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U.S. Supreme Court

Charles Ilfeld Co. v. Hernandez, 292 U.S. 62 (1934)

Charles Ilfeld Co. v. Hernandez

No. 579

Argued March 8, 1934

Decided April 2, 1934

292 U.S. 62


Section 141(a) of the Revenue Act of 1928 gives groups of affiliated corporations the privilege of making consolidated returns, in lieu of separate ones, for 1929 and subsequent years upon condition that all members consent to the regulations prescribed prior to the return. Section 141(b) authorizes the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, to make regulations for determining the tax liability of an affiliated group and of each member in such manner as clearly to reflect the income and prevent avoidance of tax liability.


1. The making of a consolidated return of income on the part of affiliated corporations was a "consent" to the regulations prescribed prior to the return. P. 292 U. S. 65.

2. Deduction of a loss, in an income tax return, is not allowable unless the relevant act and regulations fairly may be read to authorize it. P. 292 U. S. 66.

3. Where a parent company, during a consolidated return period, caused the property of two affiliates, of which it held all the stock, to be sold to outsiders, received a distribution of the net proceeds after payment of their outside debts, and then dissolved the affiliated corporations, the losses represented by the difference between the amount of the distribution and what it had lent the affiliates and paid for their stock in prior years were losses upon a distribution within the consolidated return period and arising from intercompany transactions, and not from a sale of stock, within chanroblesvirtualawlibrary

Page 292 U. S. 63

the meaning of Regulation 75, adopted pursuant to the above-cited Act, and, under those Regulations, they were not deductible in the consolidated return. Pp. 66-67.

4. The Act and Regulations are not to be construed as permitting double deduction of the same loses, first as subsidiary company losses in consolidated returns for earlier years and again in stating the eventual loss to the parent company from its investment in the subsidiaries. P. 292 U. S. 68.

66 F.2d 236, 67 id. 236, affirmed.

Certiorari, 290 U.S. 624, to review the reversal of a judgment awarded the plaintiff by the district court, sitting without a jury, in an action on a claim of excessive payment of taxes.

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