The Washington herald., 1920-02-13
REAL ESTATE
BROKERS' TAX
Eliminated From Relief Un-
der Personal Service
Clause.
UNFAIR, SAYS EXPERT
Revenue Bureau Should
Revise Decision In
Many Gases.
UNFAIR, SAYS EXPERT

Attorney William Clabaugh. Mu-
tual Building. who also as certIned
public accountant is recognized as
one OF the country's authorities on
the income tax. points out a feature
OF the tax affecting real estate
brokers. Mr.. cIabsugh says:
The Bureau OF Internal Revenue
has taken the position, under the
language of Article l525 OF ReguIa-
tions as, that a real estate broker
age house. incorporated. which en-
ploys statesmen. must for that rea-
son be denied the status Of per
sonal service corporation for tho
purposes of the tax. Under the
usual basis OF employment Of sales
men by real estate firms and com
panies. the statesmen are not car
ried on a payroll but are permitted
to operate with the firm. or com
pany. on a share basis IN respect
to the commissions earned Tie
view Of the bureau il that the en-
ployment. IL Il can be SO called. of
these statesmen, constitutes trading
in the service Of others and places
the house. il incorporated. iu tn.
status OF q trader for the purposes
of taxation.
while this decision comes from
the Capital Stock Division n tho
bureau. IL Is apparent that IN" pr
cedent thus established must al
most Inevitably. prejudice such con-
Germs in respect 20 the income and
excess profits taxes, when the same
question Is raised in those divisions.
when II is realized that many.
and in fact most. OF the incurporaJ-
ed real estate brokerage houses op-
crate with no more capital than e.
necessary for the purpose OF carry
ing office furniture. etc. IL will he
at once seen that the placing or
such concerns in the position or
. being taxed on tho basis of the sN-
cess profits tax. with IN exemption
and rate PrediCatcd ~ the amount
2 Of invested capital. MI result in
seriously penaliziuE business
which. in the very nature OF its
= activities H. distinr'ly entitled 20
service status.
To take a house. carrying no ma
terial investment. aud make its tax
3 alton apply on tho same basis as a
I trading company. will mean, in most
, instances. a taxation closely ap-
7 pToNimatinE forty-siN per centum
Of the entire earnings. because ther-
/ is no capital 81 any important
amount on which {" base the cr"d-
I its allowed under the law.
Agency. brokerage. etc, ara
definitely within tho scope "f tho
relief afforded personal service cor
porations. Tho so-callsd personal
4 service corporation is the direct d.
7 sCendant Of tho business not requir
/ ing invested capital as provided IN
ithc Act Of 1917. and to take out ~
THAT category a business - clearly
within tn" intent Of tho Legislators.
I Is a construction that should not NJ
adhered to by the bureau. The fact
that the concerns may employ -
statesmen. on the division " com
mission basis. should not pr"jud ir"
an otherwise admitted exempt inrI.
III such a view Is to hold th"n
We would naturally expect 10 hrd
other forms of agency. brokeraG".
etc. similarly situated with respect
I to investment. burdcncd. IN Ike
manner. with the high rsN rates
/ that will obtain under that view.
/ II is hoped hy those concerned that
/ tho bureau will appreciate the rr-
equality Of the position thus an
nounccd and reverse the decision a
least in those cases whore there arc
! no other factors involved"