Court Opinion

ID: 9443692
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:27:42.852816+00
Date Added: 2024-06-11T17:17:12.117558
License: Public Domain

RIVES, Circuit Judge
(dissenting).
This case presents the familiar question of the reasonableness of amounts deducted by a corporation as compensation for the services of its officers. When the case reached the Tax Court, there was no presumption that the compensation agreed upon by the corporation and its officers was *493reasonable in amount. Rather, the Commissioner’s determination was presumptively correct, and the taxpayer’s evidence must be sufficient to rebut it. Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct 8, 78 L.Ed. 212; Gem Jewelry Co. v. C. I. R., 5 Cir., 165 F.2d 991. When the case reaches this Court, the Tax Court’s finding of the amount constituting reasonable compensation is entitled to finality unless it is clearly erroneous. Burford-Toothaker Tractor Co. v. C. I. R., 5 Cir., 192 F.2d 633, 635; and authorities there cited.
The seven executives to whom the compensation here in question was paid constituted the sole common stockholders of taxpayer, all but one comprised its board of directors, and five of them were its officers. In 1941 they received salaries totaling $165,400.00. In each of the years 1942, 1943 and 1944, their salaries were increased to a total of $246,000.00, plus about $13,-000.00 of annuity contract premiums paid in their behalf in each of the years 1943 and 1944. In 1945 taxpayer sustained a net loss and the salaries were decreased to a total of $194,499.00. The Commissioner allowed a deduction of a total of $185,000.00 for 1944 and $170,000.00 for 1945, or slightly more than was paid and allowed for 1941. The issue here reduces itself to whether the Tax Court’s findings as to the years 1944 and 1945 are clearly erroneous. The tax court concluded from all the evidence that the taxpayer had failed to meet the burden of proving that amounts greater than those allowed by the Commissioner were reasonable and accordingly sustained the Commissioner’s determination as to those years.
The volume of taxpayer’s construction work declined substantially in 1944 and further declined in 1945.1 In 1942 and 1943 only two general superintendents were employed. Despite the decline in construction work after 1943, taxpayer in 1944 employed nine and in 1945 it employed fourteen additional general superintendents and there was evidence from which the Tax Court could conclude that they performed some of the services theretofore performed by the seven chief executives. The opening of a Houston office in 1944 did not greatly increase the overall services of the executives. Two of them were assigned to manage that office and thereafter participated less in the activities of the New Orleans office. The number of bids made in 1944 and 1945 increased but the total contract price awarded on all bids made in those years was about one-third of that awarded in 1942 and 1943.2
The foregoing illustrates only a few of the relevant factors to be considered in determining the reasonableness of claimed salary deductions. The Tax Court, as is plain from its opinion, based its findings on the “voluminous and detailed evidence and the opinions of the witnesses”, and a “thorough analysis of all of the evidence”. It properly reached its conclusion on the basis of the entire record.
It is not surprising to me that the Commissioner offered no evidence. The underlying facts were not in dispute and were amply proved by the voluminous testimony. It is only the inferences drawn from those facts and the opinions of the witnesses that might call for rebuttal evidence on the part of the Commissioner. The case of Burford-Toothaker Tractor Co. v. C. I. R., supra, and many others have illustrated the ease with which the taxpayer can obtain opinion evidence to sustain the reasonableness of salaries paid, and the difficulty with which the Commissioner Can obtain countervailing opinions. Indeed, common sense informs us that any business competitor supplying such evidence against a taxpayer would incur his undying enmity.
*494Tax gatherers, when they perform their function, always have been and always will be unpopular figures, and cannot expect members of the public to rally to their support. Matthew, himself the .tax collector of Capernaum, who became an apostle, showed how his fellow “publicans” were regarded when he classed them with sinners, harlots, and heathens (Matthew 9:11; 11:19; 18:17; 21:31). Yet taxes are the life blood of our nation. The Tax Court must often sustain the unpopular'Commissioner, arid, when the findings of the Tax Court are not clearly erroneous, the appellate courts should not substitute their judgments for those of the Tax Court. It is only by a strict observance of that principle that any reasonable degree of uniformity can be maintained in the administration of our tax laws. I, therefore, respectfully dissent.

. Gross receipts from completed contracts were 41.50 per cent less in 1944 than 1943 and 35.96 per cent less in 1945 than in 1944. Gross operating profit wag 50.01 per cent less in 1944 than in 1943, and 59.31 per cent less in 1945 than in 1944.

. The total price of contracts awarded amounted to $5,456,227 in 1944, and §5,-516,914 in 1945, as compared with over $16,000,000 in each of the years 1942 and 1943. The bids made by the Houston office in 1944 and 1945 were for comparatively small contracts, which accounts for the increase in the total number of bids in those years.