Harlan F. Stone

“ These provisions plainly do not lay down any rigid rule of accounting to be applied to consolidated returns which would exclude from the computation of taxable income the results of every intercompany transaction, regardless of its effect upon the capital or the net gains or losses of the business of the affiliated corporations. ”

“ The purpose of requiring consolidated returns by affiliated corporations was, as the government contends, to impose the war profits tax, according to true net income and invested capital of what was, in practical effect, a single business enterprise, even though conducted by means of more than one corporation. ”

“ It is conceded that the loss of respondent's advances to the sales company and the investment in its stock was sustained in 1917, was deductible therefore, if at all, in that year, and might properly have been deducted by respondent in a separate return, if a separate return had been permissible. But the government insists that the loss cannot be deducted in the mandatory consolidated return for 1917 because it occurred as the result of 'intercompany' transactions. ”