Court Opinion

ID: 4630241
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:07:04.841492+00
Date Added: 2024-06-11T07:57:30.931458
License: Public Domain

ASSOCIATED DENTAL SUPPLY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Associated Dental Supply Co. v. CommissionerDocket No. 5650.United States Board of Tax Appeals9 B.T.A. 1022; 1928 BTA LEXIS 4306; January 3, 1928, Promulgated 1928 BTA LEXIS 4306">*4306  Salaries paid to officers of the petitioner held reasonable in amount and properly deductible from gross income.  Neil E. Larkin, Esq., for the petitioner.  T. M. Mather, Esq., for the respondent.  MARQUETTE 9 B.T.A. 1022">*1022  This proceeding seeks a redetermination of deficiencies in income tax asserted by the respondent for the years 1920 and 1921, in the amounts of $1,073.18 and $174.39, respectively.  The deficiency arises from the disallowance by the respondent of certain deductions taken by the petitioner in its returns for 1920 and 1921 on account of salaries paid in those years.  FINDINGS OF FACT.  The petitioner is a California corporation duly organized in 1915.  Its business is that of securing, equipping and furnishing dental offices, leasing the same to dentists, and furnishing dental supplies and materials.  The capital stock was all, or practically all, owned by Frances E. Parker, the wife of Dr. Painless Parker.  Parker is a dentist.  He has invented some appliances and remedies useful in dentistry, particularly a form of hypodermic needle and a local anaesthetic.  He also established a system of so-called painless dentistry.  Prior1928 BTA LEXIS 4306">*4307  to 1915 Parker had organized a corporation known as Painless Parker Dentists Corporation, and it established and maintained in various cities along the Pacific coast, dental offices using the Parker system of painless dentistry.  By July of 1920 there were 26 dental offices in this organization, with 240 employees.  In 1920 these offices treated 209,100 patients; 44,387 of this number were new.  In 1921, 211,350 patients were treated, of whom 47,329 were new.  The gross income from the offices was, for 1920, $1,028,135.84; for 1921, $906,202.62.  This volume of business was built up through the tireless and unremitting activity of Parker.  9 B.T.A. 1022">*1023  During the years 1920 and 1921 the petitioner controlled the stock of Painless Parker Dentists Corporation.  The two companies kept their business separate and rendered separate tax returns until 1923, when, at the request of the Government, they consolidated their returns.  The business of the petitioner, apart from that of the Dentists Corporation, amounted to $100,000 to $150,000 a year.  Its business was very largely, if not entirely, dependent upon the successful operation of the Dentists Corporation, and was derived from it. 1928 BTA LEXIS 4306">*4308  Petitioner received all the profits earned by the Dentists Corporation.  None of the petitioner's capital stock was held by Parker but he was employed by it and the Dentists Corporation jointly as general manager of all professional work.  He gave his entire time to this work, supervised all dental work done, kept in personal touch with each of the 26 dental offices, visited them frequently; he trained employees, held public clinics and lectures, gave personal attention to the opening of new offices, examined and passed upon new employees, prepared manuals of instructions for dentists, nurses and other employees.  For these services petitioner and its affiliatec corporation paid Parker a salary of $25,000 for the year 1920 and $18,750 for the year 1921, and deducted these sums from its income-tax returns for the years in question.  The respondent has determined that these salaries were excessive and has reduced the deductions to $15,000 for each of the taxable years.  OPINION.  MARQUETTE: The only question raised by this proceeding is whether the salaries of $25,000 and $18,750 paid by the petitioners to Parker in the years 1920 and 1921, respectively, are unreasonably large. 1928 BTA LEXIS 4306">*4309  The Revenue Act of 1918 makes the following provision: SEC. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions: (1) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered * * *.  The question of reasonableness of salaries paid by corporations has been frequently before the Board and no extended discussion is necessary.  The evidence shows that the volume of business was large and that it was due almost entirely to the efforts of Parker.  He gave to the business his entire time and energy, with very successful results.  Measured by the results accomplished, we think that the salaries paid to Parker for the taxable years in question were not excessive 9 B.T.A. 1022">*1024  or unreasonable for the services rendered.  See ; 1928 BTA LEXIS 4306">*4310 ; ; . Judgment will be entered on 15 days' notice, under Rule 50.Considered by PHILLIPS and MILLIKEN.