Court Opinion

ID: 4595833
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:15:50.184404+00
Date Added: 2024-06-11T07:51:30.839778
License: Public Domain

APPEAL OF DE MARTINI-ZEREGA AGENCY CO.De Martini-Zerega Agency Co. v. CommissionerDocket No. 4562.United States Board of Tax Appeals3 B.T.A. 620; 1926 BTA LEXIS 2602; February 9, 1926, Decided Submitted October 15, 1925.  *2602 T. Francis Campbell, C.P.A., for the taxpayer.  J. Arthur Adams, Esq., for the Commissioner.  *620  Before MARQUETTE and LOVE.  This is an appeal from the determination of deficiencies in income and profits taxes for the calendar years 1919, 1920, and 1921, in the total amount of $4,367.62.  The question is whether the taxpayer is entitled to classification as a personal service corporation.  FINDINGS OF FACT.  The taxpayer is a Missouri corporation, with principal office in St. Louis.  It was organized in September, 1915, with capital stock of $5,000, consisting of 100 shares of $50 par value each, which were owned as follows: Shares.James J. De Martini51Louis Zerega44Victor Zerega5All three of the stockholders were employed as officers of the taxpayer and devoted all of their time to its activities.  The only other employee was a woman bookkeeper-stenographer.  De Martini worked in the office most of the time, Making contracts for loans and insurance, buying real estate for clients, soliciting insurance and selling property.  The two Zeregas attended to the collecting of rents, soliciting insurance, and selling*2603  real estate, and also attended to repairs for clients.  For the last-mentioned, the commission received was 10 per cent of the bill.  The income of the taxpayer was derived from commissions on insurance, on sales of real estate, on the collecting of rents, on the making of loans, and on the making of repairs, and from the gain on the sale of real estate and from interest on loans.  The actual income for the years in question was: 191919201921Commissions:Real estate (including commissions on loans)$5,872.94$10,469.83$7,757.22Insurance4,437.436,326.756,953.08Rent634.931,253.951,885.13Repairs384.49310.33296.13Special229.1360.16294.67Notary fees48.7587.5075.25Profit on real estate sales1,471.352,249.80311.87Interest1,284.791,804.872,500.45Total income14,363.8122,563.1920,073.80*621  The expenses for the years in question were: 191919201921Officers salaries$5,455.00$7,507.54$7,143.86Other salaries855.001,020.661,260.00Office rent448.00577.50870.00Telephone and advertising360.30202.94200.00Interest paid1,457.071,625.721,783.05Depreciation of furniture and fixtures54.1156.0168.70Miscellaneous expenses568.25674.511,050.11Total9,197.7311,664.8812,375.72*2604  The balance sheets of the taxpayer at the closing of each calendar year showed: 1918191919201921ASSETS.Cash$892.64$4,422.20$3,628.36$3,101.22Liberty Bonds190.20War Savings stamps21.0621.0621.0621.06U.S. Revenue Stamps3.6239.06.973.65Real-estate loan account17,350.0019,950.0019,450.0015,575.00Deeds of trust3,675.008,135.009,090.004,435.00Accounts receivable6,684.707,988.856,484.109,052.06Real estate2,744.52Furniture and fixtures522.13560.13560.13813.95Due from officers1,780.98Total32,083.8741,116.3039,234.6234,782.92LIABILITIES.Capital stock2,291.095,000.005,000.005,000.00Surplus or deficit(533.92)(311.55)(1,008.18)(3,388.41)Allowance for depreciation146.07200.18256.19324.89Notes payable11,500.0010,700.006,500.00Accounts payable17,415.3234,772.0216,303.0523,394.29Due officers1,265.311,455.657,342.94Income tax liability640.622,952.15Total32,083.8741,116.3039,234.6234,782.92In making loans to clients, the taxpayer either used its own funds, used the funds of other clients, *2605  who advanced the money to the taxpayer for the purpose, or borrowed the necessary money from banks.  It charged commissions for arranging loans of funds other than its own.  The largest amount owed by the taxpayer to banks at any one time during 1919 was from $3,000 to $4,000.  In its insurance business, the taxpayer paid the insurance companies the premiums monthly, whether collected or not.  The sales of real estate in which the taxpayer participated on its own account during the years in question were: Sale No.Date sold.Sale price.Rent collected1March, 1919$6,462.6102June, 19192,275.1003April, 1919900.0004September, 19192,284.60$79.505December, 19191,973.55228.606September, 192015,812.931,227.507July, 19214,765.96115.00Sale No.Date bought.Cost.Profit.1March, 1919$6,085.00$377.612November, 19182,197.7577.353December, 1917676.95223.054April, 19192,190.20173.905February, 19191,582.71619.446March, 192014,790.632,249.807April, 19214,569.09311.87*622  Capital, invested and borrowed, was a material income-producing*2606  factor.  DECISION.  The determination of the Commissioner is approved.