Barnes-Pope Electric Co. v. Commissioner , 2 B.T.A. 1226 ( 1925 )

APPEAL OF BARNES-POPE ELECTRIC CO.

Barnes-Pope Electric Co. v. Commissioner

Docket No. 1678.

United States Board of Tax Appeals

2 B.T.A. 1226; 1925 BTA LEXIS 2128;

November 6, 1925, Decided Submitted June 3, 1925.

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Philip Nichols, Esq., for the taxpayer.

Edward C. Lake, Esq., for the Commissioner.

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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. Barnes	199	$4,975.00
H. S. Pope	199	4,975.00
T. H. Armstrong	2	50.00

Barnes 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	$8,823.80
Trade accounts	17,772.75
Contracts operating	35,300.52
Merchandise per inventory	5,187.54
Bond	50.00
Office furniture	313.00
Total		$67,447.61

LIABILITIES.
Accounts payable (trade)	$16,072.62
Accounts payable (other)	10,219.78
Advance payments on contracts operating	26,658.00
Reserve for bad debts	2,395.55
Capital stock	10,000.00
Surplus (of which $1,966.90 for use as contingent account to take care of deferred payments on contracts operating)	2,101.66
Total		67,447.61

ASSETS.
Cash on hand and in banks	$16,094.02
Trade accounts	11,427.21
Contracts operating	7,289.81
Merchandise per inventory	2,748.52
Bond	50.00
Office furniture	349.50
Total		$37,959.06

LIABILITIES.
Accounts payable (trade)	$9,971.80
Accounts payable (other)	10,209.19
Advance payments on contracts operating	993.22
Reserve for bad debts	2,395.55
Contingent account	1,966.90
Capital stock	10,000.00
Surplus	2,422.40
Total		37,959.06

The following is a summary statement of business at close of year:

Inventory January 1, 1918	$5,187.54
Contracts operating	35,300.52
Purchases during period 1918	49,062.09
Labor	30,902.18
Miscellaneous contract costs	4,464.67
		$124,917.00
Less:
Inventory Dec. 31, 1918	2,748.52
Contracts operating	7,289.81
		10,038.33
		114,878.67
Schedule A-5:
Interest on bank deposits		$192.43
Schedule A-12:
Contracts, Mutual Liability Insurance Co., onpolicies	$33.87
Commissions	8.35
Miscellaneous accounts charged off, allowance, etc	245.64
Sale of junk	10.00
		297.86
Schedule A-14:
Auto account	863.97
Discounts	14.11
Miscellaneous expense, postage, etc	1,249.21
Telephone	425.61
Rent	2,297.04
Light	10.72
Insurance	351.49
Pay roll, office, and stock room	2,722.90
		7,935.05

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 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.