Court Opinion

ID: 4623694
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:53:33.7347+00
Date Added: 2024-06-11T07:56:24.580721
License: Public Domain

STARK BRICK CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Stark Brick Co. v. CommissionerDocket No. 12582.United States Board of Tax Appeals12 B.T.A. 667; 1928 BTA LEXIS 3492; June 15, 1928, Promulgated *3492  Deductibility of additional salaries and bonus determined.  John E. O. Feller, C.P.A., for the petitioner.  John F. Greaney, Esq., for the respondent.  MILLIKEN *667  This proceeding results from the determination by respondent of deficiencies in income and profits taxes for the years 1920 and 1921, in the respective amounts of $23.38 and $6,585.67.  One issue is involved for both years, viz., whether the respondent erred in refusing to allow as deductions from gross income for each year certain amounts for compensation of officers which petitioner claims should properly be allowed.  The amounts of such deductions in issue are as follows: 19201921Claimed by petitioner$17,240.00$31,487.71Allowed by respondent11,776.0016,451.59Amounts in issue5,464.0015,036.12FINDINGS OF FACT.  Petitioner is a corporation organized in 1909 under the laws of the State of Ohio and is engaged in the manufacture and sale of brick.  On December 22, 1919, at a directors' meeting of petitioner, the following resolution was adopted: Meeting called to order by J. B. Fierstos.  This being a special meeting all directors were*3493  present except J. A. Lippert.  The following resolution was introduced by G. A. Marks and seconded by C. A. Pontius: That the board call *668  a special meeting of the stockholders of the company at January 31st, 1920 at the office of the company at 10:00 A.M. for the purpose of acting on a proposed resolution to increase the preferred stock of the company from $10,000.00 to $60,000.00 and for such other business as may properly come before said meeting.  Carried.  On motion duly made and seconded and carried that E. A. Stewart be employed as General Manager of said company on the following terms: To be paid a yearly salary of $12,000.00.  If the company shall earn more than 10% on its common stock over and above all ordinary expenses the manager shall be paid in addition thereto 30% of the amount earned above 10%.  On motion duly made and carried the compensation of President was fixed at $600.00 per year; vice-president at $540.00 per year and treasurer at $1100.00 per year; the above salaries to continue until changed.  On or about January 3, 1921, at a directors' meeting of petitioner, the following resolution was adopted: The meeting was called to order by President*3494  Fierstos.  Minutes of the previous meeting were read and approved.  On motion by E. A. Stewart and Mrs. E. A. Stewart the following persons were elected for office.  J. B. Fierstos, President.  Mrs. E. A. Stewart, Vice President.  J. A. Lippert, Treasurer.  E. A. Stewart, Secretary.  On motion duly made and carried the salaries of the above officers were fixed the same as the previous year.  On motion made and carried E. A. Stewart was elected as general manager of said company on the following terms: To be paid a yearly salary of $12,000.00.  If the company shall earn more than 10% on its common stock over and above all ordinary expenses, the manager shall be paid in addition thereto 30% of the amount earned above 10%.  The capital stock outstanding during the taxable years was as follows: 1920, $25,000 common, par $100, and $7,000 preferred; 1921, $25,000 common and $14,900 preferred.  Dividends paid during the years 1920 and 1921 were $490 and $744.33, respectively.  Gross sales for the year 1920 were $107,920.71 and for the year 1921 were $220,642.13.  The salaries and bonus claimed by petitioner as deductions for the years 1920 and 1921 are as follows: Official19201921General manager (E. A. Stewart):Salary$12,000.00$12,000.00Bonus8,187.71President (J. B. Fierstos), salary600.00600.00Plant superintendent (J. B. Fierstos):Salary3,000.003,000.00Bonus6,000.00Vice president (G. A. Marks), salary540.00500.00Treasurer (J. A. Lippert), salary1,100.001,100.00Total17,240.0031,387.71*3495 *669  The books of account of petitioner for the years 1920 and 1921 were kept and maintained on an accrual basis.  The salary of the plant superintendent for both the years 1920 and 1921 was included in the labor pay roll and deducted as such in the returns for those years.  No bonus was paid or accrued to the general manager for the year 1920 as the earnings of that year did not warrant the same.  E. A. Stewart was general manager of petitioner during the year 1920 and 1921, devoting his entire time to the business.  Petitioner paid or incurred during the years 1920 and 1921 as a reasonable allowance for salaries or other compensation for services actually rendered the following amount: 1920, $14,240; 1921, $22,387.71.  OPINION.  MILLIKEN: For the years 1920 and 1921, we have not allowed as a deduction the salary of $3,000 per annum paid to the plant superintendent for the reason that said salary was charged to the labor pay roll and deducted as such in the returns filed by petitioner for the years in question.  To allow as a deduction the $3,000 now claimed, would constitute a double deduction.  We have also not allowed the bonus claimed of $6,000 for the plant*3496  superintendent for the year 1921.  The same was not paid during the year.  The testimony on this phase of the case was given by the general manager and is as follows: Q.  Did you enter into a contract with him (Plant Supt.); did this man have a right or liability to get $6,000 from you?  A.  Only as I granted to him.  Q.  Suppose you had not paid it to him, what could Mr. Fierstos have done?  A.  I do not suppose he could do anything.  Q.  He could not do anything, if you had not paid it to him, he would just be out?  A.  Yes, sir; perhaps get his ill will.  Q.  That is all there would be to it?  A.  Yes; he could not make me pay it.  Q.  He could not make you pay it?  A.  No, sir.  Q.  You do not have any contract to pay him?  A.  No, sir.  Q.  You did not enter into any contract with him at any time?  A.  No, sir.  Judgment will be entered under Rule 50.