Stanley Forman Reed

“ If states create dummies, business men may utilize them so long as they keep within the law, and the function of the revenue laws is not to tell them how they shall manage business, but to see that what they do has proper tax consequences.
Since the decision of this case the Tax Court has held in a very similar case that where a wholly owned subsidiary exclusively performs services essential to the business of the parent corporation, advances made by the parent to meet the subsidiary's operating deficit are deductible as a business expense. ”

“ There is thus no record requiring a further examination of petitioner's argument since in the absence of affirmative proof to the contrary we must assume that the entire deficiency was found correctly by the Commissioner and that the deficit is attributable to Stages' intrastate business.
It is no answer to this defect of proof that petitioner was obligated by contract to assume Stages' deficit. The mere fact that the expense was incurred under contractual obligation does not of course make it the equivalent of a rightful deduction under § 23 (a) . ”

“ Whether phrased as the payment of an expense in a business conducted for a principal by an agent or as a case where equity and reality r quire that the separate corporate identities be ignored or as the incurring under contract of a necessary expense, petitioner's argument for its success depends on the contention that Stages' operating deficit is an expense of petitioner's business. ”

“ Thus, the businesses of the two companies were distinct. Cf. Edwards v. Chile Copper Co., 270 U.S. 452, 454, 456, 46 S.Ct. 345, 346, 70 L.Ed. 678; Texas-Empire Pipe Line Co. v. Commissioner, 10 Cir., 127 F.2d 220. ”