J. H. Taylor Constr. Co. v. Commissioner , 13 B.T.A. 238 ( 1928 )

J. H. TAYLOR CONSTRUCTION CO., INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

J. H. Taylor Constr. Co. v. Commissioner

Docket No. 11877.

United States Board of Tax Appeals

13 B.T.A. 238; 1928 BTA LEXIS 3291;

August 6, 1928, Promulgated

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">*3291 The petitioner was a personal service corporation during the calendar year 1920.

Monte Appel, Esq., and Nathan D. Stern, Esq., for the petitioner.

A. H. Murray, Esq., and LeRoy L. Hight, Esq., for the respondent.

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SMITH

">*238 This is a proceeding for the redetermination of a deficiency in income and profits tax for 1920 of $2,487.24. The only question in issue is whether the petitioner is entitled to be taxed as a personal service corporation for the calendar year 1920.

FINDINGS OF FACT.

The petitioner was incorporated in 1913 under the laws of the State of New York with a paid-up capital stock of $5,000 divided into 100 shares of $50 each. During the years 1918 and 1919 the petitioner was inactive, owing to the fact that Charles Mayer, the principal stockholder, was in the military service. During the year 1920 the capital stock was owned as follows:

	Shares
Charles Mayer	98
Albert Mayer	1
William Korn	1

Charles Mayer had been a civil engineer since 1909 and he sometimes found it convenient not only to draw the plans for a building but also to supervise the construction. He also found it more convenient">*3292 to let contracts in the name of the petitioner than in his own name as an individual.

The only business which the petitioner did in 1920 was to prepare the plans and specifications of two buildings and supervise the construction of them. One of these buildings was a garage located at 182nd Street and Third Avenue, New York City, and the other was a warehouse located at Washington and Vesey Streets, New York ">*239 City. The total cost of the construction of the former was $23,609.47 and of the latter $253,032.22. These buildings were erected by the petitioner for one Samuel Weil. The arrangement made with Weil was that he should pay the petitioner a 10 per cent commission upon the cost of the garage and a 7 per cent commission upon the cost of the warehouse. The petitioner furnished Weil with advance estimates of the amounts of money which it would need to carry on the construction and Weil made advance payments to the petitioner to meet the bills as they came due. Charles Mayer drew the plans and specifications and employed an outside man to supervise the actual work of construction. He was regularly engaged in the active conduct of the affairs of the corporation. The">*3293 entire revenue of the corporation for the year accrued from the personal efforts of the stockholders and one or two employees. The gross income of the corporation for the year 1920 was $18,057.38 and the expenses deductible therefrom amounted to $6,531.53, leaving a net income of $11,525.85. The corporation made a return for 1920 as a personal service corporation and the stockholders accounted for such net income in their individual income-tax returns.

The assets and liabilities of the petitioner at December 31, 1919, and at December 31, 1920, were as follows:

Assets and liabilities, December 31, 1919
ASSETS		LIABILITIES
U.S. Liberty bonds	$3,000.00	Paid up common stock	$5,000.00
Cash	259.77	Surplus	6,019.81
Scaffolding	1,000.00
Loans receivable	6,760.04
	11,019.81		11,019.81

Assets and liabilities, December 31, 1920
ASSETS		LIABILITIES
Cash in bank	$73.45	Capital stock paid in:
Office furniture	50.00	Charles Mayer, 98 shares	$4,900.00
Due from jobs in process (2 jobs)	4,876.55	Albert Mayer, 1 share	50.00
		William Korn, 1 share	50.00
	5,000.00		5,000.00

The respondent">*3294 denied the claim of the petitioner for personal service corporation classification and determined a tax liability under section 302 of the Revenue Act of 1918 of $2,487.24, which is the amount of the deficiency involved herein.

">*240 OPINION.

SMITH: There can be no question in this case that the income of the petitioner was ascribable primarily to the activities of the principal stockholders who were themselves regularly engaged in the active conduct of the affairs of the corporation. Capital was not a material income-producing factor. The petitioner meets all the requirements of a personal service corporation as defined in section 200 of the Revenue Act of 1918.

Judgment of no deficiency will be entered for the petitioner.