The opinion
Lansdon,
dissenting in part: I am unable to agree with the majority report on the question of whether the banks involved were entitled to make a consolidated return for the year 1925. The record discloses that the old bank was merged into the two new banks on March 6, 1925, but that its corporate existence was continued for certain limited purposes until June 23 of that year. It is certain, therefore, that for at least a part of the year all three banks were affiliated, since the same stockholders owned all the stock of two of them in the same proportion and the two new banks owned all the stock of the old bank.
There was no period within the taxable year in which either of the new banks could be required to file a separate return. All three constituted for the year a single business owned by a single group of stockholders. The old bank was merged into the new organization and its business was continued unchanged even if under different names for the remainder of the year. In my opinion the inclusion of its income and deductions in a single consolidated return covering the entire year was not only lawful but necessary to prevent a violation of the principle that income is taxable on an annual basis. The old bank was on the calendar year basis and if it could be required to file separately, its return must be for the year and not for any fractional part thereof.
The effect of the respondent’s ruling and of the majority report is to break down the taxable year of an economic unit into two taxable periods in circumstances that foreclose the deduction of losses sustained in the first from profits realized in the second, and results in a heavy tax in a year in which the business actuallly sustained a very considerable loss. Certainly Congress contemplated no such inequitable result from administrative interpretation of the provisions of section 240 of the Revenue Acts of 1924 and 1926. In H. S. Crocker Co., 5 B.T.A. 537 , in discussing a somewhat similar situation we said:
It is our conception of the law, that, for purposes of taxation, the affiliated group must be considered as a single economic unit The requirement with respect to computing the taxes of an affiliated group on the basis of a con *545 solidated return was first introduced into the law to prevent avoidance and resulting injustice, either to the Government or to the taxpayer, as the case might be, and not to create that situation. The normal treatment- in the case of an affiliated group as a single economic unit, therefore, is to disregard the internal structure, to break down the separate legal existence of the constituent members, and to treat them in all respects, so far as taxation is concerned, as one.
In Automatic Fire Alarm Co., 13 B.T.A. 1195 , where an old corporation was in existence throughout the entire taxable year of 1920, and a holding company was incorporated during the year to take oyer the stock and securities of other companies held by the old company and also the stock of such company, we held that the income of the two companies should be computed on the basis of a consolidated return of their income for the full year. In American Paper Exports v. Bowers, 54 Fed. (2d) 508, the Circuit Court of Appeals for the Second Circuit held that where a parent corporation organized during the taxable year took oyer a subsidiary corporation, the latter was not required to file separate returns for the period preceding the taking oyer by the former. The facts in the cases cited above are so similar to the situation in the instant proceeding that I think the conclusion therein reached should control here. In my opinion the income of the single business conducted by the banks here involved should be reported in a consolidated return covering the entire year 1925. Cf. Grand Rapids Nat. Bank, 9 B.T.A. 1119 ; Hutt Contracting Co., 17 B.T.A. 818 ; Newblock Oil Co., 26 B.T.A. 696 ; Bankers Trust Co. v. Bowers, 295 Fed. 89 ; Industrial Cotton Mills v. Commissioner, 61 Fed. (2d) 291; Western Maryland Ry. Co. v. Commissioner, 33 Fed. (2d) 695.