Court Opinion

ID: 4591622
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:06:12.832259+00
Date Added: 2024-06-11T07:50:42.480894
License: Public Domain

APPEAL OF D. A. FISHER, INC.D. A. Fisher, Inc. v. CommissionerDocket No. 4128.United States Board of Tax Appeals3 B.T.A. 368; 1926 BTA LEXIS 2693; January 16, 1926, Decided Submitted July 15, 1925.  1926 BTA LEXIS 2693">*2693 O. R. Ewing, C.P.A., for the taxpayer.  J. Arthur Adams, Esq., for the Commissioner.  3 B.T.A. 368">*368  Before LITTLETON, SMITH, and TRUSSELL.  This is an appeal from the determination of a deficiency in income and profits tax for the calendar year 1918 in the amount of $2,616.68, arising from the denial of taxpayer's claim that it was entitled to classification as a personal service corporation.  FINDINGS OF FACT.  Taxpayer is a Tennessee corporation with principal office at Memphis, engaged in business as an insurance agency, writing all kinds of insurance, except life.  The agency was originally started in 1867 by P. A. Fisher.  Upon his death the business was carried on by his son, D. A. Fisher.  On January 1, 1914, D. A. Fisher incorporated the agency for $50,000, the stock having a par value of $10 per share.  Good will was charged with this account and no cash or tangible assets were paid in for the stock.  At that time a portion of the stock was issued to D. A. Fisher and to others who were regularly and actively engaged in the business, the remainder being held in the treasury.  Shortly after incorporation the taxpayer acquired for 3,000 shares of stock and1926 BTA LEXIS 2693">*2694  $300 in cash the insurance agency of Clyde Richert, which possessed no tangible assets.  The stock of the taxpayer was owned and salaries were paid to the stockholders during the year 1918, as follows: Salary.D. A. Fisher, president, 26,210 shares$10,000Allan Fisher, vice president, 14,000 shares3,150Clyde Richert, secretary, 3,000 shares3,300Bessie Gardner, 875 shares1,590All of the stockholders were regularly engaged in the active conduct of the taxpayer's business and devoted their entire time thereto.  The services rendered by the corporation consisted of soliciting risks, writing and delivering policies, assuming responsibility for the collection of premiums from the insured, collecting the premiums and remitting them to the insurance companies, less the commissions allowed.  The assets and liabilities at the beginning and end of the year 1918 were as follows: Jan. 1, 1918.Dec. 31, 1918.ASSETS.Cash and hand$609.97$183.74Notes receivable trade1,256.6010,207.22Accounts receivable trade56,650.1269,417.81Liberty bonds206.561,000.00Advances to employees751.05Advances to others500.0050.00Furniture and fixtures5,262.915,297.62Printing equipment522.69273.69Agency plant - good will55,000.0055,000.00Books out on balance1.00531.03Fire-protection inventory997.571,844.09120,310.90143,805.26[121,308.47][143,805.20]LIABILITIES.Notes payable4,700.001,332.08Accounts payable - company's46,984.1666,226.10Accounts payable - others4,317.802,736.66Reserve for depreciation526.29526.29Capital stock35,900.0035,900.00Surplus27,853.5327,853.53Current profit and loss29.129,230.60120,310.90143,805.261926 BTA LEXIS 2693">*2695 3 B.T.A. 368">*369  Taxpayer was allowed a period of time by the various insurance companies, beyond the time fixed for the payment to it of the premiums by the insured, in which to remit premiums for which it had assumed liability.  During the taxable year the premiums paid by the taxpayer before collection from the insured were negligible.  During the taxable year, for the purpose of assisting in the fireprotection campaign, and in order to interest property owners generally in the installation of appliances for protection against fire, taxpayer carried a small supply of fire extinguishers, hose, etc., which it sold.  It also took orders for fire doors which it ordered shipped direct to the purchaser.  The purchaser made payment direct to the shipper and, in addition, paid taxpayer a service charge of 5 per cent of the cost of such doors.  The taxpayer's purpose in having a fire-protection department during the taxable year was to assist in popularizing the fire-protection campaign and to interest its clients and others in the installation of fire-protection apparatus, especially fire doors, which were not sold or carried in stock by any merchant in that territory.  The income and1926 BTA LEXIS 2693">*2696  deductions for the taxable year were as follows: Gross income: Gross sales, fire-protection department$44,827.29Less cost of goods sold33,336.8011,490.49Miscellaneous income167.21Commissions, fire insurance38,009.37Commissions, casualty insurance10,292.73Commissions, marine insurance1,877.02$61,836.82Deductions:Ordinary and necessary expenses$33,343.56Compensation of members16,300.00Interest555.73Taxes108.56Debts ascertained to be worthless1,438.12Exhaustion588.62$52,334.59Net income9,502.233 B.T.A. 368">*370  The income of taxpayer was due primarily to the activities of its stockholders.  Capital was a material income-producing factor.  DECISION.  The determination of the Commissioner is approved.