Appeal of BOCKIUS REALTY CO.

Appeal of BOCKIUS REALTY CO. Docket No. 835. Submitted February 26, 1925; decided April 6, 1925. Mrs. Cecelia H. Frailey, secretary of the corporation, for the taxpayer. W. Frank Gibbs, Esq., for the Commissioner. Before Geatjpner, Lansdon, Littleton, and Smith. This appeal involves income and profits taxes for the calendar years 1919, 1920, and 1921. The deficiency letter, which was mailed on September 27, 1924, shows an overassessment of $182.87 for 1919, and an additional tax of $9,525.05 for 1920 and $226.15 for 1921. The question presented is whether taxpayer is entitled to a deduction in each of the year's as compensation for its officers of an amount in excess of that allowed by the Commissioner. BINDINGS OF FACT. The taxpayer is an Ohio corporation with its principal office and place of business at Canton, Ohio. It was organized in 1913 and since that time has been, and still is, engaged in the operation of a motion picture theatre. It is a close corporation having only five stockholders, 66% per cent of the stock being owned by E. G. Bockius, president and treasurer, and Mrs. C. H. Frailey, secretary. No meetings of the directors have been held since 1913, and the affairs of the corporation have been conducted entirely by E. G. Bockius, president and treasurer, through consent of the other stockholders. No definite salaries for officers were allowed for any year, but all of the stockholders withdrew amounts from time to time during these years from the earnings of the corporation. The taxpayer deducted in its return for 1919, $3,000, and for 1920, $4,500, as salaries paid to the president and treasurer, and the secretary. No deduction was taken for salaries in the return for 1921. The net income of the corporation before deducting any amo'unts as compensation for officers was $7,732.73 for 1919, $36,630.56 for 1920, and $8,261.81 for 1921. The books of the corporation were incomplete and poorly kept but showed withdrawals in these years by the president and treasurer, and the secretary, as follows: The Commissioner upon the evidence before him allowed the corporation to deduct as compensation for officers the following amounts: The excess of the withdrawals by the two officers over the amounts allowed as compensation, as well as all withdrawals by other stockholders were treated as dividends. There was no authorization by the corporation, or understanding between the stockholders in the years involved, or any year prior thereto, that any amount should be paid as compensation. [MAJORITY] DECISION. The determination of the Commissioner is approved.