Court Opinion

ID: 4607849
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:41:32.231534+00
Date Added: 2024-06-11T07:53:36.159005
License: Public Domain

E. H. EASLEY INSURANCE AGENCY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.E. H. Easley Ins. Agency v. CommissionerDocket No. 10318.United States Board of Tax Appeals10 B.T.A. 953; 1928 BTA LEXIS 3992; February 23, 1928, Promulgated *3992  Personal service classification denied.  E. H. Easley for the petitioner.  J. Arthur Adams, Esq., for the respondent.  SIEFKIN*953  SIEFKIN: This is a proceeding for the redetermination of deficiencies in income and profits taxes for the years 1919 and 1920 in the amounts of $624.74 and $1,865.63, respectively.  The deficiencies resulted from the determination of the respondent that the petitioner, during the years 1919 and 1920, was not a personal service corporation within the meaning of section 200 of the Revenue Act of 1918.  E. H. Easley was in the insurance agency business for a number of years prior to 1910, and in that year he incorporated his business with a total par value capital stock of $25,000.  At that time he sold to the corporation his interest in the expirations of insurance written by him as an individual for $15,000 par value of the total capital stock.  Subsequently he bought another agency and surrendered $5,000 of the $15,000 previously received.  The remainder of the stock was sold for cash.  During the years 1919 and 1920 the names of petitioner's stockholders and the number of shares held by each were as follows: *3993 NameNumber of sharesE. H. Easley80L. G. Toney22R. B. Parrish10William Leckie estate10Harry Totz10D. M. Easley6W. J. Pritchard5L. E. Tierney5L. H. Clark5John A. Kelley5F. T. Hutson5Mrs. M. L. West5A. Z. Litz5D. J. F. Strother5R. R. Smith5M. W. Hutson5A. M. Shelton5Dr. B. S. Clements5Charles Budnick5W. W. Hughes5Dr. R. K. Bragonier5L. A. Dunn5R. C. Berry5A. W. Alden5S. L. Hermanson5H. Budnick5Perry S. Graham4L. T. Sprinkle4Mrs. C. P. Kent2French & Easley1C. A. Pearson1250*954  At the close of 1919 the petitioner's balance sheet was as follows: AssetsLiabilitiesCash on hand and in banks$1,985.53Capital stock (common)$25,000.00Accounts receivable30,925.65Notes payable (bank)17,891.35Office furniture1,925.45Accounts payable11,083.54Liberty bonds600.00Surplus and undivided profits6,461.74Value of agency25,000.0060,436.6360,436.63The petitioner's balance sheet as of December 31, 1920, was as follows: AssetsLiabilitiesCash on hand and in banks$380.99Capital stock (common)$25,000.00Accounts receivable51,209.90Notes payable (bank)14,582.38Office furniture1,834.15Accounts payable24,756.78Liberty bonds600.00Surplus and undivided profits14,685.88Value of agency25,000.0079,025.0479,025.04*3994  The item of notes payable of $17,891.35, shown on the petitioner's balance sheet as of December 31, 1919, represented notes given to banks for money to carry the delinquent accounts of policyholders for whom the petitioner paid premiums to the insurance companies prior to the date of collection from the insured.  The item of notes payable of $14,582.38 on the balance sheet as of December 31, 1920, represents similar transactions.  It was necessary to the conduct of the petitioner's business to take notes from the assured for the premiums and borrow money from the bank on petitioner's own notes in order to pay the insurance company.  Only two of the stockholders of the petitioner shown on the above list of stockholders were regularly and actively engaged in the conduct of the petitioner's business.  Those two were E. H. Easley, the president, and C. A. Pearson, the secretary.  Together they held 81 shares of the 250 shares of stock outstanding.  Under the circumstances, we must hold that the petitioner was not entitled to classification as a personal service corporation as defined in section 200 of the Revenue Act of 1918, not only because capital was a material income producing*3995  factor, but also because its principal owners and stockholders were not themselves regularly engaged in the conduct of its business.  See ; ; ; ; . Judgment will be entered for the respondent.