Court Opinion

ID: 4615950
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:33:29.415833+00
Date Added: 2024-06-11T07:55:02.360392
License: Public Domain

APPEAL OF ILLINOIS TELEGRAPH NEWS CO.Illinois Tel. News Co. v. CommissionerDocket No. 4443.United States Board of Tax Appeals3 B.T.A. 1222; 1926 BTA LEXIS 2441; April 16, 1926, Decided Submitted October 10, 1925.  *2441 James J. O'Byrne and B. L. Jennings, Esqs., for the taxpayer.  J. Arthur Adams, Esq., for the Commissioner.  *1222  Before MARQUETTE, GREEN, and LOVE.  This is an appeal from the determination of a deficiency for the calendar year 1920 in the sum of $3,261.87.  The deficiency arose from the refusal of the Commissioner to classify the taxpayer as a personal service corporation.  FINDINGS OF FACT.  The taxpayer is an Illinois corporation, organized in 1916, with its principal place of business at Chicago.  It had a capital stock of $200,000, divided into 2,000 shares of the par value of $100 per share.  The business of the taxpayer consisted of gathering and disseminating current financial and grain news to individual subscribers.  A ticker was installed in the office of each subscriber and this ticker was connected with a master transmitter from the taxpayer's office, which sent out the same stock quotations and news items to all of its subscribers.  In case the tickers were out of order by reason of storm or mechanical defects the news was sent by messenger.  In some instances special news services were sent by messenger.  The subscribers could not*2442  use the tickers for any other purpose.  For the service and use of the tickers the taxpayer charged from $40 to $60 per month.  With the exception of a small amount received from *1223  bank deposits, the taxpayer's sole source of income was from subscriptions to its service.  The taxpayer made no profit until the year 1919, at which time one G. D. Rose, formerly a minority stockholder, purchased the capital stock and reorganized the business on a successful basis.  He sold small blocks of this stock to the most active employees, allowing them to pay for the same out of dividends and bonus payments.  Practically all the stockholders were actively engaged in the business of the taxpayer.  All the employees, with the exception of some messengers and short-time reporters, were stockholders.  The amount of the stock held, the salaries, bonuses, and dividends paid, and the character of the employment of the employees for the year 1920, were as follows: Name.Shares of stock.Salary.Bonus.Dividends.Character of employment.G. D. Rose1,340$3,000.00$400.00$9,835.00Manager.Stanley Suchwalko1301,750.00350.00910.00Supervisor, grain and financial news.Harry Grotjohann1201,897.50350.00840.00Chief electricianElla Gavin10372.00105.00Statistician and relief operator.C. S. Michaels501,820.00350.00280.00Grain news editor.E. L. Girard401,717.50350.00280.00Assistant electrician.H. Whilevman150600.0050.001,050.00Part-time employee.Chas. Brady50350.00Not in employ.Marie McMahon301,106.00200.00157.50Ticker operator.F. W. Derby10Fees.70.00Local attorney.L. P. Gersch30992.00200.0052.50Financial reporter.H. Bairstow201,106.00200.0035.00Ticker operator.S. M. Raymond2035.00Grain news operator.F. Schmaus1,120.00200.00Ticker repairman.C. Zalkowski1,120.00200.00Do.Edna C. Sikes457.00100.00Ticker operator.Laddie Hornick192.0050.00Messenger.T. Garrison420.00Part-time reporter.F. Summers180.00Do.A. Stewart180.00Do.Hanley Murphy78.00Messenger, assistant reporter.Fred Murphy40.00G. Ryan40.00U.S. Department of Agriculture.Total2,00018,188,003,000.0014,000.00*2443  The assets and liabilities of the taxpayer as they appear on its books as of December 31, 1919, were as follows: Dec. 31, 1919.Dec. 31, 1920.ASSETS.Cash$1,422.29$2,960.91Accounts receivable3,570.004,275.00Supplies500.00500.00Investments1,000.005,960.00Investment bonds, switchboards, tickers, generators, cables and transmitters, less depreciation18,375.0816,832.44Furniture and fixtures162.25121.85Franchises and good will180.000.00180,000.00Total assets205.029.62210,650.20LIABILITIES.Capital stock200,000.00200,000.00Surplus5,029.6210,650.20Total liabilities205.029.62210,650.20*1224  A statement of the income and operating expenses of the taxpayer for the year 1920 is as follows: INCOME.News Serivce - as per tax return$58,210.49Less: Amount included which represents rental chargepaid by Ill. Tel. News Co. of Delaware to Ill. Co.which is a subsidiary2,400.00$55,810.49Interest on bank deposits96.34Total income55,906.83OPERATING EXPENSES.Salaries and bonus to officers and employees who arestockholders16,811.99Other salaries and bonus4,377.00Duct rentals575.52Leased wires265.83News collection expense$2,174.25Less: Salaries and bonus included750.971,423.28Operating power527.80Office rent895.81Royalities on patents paid to president, who is large stockholder999.96Rentals paid to subsidiary eliminated in consolidation$2,400.00Office expenses261.98Telephone and telegraph service225.67Repair parts3,723.27Paper for tickers1,967.34Taxes708.58Depreciation1,583.04Franchise fees1,000.0035,346.08Net income20,560.75*2444  Capital was a material income-producing factor.  Order of redetermination will be entered on 15 days' notice, under Rule 50.