Court Opinion

ID: 4472936
Source: CourtListenerOpinion
Date Created: 2020-01-14 19:35:00.535163+00
Date Added: 2024-06-11T15:04:30.862233
License: Public Domain

Black, /., dissenting: I respectfully dissent from the majority opinion wherein it holds that petitioner was a personal service corporation within the meaning of section 725 (a) of the Internal Revenue Code during the taxable year. I readily agree with the majority opinion that the facts show that capital was not a material income-producing factor in petitioner’s business. But I am unable to agree with the conclusion that petitioner’s income in the taxable year is to be ascribed primarily to the activities of one of its stockholders, namely, Alice Trout. It is unnecessary, of course, to emphasize that the excess profits tax statute is a complicated one and Congress has conferred upon the Treasury Department authority to promulgate regulations in its enforcement. The Treasury has done that in Regulations 112, section 35.725-2 (c) of which reads in part as follows: * * * IE employees other than shareholders contribute substantially to the services rendered by a corporation, such corporation is not a personal service corporation unless, in every case in which services are so rendered, the value of and the compensation charged for such services are to be attributed primarily to the experience or skill of the shareholders and such fact is evidenced in some definite manner in the normal course of the business or profession. The fact that the shareholders give personal attention or render valuable services to the corporation as a result of which its earnings are greater than those of a corporation engaged in a like or similar business or profession, the shareholders of which are not regularly' engaged in the activities of the corporation, does not of itself constitute the corporation a personal service corporation. So far as I am able to see the foregoing is a reasonable and valid regulation in the enforcement of section 725. I do not think that petitioner has borne the burden of proof in bringing itself within the ambit of the foregoing regulation. In fact I would say that the facts as found in the majority report affirmatively show that petitioner does not bring itself within the foregoing regulation. Therefore, I think that the ultimate finding of the majority that “The petitioner was a personal service corporation within the meaning of section 725 (a) of the Internal Revenue Code during the taxable year” is not justified and therefore should not be made. Turnee, Leech, Tyson, and Disney, JJn agree with this dissent.