendered enabled it to do a business in double the amount it could have done on its available capital. It was the practice of the two companies in bidding for work to include not only the material handled by the bidding company, but also to include material that might be furnished by both companies and then turn over to the other company the order for such material as the bidding company could not furnish.

From the date of incorporation to January 16, 1918, petitioner rented its plant from the Davidson Co. for $100 per month and 10 per cent of its profits, which was an amount less than a fair rental therefor. On January 16, 1918, the rental was increased to $300 per month and 10 per cent of the net profits. The value of the plant rented was $30,000. Section 3 of the by-laws of both the petitioner and the Davidson Co. provided as follows:

No stockholder shall transfer his or her stock to outside parties without first offering same to the executive officers of the company, at their office in Nashville, Tennessee.

The directors and officers, of the petitioner, other than Sutherland, received no salaries for their services.

OPINION.

ARUNDELL: The Davidson Co. owned 55 per cent of the stock of petitioner and claims that it controlled the 45 per cent owned by Sutherland, thus giving it ownership and control of substantially

all of the stock. But the record fails to present more than indications of potential control of the stock owned by Sutherland. The Sutherland Manufacturing Co. was organized not alone because it was thought that a branch of the Davidson Co.'s business could thereby be run more efficiently, but also to insure the retention of Sutherland's services. He was the manager and active head of the petitioner and, so far as the record discloses, was free to vote his stock as his judgment dictated. The fact that Sutherland and the other stockholders worked harmoniously does not establish control by either of the stock of the other.

In the Appeal of Isse Koch & Co., 1 B. T. A. 624, we held that the control required by the statute was an actual control as distinguished from strictly legal control, but that such control must be actually exercised and mere potential control will not suffice. We find no evidence in the record of the exercise of control by the Davidson Co. of the stock owned by Sutherland and we can not assume that it in fact existed. There was, undoubtedly, a close working agreement between the companies and some transactions between them were on an artificial basis, particularly during the early life of petitioner, but mere economic unity does not meet the statutory test. Appeal of Rishell Phonograph Co., 2 B. T. A. 229. The provision in the by-laws that no stockholder shall transfer his stock without first offering it to the executive officers of the company can not serve to give the Davidson Co. control of Sutherland's stock. He may never desire to sell the stock, but even if he did desire to do so, he was under no obligation to sell to them, though it may be assumed he would do so provided the price offered was equal to what he could secure elsewhere. The evidence of control is not convincing. Appeal of R. A. Tuttle Co., 1 B. T. A. 1218; Appeal of Block Street Wharf & Warehouse Co., 2 B. T. A. 183.

The deficiences are $3,050.25 for 1919 and $14,211.66 for 1920. Order will be entered accordingly.

STERNHAGEN, dissenting: The evidence taken in its entirety indicates to my mind an affiliation. The Sutherland Co. while separately incorporated is still but an organized branch of the complete enterprise. Sutherland testified that he understood, as a layman would, that the Davidson Co. and its board of directors controlled both the business and the stock of the Sutherland Co.; that he had no control, no more power in dictating the company's policies than if he had owned only 5 per cent of the stock, and that he was manager in the same sense and exercised the same authority over the incorporated branch as prior to its separate incorporation. It should be remembered that the 55 per cent of the stock which he did not own was

not scattered and ineffectual but was owned entirely by the Davidson Co., so that as a stockholder he was powerless against it.

There was complete unity in the enterprise. The Davidson Co. was not merely the progenitor of the Sutherland Co. but it exercised a parental care and responsibility. As Sutherland expressed it, "We were working for the mutual good of each other." The practice of each bidding for the whole job in behalf of both worked for their mutual advantage. Sutherland alone drew salary. In addition to this, if Sutherland at any time was discharged he was required to offer his stock to the Davidson Co., and, as he said, he had every reason to believe that the old company would take it over. This seems to me to indicate a control by the Davidson Co. of the Sutherland stock either directly or through closely affiliated interests.

The statute seems to me to make it necessary, as I had understood this Board to hold, to examine the facts of each case with a view to a recognition of actual control of the stock during the particular year in question, and I had not supposed that by control of the stock was meant only ownership or its approximation. Here it seems to me that the Davidson Co. had all the control of this stock an owner could have except title and the right to dividends. The other rights were so completely dominated by the Davidson Co. as to make Sutherland's so-called ownership a mere form for increasing his salary. This was what Davidson testified was the purpose of the separate incorporation. While I agree that ownership of a majority of voting stock is not of itself equivalent to the statutory ownership or control of substantially all of the stock, I think that actual conditions may be such as to bring such a situation within the statute. This I think is such a case.

On reference to the Board, GRAUPNER, JAMES, and PHILLIPS concur in the dissent.

APPEAL OF GUY I. ROWE.

Docket No. 3663. Submitted February 23, 1926. Decided April 16, 1926.

A. H. Murray, Esq., for the Commissioner.

Before ARUNDELL and LANSDON.

This is an appeal from the determination of a deficiency in income tax for the year 1923 in the amount of $22.95. It arises from disallowance of a deduction for loss alleged to have been sustained by damage to household goods.

FINDINGS OF FACT.

The taxpayer is an officer of the Army of the United States, now on duty at Fort H. G. Wright, in the State of New York. While on duty at San Diego, Calif., in 1920, he was ordered to Europe on Government service. He stored his household goods in a Government warehouse at Camp Kearney, and later, when that camp was abandoned, directed the camp quartermaster to turn such goods over to a storage concern in San Diego, where they remained until November 1, 1923, when they were shipped by water and rail to New York. In storage or in transit some of the property was lost, and the remainder was damaged until it was worthless. The taxpayer claims the value of the goods so lost and damaged as a deduction from his income for the taxable year in the amount of $265, alleging that the goods constituted stock in trade used in his profession.

The deficiency is $22.95. Order will be entered accordingly.

APPEAL OF ROBERT AND GUSTAV THAL.

Docket No. 960. Submitted October 20, 1925. Decided April 16, 1926.
Good will claimed as basis for obsolescence disallowed.

Bernard Greensfelder, Esq., for the taxpayers.
Briggs G. Simpich, Esq., for the Commissioner.

Before STERNHAGEN, LANSDON, and ARUNDELL.

This is an appeal from the determination of deficiencies in income taxes for the year 1920, in the amount of $35,371.94, for Robert Thal, and of $37,361, for Gustav Thal. It arises from the disallowance of deductions claimed for obsolescence of good will resulting from national prohibition legislation.

FINDINGS OF FACT.

The taxpayers are residents of St. Louis, Mo. Some time in the year 1892 they entered into a partnership under the firm name of Robert Thal & Co., which has since been operated under such name. They have also used the trade names, Red Cross Manufacturing Co., Crown Beverage Co., and Arlette Fruit Products Co., in their business operations as departments of the partnership.

From the date of its formation until 1902, the partnership was engaged in the purchase and sale of vinegar and molasses as jobbers. It then became a wholesale dealer in fortified cider, an alcoholic

beverage, and in various non-alcoholic fruit syrups. It sold fortified cider under the trade names or brands of Bull Dog Brand, Cannon Brand, Army Brand, Navy Brand, Lion Brand, Red Cross Brand, and Premium Brand, none of which was registered in the United States Patent Office, or with any trade association maintained for the protection of trade names, marks, or brands.

In its business operations the partnership purchased cider in bulk from producers and manufacturers, and, by adding sugar thereto, produced a fermented product with from 10 per cent to 20 per cent alcohol content, which was known to the beverage trade as fortified cider. In July, 1919, it voluntarily discontinued the sale of this product, and since that date has sold no fortified cider, either under any of the trade names heretofore enumerated or otherwise. There is no indication in any of the trade names under which it sold fortified cider, or in any of the advertising matter offered in evidence at the hearing, that any of the products so advertised and sold had any alcoholic content.

Prior to July, 1919, and at all times subsequent to that date, the partnership has advertised and sold various fruit syrups and nonalcoholic fruit beverages, which it advertised and advertises under the trade names of Vino, Bracer, Red Cross Punch, Namoco, Red Cross Brand Tip, and Red Cross Brand Cordial. None of these trade names is registered in the United States Patent Office or otherwise. Since some time prior to or during 1919, the partnership has also engaged in the business of dealing in aluminum ware at wholesale.

At the date July 1, 1919, when it discontinued the manufacture and sale of fortified cider, the partnership had about 5,000 customers. It now has about 1,500 customers, to whom it sells non-alcoholic beverages. Fortified cider was sold at a price of $1.50 per gallon in 1919; sweet cider, containing benzoate of soda to prevent fermentation, now sells for about 50 cents per gallon. Prior to July 1, 1919, fortified cider comprised about 75 per cent of the total beverage sales of the partnership, and fruit syrups and non-alcoholic products made up the remaining 25 per cent.

On November 3, 1919, the Commissioner issued Prohibition Mimeograph Number 5, containing instructions relating to cider and vinegar. addressed to the Federal prohibition officers for their guidance in connection with the enforcement of the National Prohibition Act of October 28, 1919. He stated that the addition of sugar or other fermentable substances to cider for the purpose of increasing the alcoholic content is in violation of section 3282, Revised Statutes, as amended, and that, after the Eighteenth Amendment to the Constitution of the United States became effective, cider could be manufactured and sold commercially only if the alcoholic content was