Maryland Car Wheel Co. v. Commissioner , 19 B.T.A. 356 ( 1930 )

MARYLAND CAR WHEEL CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Maryland Car Wheel Co. v. Commissioner

Docket No. 19081.

United States Board of Tax Appeals

19 B.T.A. 356; 1930 BTA LEXIS 2414;

March 21, 1930, Promulgated

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Salaries paid to officers did not create an abnormal condition within the meaning of section 327 of the Revenue Acts of 1918 and 1921 so as to entitle petitioner to special assessment.

Harry Schwartz, Esq., for the petitioner.

W. Frank Gibbs, Esq., O. W. Swecker, Esq., B. P. Putnam, Esq., J. D. Larson, Esq., and A. M. Finn, Esq., for the respondent.

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MORRIS

This proceeding is for the redetermination of deficiencies of $2,171 and $1,506.75, income and profits taxes for the fiscal years ended March 31, 1920 and 1921, respectively. The only issue is whether respondent erred in denying petitioner special assessment under sections 327 and 328 of the Revenue Acts of 1918 and 1921.

At the hearing motion of respondent's counsel that the hearing be limited to the question of whether petitioner is entitled to have its tax computed under section 328 was granted.

FINDINGS OF FACT.

The petitioner is a Maryland corporation engaged in the manufacture of car wheels, with its principal place of business in Baltimore. The business was founded in or about 1899. During 1920 and 1921 the petitioner's capital stock had a par value of $100,000, and the 1,000 shares outstanding were held as follows:

	Shares
Arthur G. Wellington	387 1/2
Mrs. Robert McDougal	175
Robert McDougal	5
Mrs. R. C. Turck	175
Colonel R. C. Turck	5
Walter Todd	127 1/2
W. F. Newbert	115
L. W. Newbert	10
Total	1,000

The stockholders were composed of five family groups, Robert McDougal and Mrs. Robert McDougal being husband and wife, as were Colonel and Mrs. Turck. Mrs. McDougal and Mrs. Turck were sisters, being daughters of one of the founders of the petitioner. L. W. Newbert was the son of W. F. Newbert.

The officers of the petitioner were Arthur G. Wellington, president and treasurer, W. F. Newbert, vice president and assistant treasurer, and Walter Todd, secretary. With the exception of Wellington, who received $15,000 per year during the fiscal years 1920 and 1921, petitioner paid no salaries to its officers. The conduct and management of the business rested entirely with Willington, and, so far as the other officers and directors were concerned, their duties were largely limited to the attendance of annual meetings or such special meetings as Wellington might call. Wellington's salary was increased from $10,000 to $15,000 by the directors sometime prior to the fiscal year 1920.

Wellington became associated with the business almost at its inception, having been selected by the founders of the business, Christopher B. and Nathaniel S. Bouton, as the most promising young man in the car-wheel business in the west. He developed a genius for the business, handling the purchase of the iron, its manufacture into car wheels, and the disposition of the finished product practically without assistance from the other officers of the company.

Petitioner's gross sales, net income, compensation paid to officers, invested capital, profits tax, and percentage of profits tax to net income for the fiscal years ended March 31, 1920 and 1921, are as follows:

	1920	1921
Gross sales $1,571,259.70	$1,774,152.80
Net income	366,505.26	247,635.27
Compensation to officers	15,000.00	15,000.00
Invested capital	893,233.23	962,515.17
Profits tax	100,938.13	44,553.26
Percentage 27.54	18.06

Returns of the New York Car Wheel Co. for the calendar years 1919, 1920, and 1921, and returns of the Buffalo Car Wheel Co. for fiscal years ended October 31, 1919, 1920, and 1921, and returns of the Bass Foundry Co. for the periods January 1 to July 31, 1919, August 1 to December 31, 1919, and the calendar years 1920 and 1921, were submitted for the purpose of showing that the compensation paid officers by the petitioner was an abnormal condition affecting its income. These returns show that salaries were paid to specific officers of these companies as follows, together with gross sales, invested capital and net income for the several years:

New YorkCar Wheel Co.
			Salary
Name	Office	Time	1919	1920	1921
F. B. Cooley	President	Entire time	$22,500	$22,499.92	$22,500
W. H. Cooley	Treasurer	do	12,500	12,500	12,500
J. T. Morey	Secretary	Part time	2,500	1,500	2,500
			37,500	36,499.92	37,500
Gross sales			1,530,401	1,921,172	657,195
Invested capital			614,350	735,547	684,933
Net income			168,766	73,669	113,690

Buffalo Car Wheel Co.
[Fiscal year ended October 31]
Name	Office	Time	1919	1920	1921
B. W. Appleton	President	One-sixth time	$1,800	$2,800	A. B. Neill	Vice president	Entire time	3,999.97	3,166.64	(A. R. Moen	do	One-half time		2,411.09	3,999.96
A. C. Curran	Secretary	Entire time	3,799.98	7,166.68	6,300
			9,599.95	15,544.41	13,299.96
Gross sales			712,456	969,484	437,528
Invested capital			267,381	296,720	229,650
Net income			77,495	81,674	16,094

Bass Foundry & Machine Co.
		Salary
Officer	Time	Jan. 1 to	Aug. 1 to
		July 31, 1919	Dec. 31, 1919
President	Time devoted not shown	$6,000	(Vice president	do	6,000	(1)
Do	do	11,070	(1)
Treasurer	do	4,999.96	(1)
Subofficers salaries		7,708.33	(1)
		35,778.29	$15,654
Gross sales		3,594,705	1,060,192
Invested capital		2,931,991	(Net income		419,402	47,587

Bass Foundry & Machine Co.
			Salary
Name	Office	Time	1920	1921
J. H. Bass	President	Time devoted	$6,000	$6,000
		not shown
C. T. Strawbridge	Vice president	do	6,000	6,000
G. M. Leslie	Treasurer	do	5,000	5,000
J. M. Garvin	Vice president	do	12,000	8,250
A. W. Pickard	Assistant treasurer		6,000	5,250
			35,000	[*]
Gross sales			3,160,935	1,527,467
Invested capital			((1)
Deficit			108,483	326,039

No part of petitioner's gross income resulted from gains, profits, commissions, or other income derived on a cost plus basis from Government contracts made after April 5, 1917.

OPINION.

MORRIS: The question presented is whether the respondent erred in failing to compute petitioner's profit tax under section 328 of the Revenue Acts of 1918 and 1921 because abnormally low salaries were paid to its officers.

This same question has been presented for decision in numerous other cases in which we held that low officers' salaries did not constitute an abnormal condition which would entitle a taxpayer to special assessment. ; ; ; ; ; and . The facts in this proceeding are not distinguishable in any material respects from the above cited opinions.

Decision will be entered for the respondent.

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Footnotes

• 1. As reported on returns. ↩

• 2. Computed. ↩

• 1. One-fourth time. ↩

• 2. One-half year. ↩

• 1. Division not shown. ↩

• 2. Uncomputed. ↩

• 1. Uncomputed. ↩