Court Opinion

ID: 4621204
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:44:11.606131+00
Date Added: 2024-06-11T07:59:48.581135
License: Public Domain

MARYLAND CAR WHEEL CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Maryland Car Wheel Co. v. CommissionerDocket No. 19081.United States Board of Tax Appeals19 B.T.A. 356; 1930 BTA LEXIS 2414; March 21, 1930, Promulgated *2414  Salaries paid to officers did not create an abnormal condition within the meaning of section 327 of the Revenue Acts of 1918 and 1921 so as to entitle petitioner to special assessment.  Harry Schwartz, Esq., for the petitioner.  W. Frank Gibbs, Esq., O. W. Swecker, Esq., B. P. Putnam, Esq., J. D. Larson, Esq., and A. M. Finn, Esq., for the respondent.  MORRIS*356  This proceeding is for the redetermination of deficiencies of $2,171 and $1,506.75, income and profits taxes for the fiscal years ended March 31, 1920 and 1921, respectively.  The only issue is whether respondent erred in denying petitioner special assessment under sections 327 and 328 of the Revenue Acts of 1918 and 1921.  At the hearing motion of respondent's counsel that the hearing be limited to the question of whether petitioner is entitled to have its tax computed under section 328 was granted.  FINDINGS OF FACT.  The petitioner is a Maryland corporation engaged in the manufacture of car wheels, with its principal place of business in Baltimore.  The business was founded in or about 1899.  During 1920 and 1921 the petitioner's capital stock had a par value of $100,000, *2415  and the 1,000 shares outstanding were held as follows: SharesArthur G. Wellington387 1/2Mrs. Robert McDougal175Robert McDougal5Mrs. R. C. Turck175Colonel R. C. Turck5Walter Todd127 1/2W. F. Newbert115L. W. Newbert10Total1,000*357  The stockholders were composed of five family groups, Robert McDougal and Mrs. Robert McDougal being husband and wife, as were Colonel and Mrs. Turck.  Mrs. McDougal and Mrs. Turck were sisters, being daughters of one of the founders of the petitioner.  L. W. Newbert was the son of W. F. Newbert.  The officers of the petitioner were Arthur G. Wellington, president and treasurer, W. F. Newbert, vice president and assistant treasurer, and Walter Todd, secretary.  With the exception of Wellington, who received $15,000 per year during the fiscal years 1920 and 1921, petitioner paid no salaries to its officers.  The conduct and management of the business rested entirely with Willington, and, so far as the other officers and directors were concerned, their duties were largely limited to the attendance of annual meetings or such special meetings as Wellington might call.  Wellington's salary was increased*2416  from $10,000 to $15,000 by the directors sometime prior to the fiscal year 1920.  Wellington became associated with the business almost at its inception, having been selected by the founders of the business, Christopher B. and Nathaniel S. Bouton, as the most promising young man in the car-wheel business in the west.  He developed a genius for the business, handling the purchase of the iron, its manufacture into car wheels, and the disposition of the finished product practically without assistance from the other officers of the company.  Petitioner's gross sales, net income, compensation paid to officers, invested capital, profits tax, and percentage of profits tax to net income for the fiscal years ended March 31, 1920 and 1921, are as follows: 19201921Gross sales 1$1,571,259.70$1,774,152.80Net income366,505.26247,635.27Compensation to officers15,000.0015,000.00Invested capital893,233.23962,515.17Profits tax100,938.1344,553.26Percentage 2 --- per cent27.5418.06Returns of the New York Car Wheel Co. for the calendar years 1919, 1920, and 1921, and returns of the Buffalo*2417  Car Wheel Co. for fiscal years ended October 31, 1919, 1920, and 1921, and returns of the Bass Foundry Co. for the periods January 1 to July 31, 1919, August 1 to December 31, 1919, and the calendar years 1920 and 1921, were submitted for the purpose of showing that the compensation paid officers by the petitioner was an abnormal condition affecting its income.  These returns show that salaries were paid to specific *358  officers of these companies as follows, together with gross sales, invested capital and net income for the several years: New YorkCar Wheel Co.SalaryNameOfficeTime191919201921F. B. CooleyPresidentEntire time$22,500$22,499.92$22,500W. H. CooleyTreasurerdo12,50012,50012,500J. T. MoreySecretaryPart time2,5001,5002,50037,50036,499.9237,500Gross sales1,530,4011,921,172657,195Invested capital614,350735,547684,933Net income168,76673,669113,690Buffalo Car Wheel Co.[Fiscal year ended October 31]NameOfficeTime191919201921B. W. AppletonPresidentOne-sixth time$1,800$2,8001 $3,000A. B. NeillVice presidentEntire time3,999.973,166.64(2)A. R. MoendoOne-half time2,411.093,999.96A. C. CurranSecretaryEntire time3,799.987,166.686,3009,599.9515,544.4113,299.96Gross sales712,456969,484437,528Invested capital267,381296,720229,650Net income77,49581,67416,094*2418 Bass Foundry & Machine Co.SalaryOfficerTimeJan. 1 to Aug. 1 to July 31, 1919Dec. 31, 1919PresidentTime devoted not shown$6,000(1)Vice presidentdo6,000(1)Dodo11,070(1)Treasurerdo4,999.96(1)Subofficers salaries7,708.33(1)35,778.29$15,654Gross sales3,594,7051,060,192Invested capital2,931,991(2)Net income419,40247,587*359 Bass Foundry & Machine Co.SalaryNameOfficeTime19201921J. H. BassPresidentTime devoted $6,000$6,000not shownC. T. StrawbridgeVice presidentdo6,0006,000G. M. LeslieTreasurerdo5,0005,000J. M. GarvinVice presidentdo12,0008,250A. W. PickardAssistant treasurer6,0005,25035,000[*] Gross sales3,160,9351,527,467Invested capital(1)(1)Deficit108,483326,039No part of petitioner's gross income resulted from gains, profits, commissions, or other income derived on a cost*2419  plus basis from Government contracts made after April 5, 1917.  OPINION.  MORRIS: The question presented is whether the respondent erred in failing to compute petitioner's profit tax under section 328 of the Revenue Acts of 1918 and 1921 because abnormally low salaries were paid to its officers.  This same question has been presented for decision in numerous other cases in which we held that low officers' salaries did not constitute an abnormal condition which would entitle a taxpayer to special assessment.  ; ; ; ; ; and . The facts in this proceeding are not distinguishable in any material respects from the above cited opinions. Decision will be entered for the respondent.Footnotes1. As reported on returns.  ↩2. Computed. ↩1. One-fourth time.  ↩2. One-half year. ↩1. Division not shown.  ↩2. Uncomputed. ↩1. Uncomputed. ↩