Court Opinion

ID: 6840860
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:17:29.995975+00
Date Added: 2024-06-11T16:04:50.820462
License: Public Domain

ANDERSON, Circuit Judge
(dissenting). In my view the facts found by the Board negative their conclusion that the petitioner is not entitled to classification as a personal service corporation. The three stockholders worked from 14 to 20 hours a day at the corporation’s business, without salaries. Their activities consisted in obtaining orders, mostly from their Italian compatriots, for bananas, at prices fixed by the fruit company. The fruit was shipped by the fruit company, at its own expense, direct to these purchasers. The petitioner carried no stock of bananas. The fruit company invoiced the bananas thus sold to the petitioner, on a 30-day credit. But the Board expressly found that, under the course of business, it was seldom necessary to avail of a credit period longer than 15 days, “because the petitioners sold to their customers either for cash or on a 10-day credit, followed up collections closely, and promptly cut off the credit of any debtor who failed to make payment within a week or two”; that “when the cash was collected, it was turned over to the Fruit Company”; that the fruit company then paid to the corporation the 5 per cent, commission, agreed upon for the services rendered by the stockholders in getting the orders and making the collections. In no proper business sense was the plaintiff a trader; nor was its income in any substantial part profits; for it sold the bananas at prices fixed, not by itself as purchaser, but by the fruit company. The profits of a “trader” are the difference between his purchase price and selling price, made by himself — not by his vendor. Commissions for selling and collecting are not fairly called profits. "While the title of the bananas may have passed through the plaintiff, its relations to the fruit company were more like those frequently (perhaps inaccurately) described as the relations of prinei- , pal and agent, rather than those of vendor and vendee. Cf. Willcox & Gibbs Mch. Co. v. Ewing, 141 U. S. 627, 12 S. Ct. 94, 35 L. Ed. 882.
The income of this corporation clearly “is to be ascribed primarily to the activities of the principal owners or stockholders”; for it appears that in 1919, out of a gross income of $29,482.29, $26,998.05 was derived from commissions paid directly to the petitioners by the fruit company; that in 1920, out of a gross income of $37,358.62, $35,760.37 was derived from such commissions.
If the three stockholders had not formed a corporation and had had no capital whatsoever, but had proceeded as an impecunious partnership, their essential relations, both to the fruit company and to their customers, would not have been substantially changed. The capital of $25,000 did not figure materially in the business or in the income. The business was essentially the personal work of the three stockholders, and the income almost overwhelmingly commissions — not profits. The only capital that performed any function in the real business of this corporation was capital furnished by the buyers of the bananas; for they paid the petitioner for the bananas purchased by them, before the petitioners paid the fruit company for the same bananas. The petitioners’ capital was not dynamic; it was static, a mere investment. Cf. Appeal of Bryant & Stratton Commercial School, 1 B. T. A. 32.' For personal income the three stockholders annually took a large portion of their commissions, as dividends.
These views are in full accord with numerous decisions of other courts. Fuller & Smith v. Routzahn (D. C.) 23 F.(2d) 959; North Am. R’y Constr. Co. v. Commissioner (C. C. A.) 27 F.(2d) 493, 59 A. L. R. 1274; W. A. Gordon & Co. v. Lines (D. C.) 25 F. (2d) 894; New Orleans Shipwright Co. v. Commissioner (C. C. A.) 27 F.(2d) 214; Posse-Nissen School v. United States (D. C.) 25 F.(2d) 748; Atlantic Coast Distributors v. Commissioner (Fourth Circuit, C. C. A. July 12, 1929) 33 F.(2d) 733.