Court Opinion

ID: 4621605
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:45:01.284162+00
Date Added: 2024-06-11T07:56:01.929351
License: Public Domain

APPEAL OF BARNES-POPE ELECTRIC CO.Barnes-Pope Electric Co. v. CommissionerDocket No. 1678.United States Board of Tax Appeals2 B.T.A. 1226; 1925 BTA LEXIS 2128; November 6, 1925, Decided Submitted June 3, 1925.  *2128 Philip Nichols, Esq., for the taxpayer.  Edward C. Lake, Esq., for the Commissioner.  *1226  Before STERNHAGEN, LANSDON, GREEN, and LOVE.  This is an appeal from the determination of a deficiency in the amount of $4,608.22 in income and profits taxes for the year 1918.  The only assignment of error is that the Commissioner erred in not classifying the taxpayer as a personal-service corporation.  FINDINGS OF FACT.  The taxpayer is a Massachusetts corporation with its domicile in Boston.  The business of the corporation is electrical engineering, contracting, and constructing.  Its capital stock was $10,000, all paid in, and was owned as follows: Shares.F. L. Barnes199$4,975.00H. S. Pope1994,975.00T. H. Armstrong250.00Barnes and Pope were expert electrical engineers and each devoted his whole time to the business of the corporation.  The balance sheets as of January 1 and December 31, 1918, respectively, were as follows: ASSETS.Cash on hand and in banks$8,823.80Trade accounts17,772.75Contracts operating35,300.52Merchandise per inventory5,187.54Bond50.00Office furniture313.00Total$67,447.61*2129 LIABILITIES.Accounts payable (trade)$16,072.62Accounts payable (other)10,219.78Advance payments on contracts operating26,658.00Reserve for bad debts2,395.55Capital stock10,000.00Surplus (of which $1,966.90 for use as contingent account to take care of deferred payments on contracts operating)2,101.66Total67,447.61ASSETS.Cash on hand and in banks$16,094.02Trade accounts11,427.21Contracts operating7,289.81Merchandise per inventory2,748.52Bond50.00Office furniture349.50Total$37,959.06LIABILITIES.Accounts payable (trade)$9,971.80Accounts payable (other)10,209.19Advance payments on contracts operating993.22Reserve for bad debts2,395.55Contingent account1,966.90Capital stock10,000.00Surplus2,422.40Total37,959.06*1227  The following is a summary statement of business at close of year: Inventory January 1, 1918$5,187.54Contracts operating35,300.52Purchases during period 191849,062.09Labor30,902.18Miscellaneous contract costs4,464.67$124,917.00Less:Inventory Dec. 31, 19182,748.52Contracts operating7,289.8110,038.33114,878.67Schedule A-5:Interest on bank deposits$192.43Schedule A-12:Contracts, Mutual Liability Insurance Co., onpolicies$33.87Commissions8.35Miscellaneous accounts charged off, allowance, etc245.64Sale of junk10.00297.86Schedule A-14:Auto account863.97Discounts14.11Miscellaneous expense, postage, etc1,249.21Telephone425.61Rent2,297.04Light10.72Insurance351.49Pay roll, office, and stock room2,722.907,935.05*2130 *1228  The work of Barnes and Pope was designing, engineering, and superintending the work contracted to be done by the taxpayer.  It had no other superintendent.  Each particular contract job was put in charge of a journeyman, and laborers who were more or less experts in that line of work were assigned to assist him.  Taxpayer ordinarily had 25 to 30 laborers employed and sometimes as many as 75.  Laborers' wages were paid weekly.  When a contract was entered into it usually included designing, engineering, furnishing of material and labor of construction, and the contract price was a gross sum.  At the end of each 30-day period there would be estimated the proportion of completed work and 80 per cent of the value of such completed work paid for, and on completion of the job the entire balance was due and payable.  Barnes and Pope did some designing and engineering for work for which they had no construction contract.  On contract work, the materials used were ordinarily purchased from supply houses, on 30 days' time.  For job work, requiring but a small amount of material, and short time, the material was supplied from taxpayer's stock.  When taxpayer received an order*2131  for special articles, such as a washer, fan, etc., it would purchase same from a supply house on 30 days' time and bill it to its customer at cost, plus 20 per cent profit.  Barnes and Pope were men of good business reputation and much of the business of the taxpayer came to it on account of such reputation.  In some of the contract work taxpayer gave bond, and in others it was not required to do so.  Some of its contracts were awarded as a result of competitive bidding.  DECISION.  The determination of the Commissioner is approved.