Subpart F income is defined as the sum of income derived from the insurance of U.S. risks, and foreign base company income. Sec. 952(a). Foreign base company income is further defined as the sum of foreign 1972 U.S. Tax Ct. LEXIS 2">*17 personal holding company income, foreign base company sales income, and foreign base company services income. Sec. 954(a).

For 1964, 1965, and 1967, Oil Services had no previously excluded subpart F income withdrawn from investment in less developed countries, but it did have both subpart F income and an increase in earnings invested in U.S. property for each of such years. And almost all, if not all, of its subpart F income for 1964, 1965, and 1967, was foreign personal holding company income as defined in section 954. ⁷ This foreign personal holding company income as defined in section 954 consisted of the very same income which constituted foreign personal holding company income as defined under section 553 of the foreign personal holding company provisions and which would have been includable in petitioners' gross income under section 551(b). ^{81972 U.S. Tax Ct. LEXIS 2">*18}

Applying simultaneously the dictates of sections 551(b) and 951(a), petitioners might have been obliged to include the very same interest income twice in their own gross income.

59 T.C. 490">*497 Fortunately for U.S. shareholders of corporations simultaneously qualifying as foreign personal holding companies and controlled foreign corporations, subpart F contains a saving provision to protect against the possibility of such double taxation. That provision, section 951(d), provides as follows:

(d) Coordination with Foreign Personal Holding Company Provisions. -- A United States shareholder who, for his taxable year, is subject to tax under section 551(b) (relating to foreign personal holding company income included in gross income of United States shareholders) on income 1972 U.S. Tax Ct. LEXIS 2">*19 of a controlled foreign corporation shall not be required to include in gross income, for such taxable year, any amount under subsection (a) with respect to such company. [Emphasis supplied.]

Were it not for section 951(d), petitioners under section 951(a) would have had to include in their gross income for their taxable years 1964, 1965, and 1967, the sum of (1) Oil Services' foreign personal holding company income (as determined under section 954(c) via sections 951(a)(1)(A)(i), 951(a)(2), 952(a)(2), and 954(a)(1)) and (2) Oil Services' increase in earnings invested in U.S. property (as determined under section 956 via sections 951(a)(1)(B) and 951(a)(4)). The parties agree that because of section 951(d), petitioners need not include Oil Services foreign personal holding company income in their gross income under section 951(a). However, despite section 951(d), respondent argues that petitioners must include Oil Services' increase in earnings invested in U.S. property in their gross income under section 951(a)(1)(B).

If we were faced only with the provisions of the statute, we would have little trouble in rejecting respondent's argument and adopting the straightforward reading of 1972 U.S. Tax Ct. LEXIS 2">*20 section 951(d) urged upon us by petitioners. Since for Leonard's taxable years 1964 and 1965 and for Georgia's taxable years 1964, 1965, and 1967, each was a "United States shareholder who, for his taxable year, is subject to tax under section 551(b) * * * on income of a controlled foreign corporation," it would apparently immediately follow that they "shall not be required to include in gross income, for such taxable year, any amount under subsection (a) with respect to such company." (Emphasis supplied.)

Unfortunately our judicial task becomes complicated because respondent finds direct support for his position in section 1.951-3, Income Tax Regs., which provides in pertinent part as follows:

A United States shareholder (as defined in section 951(b)) who is required under section 551(b) to include in his gross income for his taxable year his share of the undistributed foreign personal holding company income for the taxable year of a foreign personal holding company (as defined in section 552) which for that taxable year is a controlled foreign corporation (as defined in section 957) shall not be required to include in his gross income for his taxable year under section 951(a)59 T.C. 490">*498 and 1972 U.S. Tax Ct. LEXIS 2">*21 paragraph (a) of section 1.951-1 any amount attributable to the earnings and profits of such corporation for that taxable year of such corporation. * * * [Emphasis supplied.]

This regulation indirectly implies that a U.S. shareholder who, for his taxable year, is subject to tax under section 551(b) on income of a controlled foreign corporation might be required to include in his gross income for that year amounts attributable to the corporation's earnings and profits for one of the corporation's other taxable years. That implication is actually spelled out in example 5 of the regulation where it is held that if a corporation is both a foreign personal holding company and a controlled foreign corporation for its taxable year, its sole U.S. shareholder must include in his gross income for his corresponding taxable year not only the corporation's undistributed foreign personal holding company income as required under section 551(b), but also its increase in earnings invested in U.S. property for that year. ^{91972 U.S. Tax Ct. LEXIS 2">*22 1972 U.S. Tax Ct. LEXIS 2">*23 1972 U.S. Tax Ct. LEXIS 2">*24}

Petitioners ask that we invalidate this regulation. We find their request compelling, and hold that insofar as section 1.951-3, Income Tax Regs., requires a U.S. shareholder, who for his taxable year is subject to tax under section 551(b) on income of a controlled foreign corporation, to include in gross income for such taxable year any amount under section 951(a)(1)(B) with respect to such controlled foreign corporation, it is invalid.

59 T.C. 490">*499 In invalidating this regulation we have borne in mind the general principles that regulations must be upheld unless they are unreasonable or plainly inconsistent with the statute and should not be overruled except for weighty reasons, Commissioner v. South Texas Co., 333 U.S. 496">333 U.S. 496, 333 U.S. 496">501 (1948), that insofar as a regulation is not in 1972 U.S. Tax Ct. LEXIS 2">*25 conflict with express statutory provisions, it has the force and effect of law, Maryland Casualty Co. v. United States, 251 U.S. 342">251 U.S. 342, 251 U.S. 342">349 (1920), and that where a statute uses "ambiguous terms, or is of doubtful construction, a clarifying regulation or one indicating the method of its application to specific cases not only is permissible but is to be given great weight by the courts." Koshland v. Helvering, 298 U.S. 441">298 U.S. 441, 298 U.S. 441">446 (1936). But we are also well aware of the propositions that the statute is the primary authority, and the regulations to the extent they are in conflict with the statute are void, Boykin v. Commissioner, 260 F.2d 249, 254 (C.A. 8, 1958), modifying 29 T.C. 813">29 T.C. 813 (1958), that a regulation which conflicts with statutory provisions is a mere nullity, Fabian Tebon, Jr., 55 T.C. 410">55 T.C. 410, 55 T.C. 410">413 (1970), and that where the provisions of a statute "are unambiguous, and its directions specific, there is no power to amend it by regulation." 298 U.S. 441">Koshland v. Helvering, supra at 447.

We believe that application of these principles leads to the inevitable conclusion that the regulation in question here is not only inconsistent with the clear and unambiguous language of the statute but would 1972 U.S. Tax Ct. LEXIS 2">*26 have the effect of departing from and putting aside the statutory mandate. See Lynch v. Tilden Co., 265 U.S. 315">265 U.S. 315, 265 U.S. 315">321 (1924).

Respondent has presented numerous arguments to uphold the validity of his regulation. We are persuaded by none of those arguments for we fail to see how section 1.951-3, Income Tax Regs., can reasonably transform the term "any amount under subsection (a)" into the term "any amount under subsection (a) except amounts under subparagraph (a)(1)(B)."

Respondent's principal contention is that petitioners' reading of section 951(d) runs counter not only to the regulations but to the "statutory scheme" itself. Subpart F was first enacted as part of the Revenue Act of 1962, 76 Stat. 960. By reference to certain general language in the Senate Finance Committee report accompanying the bill which eventually became the Revenue Act of 1962, respondent claims that petitioners' construction --

would thwart the purpose of section 951(a)(1)(B) which was enacted, in general, "* * * to end tax deferral on 'tax haven' operations by U.S. controlled corporations," and, more specifically to insure that foreign corporations' "* * * earnings are not indirectly brought back to the United 1972 U.S. Tax Ct. LEXIS 2">*27 States in a manner which avoids the U.S. tax * * *" S. Rept. 1881, 87th Cong. (1962), C.B. 1962-3, 785-86.

59 T.C. 490">*500 Even assuming that the existence of a clear "statutory scheme" would be sufficient to allow this Court to rewrite the language of the statute, we are unable to agree with respondent's premise that such a consistent "statutory scheme" exists. While we do not doubt that Congress sought to achieve the general purposes quoted above in the Senate committee report, it appears that subpart F, as finally enacted, embodies numerous exceptions to those general purposes. A review of the events leading to the enactment of subpart F is sufficient to show that respondent's ideal of a "statutory scheme" is elusive indeed.

In 1961, President Kennedy sent a tax revision proposal to Congress. In that proposal the President recognized that, "Profits earned abroad by American firms operating through foreign subsidiaries are, under present tax laws, subject to U.S. tax only when they are returned to the parent company in the form of dividends." Hearings on the President's 1961 Tax Recommendations before the House Committee on Ways and Means, 87th Cong., 1st Sess., vol. 1, p. 8 (1961). In order 1972 U.S. Tax Ct. LEXIS 2">*28 to prevent such tax deferral the President proposed legislation which would have taxed "each year American corporations on their current share of the undistributed profits realized in that year by subsidiary corporations organized in economically advanced countries. This current taxation would also apply to individual shareholders of closely held corporations in those countries." Id. at p. 9.

After lengthy hearings the House decided that the President's recommendations went too far and might have had the effect of placing American-owned business operating abroad at a disadvantage with respect to firms operating in the same areas but not subject to U.S. tax. H. Rept. No. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 405, 461-462. Thus, when the House passed H.R. 10650, which eventually became the Revenue Act of 1962, it concentrated primarily on curbing "tax haven" devices and did "not eliminate tax deferral in the case of operating businesses owned by Americans which are located in the economically developed countries of the world." H. Rept. No. 1447, supra, 1962-3 C.B. 461-462; S. Rept. No. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 707, 785. The Senate made further changes which 1972 U.S. Tax Ct. LEXIS 2">*29 included at least two major "escape valves" and numerous other minor relief provisions. S. Rept. No. 1881, supra, 1962-3 C.B. 785-786. Consequently, as eventually enacted subpart F and various related provisions contained many major and minor exceptions to both the President's original proposals and the congressional "general purposes" upon which respondent places such heavy reliance. See, e.g., secs. 954(b)(3), 954(b)(4), 954(c)(3), 956(b)(2), 962, 963, 970-972. While the President's recommendations may have been founded upon broad theories of tax revision, a quick glance at subpart F will show that Congress legislated 59 T.C. 490">*501 in very detailed, tightly organized, and multidefinitional terms in creating these numerous exceptions. No doubt Congress had important and weighty reasons to carve out these exceptions, and many of these reasons are set forth in the committee reports accompanying H.R. 10650. ^{101972 U.S. Tax Ct. LEXIS 2">*30}

But the point to be observed is that the existence of these many exceptions makes it hard to glean from subpart F the precise "statutory scheme" to which respondent alludes. In summary, we are not prepared to say that the purposes and goals of subpart F have been so obviously revealed as to preclude the possibility that Congress intended in certain cases that section 951(d) would provide favorable treatment for the taxpayer.

In any event, if we narrow the scope of our 1972 U.S. Tax Ct. LEXIS 2">*31 inquiry to an examination of the legislative history leading to the provisions for the coordination of the foreign personal holding company provisions with subpart F, we would find not only that such history fails to reveal any strongly pronounced policy with respect to the rule which is set forth in section 1.951-3, Income Tax Regs., but that there is good evidence that in using the language of section 951(d), Congress fully intended the result required by a straightforward reading of that language.

To prevent the possibility of taxation of the same foreign personal holding company income under both sections 551(b) and 951(a), Congress could have adopted any one of at least three approaches in those situations where a foreign corporation happened to be both a controlled foreign corporation and a foreign personal holding company. ^{111972 U.S. Tax Ct. LEXIS 2">*33} It could have taxed such a corporation's U.S. shareholders as if the corporation were solely a foreign personal holding company. Thus, for example, the corporation's U.S. shareholders would not have been required to include in their gross income the corporation's increase in earnings invested in U.S. property since such increase is not taxed under the 1972 U.S. Tax Ct. LEXIS 2">*32 foreign personal holding company provisions. As an alternative, Congress could have taxed such shareholders as if the corporation were solely a controlled foreign corporation. Thus, 59 T.C. 490">*502 for example, the corporation's U.S. shareholders in general would not have been required to include in their gross income the corporation's "rents and royalties which are derived in the active conduct of a trade or business and which are received from a person other than a related person" since such amounts are generally excluded from subpart F income under section 954(c)(3)(A). ¹² Finally, Congress could have taxed such shareholders as if the corporation were both a foreign personal holding company and a controlled foreign corporation. Under this third approach, it could have been provided that amounts included in a U.S. shareholder's gross income under both sections 551(b) and 951(a) would be included only once for the purpose of computing the U.S. shareholder's gross income.

While respondent and his regulations take the third approach, our examination of section 951(d) convinces us that the first approach was the one Congress intended.

In support of our conclusion we first note that as originally reported by the House Committee on Ways and Means, H.R. 10650 had substantially adopted the third approach. Thus, section 13(b)(1) of H.R. 10650 as originally passed by the House sought to modify section 551(b) so that the amount of undistributed foreign personal holding company income otherwise required under section 551(b) to be included in a U.S. shareholder's gross income would be reduced by his proportionate share of undistributed foreign 1972 U.S. Tax Ct. LEXIS 2">*34 personal holding company income which under section 951(a) would have been included in his gross income as his pro rata share of subpart F income. See also H. Rept. No. 1447, supra, 1962-3 C.B. 604. But this provision, which was intended to coordinate the foreign personal holding company provisions with subpart F by modifying section 551(b), was later eliminated and its role was assumed by the addition of section 951(d), which has the effect of modifying section 951(a). S. Rept. No. 1881, supra, 1962-3 C.B. 944.

When Congress shifted the focus of coordination from modification of section 551(b) to modification of section 951(a), did it intend, as the words of section 951(d) require, that neither a controlled foreign corporation's subpart F income nor its increase in earnings invested in U.S. property would be included in the gross income of its U.S. shareholders who were already subject to tax under section 551(b) with respect to such corporation? We believe that an analysis of certain 59 T.C. 490">*503 related legislative changes in the language that eventually became section 951(c) indicates that Congress did have such an intention. ^{131972 U.S. Tax Ct. LEXIS 2">*35}

Section 951(c) coordinates subpart F with the election of a foreign investment company to distribute income. As originally 1972 U.S. Tax Ct. LEXIS 2">*36 passed in the House version of H.R. 10650, section 951(c) provided that a U.S. person who, for his taxable year, is a qualified shareholder of a foreign investment company with respect to which an election under section 1247 is in effect "shall not be required to include in gross income, for such taxable year, subpart F income of such company." (Emphasis supplied.) See also H. Rept. No. 1447, supra, 1962-3 C.B. 589. As changed by the Senate and as eventually enacted, section 951(c) provided that a U.S. shareholder who, for his taxable year, is a qualified shareholder of such company "shall not be required to include in gross income, for such taxable year, any amount under subsection (a) with respect to such company." (Emphasis supplied.) The Senate Finance Committee report explaining this change specifically noted that the "corresponding provision of the bill as passed by the House applied only to subpart F income." S. Rept. No. 1881, supra, 1962-3 C.B. 944. That the Senate intended, by this change, to broaden the exclusion under section 951(c) strongly implies that when it added section 951(d) with its identical words of exclusion, it intended the same result.

Respondent next argues 1972 U.S. Tax Ct. LEXIS 2">*37 that section 951(d) "does not, even on its face, require the construction which petitioners urge."

In support of this proposition he first brings our attention to the fact that section 951(d) is entitled "Coordination with Foreign Personal Holding Company Provisions." He argues that the word "coordination" has been defined to mean "combination in suitable relation or so as to give harmonious results," that the word has been used sparingly in the Internal Revenue Code of 1954, that his research has disclosed no instance where it has been used to describe an "invariably and mutually exclusive relationship between two Code sections," and that under the above definition such use would probably be improper.

Respondent is grasping at straws.

59 T.C. 490">*504 In the first place while the heading of a section or subsection may have some bearing on the meaning of the statutory language if such language is ambiguous, e.g., Renstrom v. United States, 220 F. Supp. 688">220 F. Supp. 688, 220 F. Supp. 688">692 (D. Neb. 1963), we could not read the title of section 951(d) in a manner which would destroy the clear and unambiguous text of that section. Cf. sec. 7806(b). Furthermore, use of the word "coordination" in each of such sections as sections 951(c), 1972 U.S. Tax Ct. LEXIS 2">*38 992(e), 3402(n), and 7447(g) appears to describe no less "an invariably and mutually exclusive relationship between two Code sections" than does the relationship we have set forth with respect to sections 551(b) and 951(a). ^{141972 U.S. Tax Ct. LEXIS 2">*39} Finally, respondent's definition (which is only one of several definitions available in the dictionaries) does not appear inappropriate to describe the manner in which we read section 951(d) as linking subpart F to the foreign personal holding company provisions.

Respondent's final attempt to convince us of his position relates to what he perceives as an ambiguity in the words "any amount." Referring to a U.S. shareholder, respondent rhetorically asks, "He need not include 'any amount' of what?" and answers his own question by saying "he need not include any amount of the corporation's current income." If respondent had continued reading section 951(d), he would have realized that the proper answer to his question would have been that such a shareholder need not include "any amount under subsection (a) with respect to such company."

Respondent fears that our construction of section 951(d) would convert section 551 into a "relief provision." ^{151972 U.S. Tax Ct. LEXIS 2">*40 1972 U.S. Tax Ct. LEXIS 2">*41 1972 U.S. Tax Ct. LEXIS 2">*42}

However, there is no more persuasive evidence of the statute's purpose than the words by which Congress undertook to give expression 59 T.C. 490">*505 to its wishes, and here examination of the legislative history does not require a different interpretation of those words. See United States v. Amer. Trucking Ass'ns., 310 U.S. 534">310 U.S. 534, 310 U.S. 534">543 (1940). 1972 U.S. Tax Ct. LEXIS 2">*43 If for any reason the language of the statute should be changed, it is the responsibility of Congress, and not the prerogative of this Court, to effect such change.

Because of our resolution of this issue we need not reach petitioners' alternative argument that if Oil Services' increase in earnings invested in U.S. property is includable in petitioners' gross income under section 951(a)(1)(B), then Oil Services' earnings and profits accumulated before 1963 should not be taken into account in calculating such increase.

As Oil Services was not a foreign personal holding company in 1963, petitioners for 1963 were not subject to tax under section 551(b) with respect to Oil Services. Thus, since Oil Services was a controlled foreign corporation and since it had an increase in earnings invested in U.S. property for 1963, petitioners were required under section 951(a)(1)(B) to include such increase in their gross income for 1963.

Petitioners contend that the tax imposed upon them by the operation of section 951(a)(1)(B) is unconstitutional. They have summarized their grounds for this view as follows: ^{161972 U.S. Tax Ct. LEXIS 2">*45}

59 T.C. 490">*506 Stated directly, the issue here is whether Subpart F -- Controlled 1972 U.S. Tax Ct. LEXIS 2">*44 Foreign corporations, being Sections 951-964, at least to the extent that it attempts to impose a tax on shareholders of a controlled foreign corporation on an amount equal to the shareholder's pro-rata share of increase in earnings invested in U.S. property for a particular year involved, as outlined in Section 951(a)(1)(B) and 956(a)(1) and ( 2) IRC 1954, [is] invalid under the provisions of Article I, Sections 2, Clause 3 and 9, Clause 4, not apportioned among the states according to census and enumeration, and not within the meaning of income as referred to in the 16th Amendment to the U.S. Constitution.

Under this argument petitioners must show that the tax to which they object is both a direct tax unapportioned among the States and a tax on something which does not constitute income within the meaning of the 16th amendment; if they fail to show either, they must fail altogether. Penn Mutual Indemnity Co., 32 T.C. 653">32 T.C. 653 (1959), affd. 277 F.2d 16">277 F.2d 16 (C.A. 3, 1960). Bearing in mind that every act of Congress is presumed valid and constitutional unless otherwise shown, e.g., United States v. Gambling Devices, 346 U.S. 441">346 U.S. 441, 346 U.S. 441">449 (1953); Buttfield v. Stranahan, 192 U.S. 470">192 U.S. 470, 192 U.S. 470">492 (1904), we conclude that the tax payable by petitioners on Oil Services' increase in earnings invested in U.S. property for 1963 is a tax on income and hence within the power given to Congress under the 16th amendment. ^{171972 U.S. Tax Ct. LEXIS 2">*46}

Petitioners have based their constitutional arguments on the general operation of the statute and have posed hypothetical situations based on that operation.

Looking to the precise facts here we find that for 1963 petitioners Leonard and Georgia were husband and wife and owned all of Oil Services' stock as joint tenants with right of survivorship. In 1963 Oil Services had an increase in earnings invested in U.S. property. Under the statute this increase triggered inclusion in petitioners' 1963 gross income of an amount equal to the increase. At the same time Oil Services' 1963 earnings and profits were appreciably larger than this increase. ¹⁸ If the amount included in petitioners' 1963 gross income under section 951(a)(1)(B) is deemed as deriving from Oil Services' 1963 earnings and profits, ¹⁹ the question we must answer boils down to whether Congress may constitutionally tax the current 59 T.C. 490">*507 undistributed income of a corporation to the corporation's only two joint 1972 U.S. Tax Ct. LEXIS 2">*47 stockholders.

We should first point out that Oil Services' undistributed 1963 earnings and profits were as much petitioners' income as if petitioners had received such earnings and profits themselves. 1972 U.S. Tax Ct. LEXIS 2">*48 We emphasize this reality because petitioners' arguments imply that in certain cases the taxation of a controlled foreign corporation's minority U.S. stockholder on that corporation's income would be unfair or inequitable. We perceive in these arguments an attack on the statute on due process grounds. See, e.g., Heiner v. Donnan, 285 U.S. 312">285 U.S. 312, 285 U.S. 312">326-327 (1932), and Hoeper v. Tax Commission, 284 U.S. 206">284 U.S. 206, 284 U.S. 206">215 (1931). But such an attack would fail. Whether we employ a theory based on constructive receipt, e.g., Ross v. Commissioner, 169 F.2d 483, 490-491 (C.A. 1, 1948), alter ego, compare National Carbide Corp. v. Commissioner, 336 U.S. 422">336 U.S. 422, 336 U.S. 422">427-428, fn. 6 (1949), with Moline Properties v. Commissioner, 319 U.S. 436">319 U.S. 436, 319 U.S. 436">440 (1943), or actual command, e.g., Higgins v. Smith, 308 U.S. 473">308 U.S. 473, 308 U.S. 473">478 (1940), it is clear that petitioners' joint control of Oil Services' income was absolute and complete. If Congress has legislatively declared that it will bypass the corporate entity in taxing certain foreign-source income, the mere circumstance of petitioners' interposition of a foreign corporate framework between themselves and income over which they had complete control would certainly be no 1972 U.S. Tax Ct. LEXIS 2">*49 constitutional barrier to the taxation of that income to petitioners. See Helvering v. City Bank Co., 296 U.S. 85">296 U.S. 85, 296 U.S. 85">90 (1935).

Petitioners also argue that attribution of a corporation's income to its stockholders violates the basic concept that a corporation is an entity separate and distinct from its stockholders. Whatever may be the validity of that concept, the history of U.S. income taxation shows that Congress has for decades been drafting income tax statutes which have bypassed the corporate entity. Furthermore, the Supreme Court's pronouncements have been to the effect that taxation of undistributed current corporate income at the stockholder level rather than at the corporate level is within the congressional power.

In Collector v. Hubbard, 12 Wall. 1 (1870), the Supreme Court held not only that Congress could tax income but also that it could tax a corporation's annual undistributed income to the corporation's shareholders. However, in Pollock v. Farmers' Loan & Trust Co., 158 U.S. 601">158 U.S. 601 (1895), supplementing 157 U.S. 429">157 U.S. 429 (1895), a closely divided Supreme Court held that under an 1894 Act taxes imposed on income from real or personal property were equivalent to direct taxes and 1972 U.S. Tax Ct. LEXIS 2">*50 were therefore unconstitutional since they had not been apportioned among the States. In 1913, as an answer to Pollock, the 16th amendment was enacted to give Congress the "power to lay and collect taxes on incomes, 59 T.C. 490">*508 from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

Shortly after the enactment of the 16th amendment, Congress enacted the first modern income tax measure, the Tariff Act of 1913, 38 Stat. 114. In that Act as well as in the Revenue Acts of 1916 and 1918 Congress included in stockholders' income undistributed profits accumulated by corporations availed of for the purpose of preventing imposition of surtaxes on the stockholders. ^{201972 U.S. Tax Ct. LEXIS 2">*51} Sec. 220, Revenue Act of 1918, 40 Stat. 1072; sec. 3, Revenue Act of 1916, 39 Stat. 758; sec. IIA, subdiv. 2, Tariff Act of 1913, 38 Stat. 166. Furthermore, under the Revenue Acts of 1918 and 1921 and until 1922, "personal service corporations" were not taxed, but their individual stockholders were taxed in the same manner as members of partnerships. Sec. 218(d), Revenue Act of 1921, 42 Stat. 245; sec. 218(e), Revenue Act of 1918, 40 Stat. 1070.

In 1920 the Supreme Court handed down the landmark case of Eisner v. Macomber, 252 U.S. 189">252 U.S. 189 (1920), upon which petitioners place heavy reliance. The issue in Macomber was whether, by virtue of the 16th amendment, Congress had the power to tax, as income of the stockholder and without apportionment, a stock dividend made against a corporation's profits accumulated after February 28, 1913. In a 5-4 decision the Supreme Court decided that Congress had no such power. The reasoning was that such accumulated earnings constituted the stockholder's share in capital, and not income. 252 U.S. 189">252 U.S. at 219. But we cannot read Macomber as denying to Congress the power to attribute a corporation's undistributed current income to the corporation's controlling stockholders.

In the first place the majority in Macomber was primarily addressing itself to situations involving corporations in which stockholders had none of the control contemplated by subpart F. Thus, the majority speaks at length of the existence and nonexistence of stockholder 1972 U.S. Tax Ct. LEXIS 2">*52 rights in a corporation's profits and capital. 252 U.S. 189">252 U.S. at 208-209. In view of the thrust of the Court's logic it is safe to say that the Court simply did not direct itself to the situation of the tightly controlled corporation where controlling stockholders are able to manipulate the corporation's profits and capital almost at will.

But, in passing, the majority did remark that a court has the power and duty to look through the form of the corporation to determine the question of stockholder rights in order to ascertain whether a stockholder had received income taxable by Congress without apportionment. 252 U.S. 189">252 U.S. at 213. Thus, in matters of income taxation the 59 T.C. 490">*509 Macomber decision would not prohibit disregard of the corporate entity if a stockholder's actual rights and powers over the corporation's income were sufficiently great. In subpart F Congress has singled out a particular class of what it considered appropriate cases for bypassing the corporate entity in determining the incidents of income taxation. By enacting this statute Congress legislatively determined that possession of a certain degree of control over the corporation gives to a stockholder certain rights and powers which, 1972 U.S. Tax Ct. LEXIS 2">*53 in effect, permit command over the corporation's undistributed income. Since it is clear in the instant case that petitioners had the actual right and power to manipulate their corporation as if it were the family pocketbook, Macomber would be no bar to the application of that legislative determination. Cf. Asiatic Petroleum Co. v. Commissioner, 79 F.2d 234">79 F.2d 234, 79 F.2d 234">238 (C.A. 2, 1935), affirming 31 B.T.A. 1152">31 B.T.A. 1152 (1935), certiorari denied 296 U.S. 645">296 U.S. 645 (1935) ("If anticipatory arrangements intended to circumvent taxes may be disregarded by courts without the aid of statutory authority, a statute authorizing the Commissioner to disregard them under similar circumstances cannot be unconstitutional.")

It is also important to note that the Macomber majority was primarily concerned with Congress' power to tax a corporation's undistributed accumulated earnings to the corporation's stockholders, and did not linger upon the question of congressional power to tax a corporation's current undistributed income to the corporation's stockholders. ^{211972 U.S. Tax Ct. LEXIS 2">*54}

We conclude that, on the facts of the instant case, there is no constitutional bar to taxation of the corporation's undistributed current income to the corporation's controlling stockholders. At least two lower courts have reached constitutional issues involving the foreign personal holding company provisions and in both instances have found the provisions to be constitutionally sound. See Eder v. Commissioner, 138 F.2d 27 (C.A. 2, 1943), remanding on other grounds 47 B.T.A. 235">47 B.T.A. 235 (1942); Rodney v. Hoey, 53 F. Supp. 604">53 F. Supp. 604 (S.D.N.Y. 1944), and cases there cited. Originally enacted in 1937, those provisions are analogous to subpart F in that, in general, they tax U.S. shareholders of foreign personal holding companies on such companies' undistributed income. Most recently in Garlock Inc., 58 T.C. 423">58 T.C. 423 (1972), we held that the taxation to a controlled foreign corporation's U.S. shareholders of the corporation's subpart F income was not unconstitutional.

In light of the case law and 1972 U.S. Tax Ct. LEXIS 2">*55 our observations today, we go one step further and hold that as applied to the instant case the taxation to a 59 T.C. 490">*510 controlled foreign corporation's U.S. shareholders of the corporation's increase in earnings invested in U.S. property is not unconstitutional.

Petitioners' final argument pertains to the availability to respondent of the 6-year statute of limitations of section 6501(e)(1)(A)(ii). ^{221972 U.S. Tax Ct. LEXIS 2">*56} The parties agree that petitioners omitted from their gross income $ 13,653 which on the face of section 951(a)(1)(B) was properly includable on their return for 1963 as under Oil Services' increase in earnings invested in U.S. property. This amount was in excess of 25 percent of the amount of gross income stated in their return. It is also clear that respondent notified petitioners of this deficiency more than 3 years but not more than 6 years after they had filed such return. The question presented is whether petitioners' return provided adequate disclosure of the omitted gross income.

In order for petitioners to come within the protection of section 6501(e)(1)(A)(ii), amounts omitted from gross income stated in the return should have been disclosed therein, or in a statement attached thereto, in a manner adequate to apprise the Commissioner "of the nature and amount of such item." (Emphasis supplied.) While disclosure of the type anticipated in section 6501(e)(1)(A)(ii) does not mean "a detailed revelation of each and every 1972 U.S. Tax Ct. LEXIS 2">*57 underlying fact," neither does it mean existence of "a 'clue' which would be sufficient to intrigue a Sherlock Holmes." George Edward Quick Trust, 54 T.C. 1336">54 T.C. 1336, 54 T.C. 1336">1347 (1970), affd. 444 F.2d 90 (C.A. 8, 1971). In the present case we find that the few bits of disclosed information fail to give even the vaguest clue of the nature or amount of petitioners' omission.

The only facts tending to show disclosure are three items listed on the asset side of Oil Services' balance sheet for December 31, 1963. These items were notes receivable of $ 47,077.49, accounts receivable of $ 181,924.88, and investment in common stocks of $ 257,500. There was no listing of Oil Services' assets as of the beginning of 1963, nor was there any indication that any part of these items constituted U.S. property within the meaning of section 956(b). These meager balance sheet entries were insufficient to enable respondent to determine whether Oil Services had any earnings invested in U.S. property in 1963, much less whether it had an increase in such earnings for that 59 T.C. 490">*511 year. The existence of such an increase was of course necessary for the ultimate finding that petitioners' gross income should have been augmented 1972 U.S. Tax Ct. LEXIS 2">*58 by the operation of section 951(a)(1)(B).

Petitioners cite such cases as Colony, Inc. v. Commissioner, 357 U.S. 28">357 U.S. 28 (1958), Benderoff v. United States, 398 F.2d 132 (C.A. 8, 1968), Lazarus v. United States, 142 F. Supp. 897">142 F. Supp. 897 (Ct. Cl. 1956), and Genevieve B. Walker, 46 T.C. 630">46 T.C. 630 (1966), and rely heavily on Lyta J. Morris, T.C. Memo. 1966-245. Nothing in those cases, or in any other of the cited cases, supports petitioners' view that they had provided respondent with a clue which constituted adequate disclosure for the purposes of section 6501(e)(1)(A)(ii). In the instant case there are just too many missing fact links in the logical chain connecting the items actually disclosed to the ultimate disclosure that petitioners had omitted amounts from the gross income stated on their return.

Decision will be entered under Rule 50.