Court Opinion

ID: 4610641
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:47:19.326835+00
Date Added: 2024-06-11T07:54:06.392444
License: Public Domain

GUY FULTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Fulton v. CommissionerDocket No. 9362.United States Board of Tax Appeals11 B.T.A. 641; 1928 BTA LEXIS 3754; April 17, 1928, Promulgated 1928 BTA LEXIS 3754">*3754  Where an officer of a corporation during a taxable year returns to the corporation part of a salary received for the year in pursuance of an agreement on his part to accept less salary if the business does not warrant his regular salary, the amount of salary so returned should not be included in his gross income.  William W. Hammond, Esq., and Robert N. Dedaker, C.P.A., for the petitioner.  W. Frank Gibbs, Esq., for the respondent.  MURDOCK 11 B.T.A. 641">*641  This is a proceeding for the redetermination of a deficiency in income tax for the calendar year 1921 in the amount of $600.54.  It is alleged that the Commissioner erred in computing the petitioner's income tax upon an amount of salary which was $4,250 in excess of the amount actually received.  FINDINGS OF FACT.  The petitioner is a resident of the City of Indianapolis, Ind., and during the year 1921 was president, treasurer, and general manager of the Fulton Office Furniture Co., a corporation of the above State.  During the year the petitioner was the owner of all but two shares of the corporation's common stock which alone had voting rights.  He also owned 2,000 of the 30,000 shares of preferred1928 BTA LEXIS 3754">*3755  stock.  During the year 1920 the corporation was in a prosperous condition and declared a large dividend on its common stock.  Prior to September 10 of that year, the petitioner's salary amounted to $300 per week.  The following are the minutes of a special meeting of the board of directors held on September 10, 1920: A special meeting of the Board of Directors was held at the office of the company on September 10, 1920.  All the directors were present.  The president reported that the affairs of the company were prospering and the earnings for the year would be more than sufficient to pay the fixed charges and a dividend to the stockholders, and asked that his salary be increased to $500.00 a week.  After a full canvas of the situation, it was unanimously voted that commencing with the week ending September 10, 1920, the salary of the president, until changed, hereafter should continue at the rate of $500.00 per week.  The meeting thereupon adjourned.  GUY FULTON, President.ALICE M. FULTON, Secretary.11 B.T.A. 641">*642  In accordance with the above resolution the petitioner was paid a salary of $500 each week until May 6, of the following year.  The corporation had a1928 BTA LEXIS 3754">*3756  subsidiary company called the "Office Supply Company," and beginning with the year 1921 the petitioner's salary was prorated between the two companies, $450 being paid by the Fulton Office Furniture Co. and $50 by the Office Supply Co. each week.  The petitioner had agreed with a majority of the preferred stockholders that if the business was not sufficient in the year following the resolution to justify his increased salary he would readjust his salary in proportion to the earnings.  The gist of the conversation between the petitioner and the stockholders was that if the business did not warrant a salary of $500 the petitioner would cut the amount in half.  After May 6, 1921, the petitioner received only $200 each week from the Fulton Office Furniture Co. and $50 each week from the Office Supply Co. throughout the balance of the calendar year.  By November, 1921, it was apparent that the business had fallen off considerably and the petitioner at some time before the close of the year refunded to the corporation the sum of $4,250, paying $250 in cash and giving Liberty bonds of a value of $4,000.  He was credited on the corporation's books with the sum of $250 as of December 13, 1921, and1928 BTA LEXIS 3754">*3757  $4,000 as of November 30, 1921.  The amount of $4,250 represented one-half of the salary payments at the rate of $500 a week received from the beginning of the year 1921 up to May 6 of that year, or the excess over $13,000 which he had received.  In making his individual return for the taxable year the petitioner reported a salary received from the Fulton Office Furniture Co. in the amount of $13,000, but Form 1099 sent to the Sorting Section of the Internal Revenue Department by the Fulton Office Furniture Co. was prepared by the bookkeeper of the corporation and gave the information therein that an amount of $17,250 had been paid to the petitioner by the corporation during the year.  The petitioner did not see Form 1099.  The Fulton Office Furniture Co. went into the hands of a receiver in February, 1925, and the amount of $4,250 was never returned by the corporation to the petitioner.  OPINION.  MURDOCK: In the decision of this case we will follow the rule laid down in . See also 1928 BTA LEXIS 3754">*3758 . Judgment will be entered for the petitioner.