Fred M. Vinson

“ If the corporation is a true agent, its relations with its principal must not be dependent upon the fact that it is owned by the principal, if such is the case. Its business purpose must be the carrying on of the normal duties of an agent. [20] Absence of the factors mentioned above, and the essentiality of ownership of the corporation to the existence of any 'agency' relationship in the Moline Properties, Commonwealth Improvement Co., and Southern Pacific cases indicates the fallacy of the agency argument made in those case. ”

“ They are willing to pay taxes on the nominal amounts they retain as Airco's 'agents.' But this fact serves to emphasize the inapplicability of the Southern Pacific case, upon which they rely. There, as in Commonwealth Improvement Co. and Moline Properties cases, the decision turned upon the question whether the corporate entity was or was not to be completely ignored for tax purposes. If the Central Pacific had been accorded any tax status in the Southern Pacific case, it unquestionably would have been taxed on the entire income it received. ”

“ Their employees number in the thousands. We have passed the question whether Airco's interest in these assets is that of owner of the subsidiaries or lender, but whatever the answer, they do not belong to Airco as principal. The entire earnings of petitioners, except for trifling amounts, are turned over to Airco not because the latter could command this income if petitioners were owned by third persons, but because it owns, and thus completely dominates the subsidiaries. ”

“ The purpose of having officers of subsidiaries who could deal directly with customers does not indicate an agency relationship. On the contrary, the very purpose of the organization adopted was to lead customers to believe that they were dealing with top men in the company actually manufacturing and selling the products they purchased. ”

“ Airco would then have been in a position comparable, so far as ownership of the assets of petitioners is concerned, to that of the sole stockholder in Moline Properties. We think that it can make no difference that financing of the subsidiaries was carried out by means of book indebtednesses in lieu of increased book value of the subsidiaries' stock. A corporation must derive its funds from three sources: capital contributions, loans, and profits from operations. ”

“ The theory of the case was that the two corporations could be treated as identical, for the purposes of the 1913 Act, because of the complete domination and control exercised by the parent over its subsidiary. ”