Kiddy Shoe Service, Inc. v. Commissioner

*270OPINION.

Section 240 of the Revenue Acts of 1918 and 1921 provides that two or more domestic corporations shall be deemed to be affiliated if substantially all their stock is owned or controlled by the same interests. Applying the ownership test to the facts in these appeals, it appears that stockholders of the Eby Shoe Co. owned 880 shares of the voting stock of the Kiddy Shoe Service, Inc., of a total of 1,000 outstanding during the years 1919 and 1920, or 38 per cent, and 495 shares during the year 1921 of a total outstanding of 1,435, or approximately 84 per cent; that stockholders of that company owned 310 shares of the Harry Eby Shoe Co. during the years 1919 and 1920 of a total outstanding of 484 shares, or approximately 64 per cent, and 617 shares during the year 1921 of a total outstanding of 968 shares, or approximately 63 per cent. It further appears that, although stockholders of the Kiddy Shoe Service, Inc., owned, during the years 1919 and 1920, 474 shares of the voting stock of the Harry Eby Shoe Co. of a total of 484 shares outstanding, and 954 shares during the year 1921 of a total outstanding of 968 shares, stockholders of the Kiddy Shoe Service, Inc., owning 230 shares during the years 1919 and 1920 of a total of 1,000 outstanding, or 23 per cent, and 295 shares during 1921 of a total of 1,435 shares outstanding, or approximately 21 per cent, owned no stock at all in the Harry Eby Shoe Co. It is therefore apparent that substantially all the stock of these three corporations was not owned by the same stockholders.

The petitioners contend that persons closely related by blood or marriage, or closely associated by employment or in business, constitute the same interests. The mere fact of family and business relationship standing alone is insufficient to constitute control or to warrant a holding that persons standing in such relationship constitute the same interest with the majority. Appeal of Goldstein Bros. Amusement Co., 3 B. T. A. 408. Beyond this relationship the evidence affords us very little upon which to base an ownership or control of substantially all the stock by the same interests. Under date of March 6, 1917, the stockholders of the Eby Shoe Co. passed a resolution wherein they agreed individually to charge their estates to sell their holdings of common stock to the company at book value, *271and under date of J anuary 8, 1917, Harry E. Eby and Herr agreed with the Harry Eby Shoe Co. that, in the event of their death, their stockholdings would be sold to the company at the book value thereof, but these facts do not establish any control of the stock of the companies by the same interests. There was no evidence of an arbitrary shifting of profits or the operation of the companies as one business. Approximately 50 per cent of the output of the Eby Shoe Co. and the Harry Eby Shoe Co. was disposed of through the Kiddy Shoe Service, Inc. The shoes were sold to the Service Company, however, at the same price and on the same terms as to other jobbers. We are of the opinion that, on the evidence presented, substantially all the stock of the three companies was not owned or controlled by the same interests.

Judgment will be entered for the Commissioner.