J. W. Allen & Co. v. Commissioner , 3 B.T.A. 1135 ( 1926 )

FINDINGS OP PACT.

The taxpayer is an Illinois corporation with principal office at Chicago where it is engaged as a dealer in confectioners’ and bakers’ supplies. It was organized in 1906, since which time it has been a close corporation, the officers, directors, and principal stockholders prior to January 13, 1918, being J. W. Allen, his wife, E. M. Allen, and their son, H. W. Allen. No formal meetings of the directors were ever held. The policy of the corporation and such actions as were taken from time to time by it wrere determined upon in conversations between J. W. Allen and his son. From time to time such resolutions as were necessary were drawn, signed, and entered of record. J. W. Allen, president of taxpayer, died on January 13, 1918. On May 20,1918, W. N. Allen, wife of H. W. Allen, was made a director. The minutes of the taxpayer show the following:

A special meeting of tlie Board of Directors of J. W. ALLEN & OO. was called by Mr. H. W. Allen, as Treasurer, by reason of tbe death of Mr. J. W. Allen on January 13, 1918, said meeting being held at the office of said company on January 21, 1918, at 10 A. M., with the following Directors present:— H. W. Allen and E. M. Allen.

The meeting was called to order and Mr. H. W. Allen stated that during the year 1917, a surplus had accumulated from the earnings of the company and he desired that a dividend of 20% be declared on the capital stock of said company.

Upon motion duly made and seconded and unanimously passed, the Board of Directors declared a dividend of 20% on the capital stock of said company to be paid out of the earnings of the company for the year 1917, and that such dividends be paid on demand of the persons entitled thereto.

Mr. H. W. Allen stated that Mr. J. W. Allen left a last will and testament under which Mr. H. W. Allen was entitled to dividend on 500 shares of stock; Hazel G. Ford was entitled to dividend on 190 shares of stock; E. M. Allen entitled to dividend on 299 shares of stock. That the following persons are entitled to a dividend, upon demand, of 20% of the capital stock of the company:

H. W. Allen dividend of_$10,000

Hazel G. Ford “ “_ 3,800

John G. Ford “ “_ 200

E. M. Allen “ “_ 20

E. M. Allen, as per will, “ “_ 5, 980

H. W. Allen, as per will, “ “_ 10, 000

Mr. H. W. Allen stated that on account of dividend upon the capital stock of this company held by him he would accept on account of said dividend the following stock belonging to J. W. Allen & Co., viz:

50 shares Louisiana Live Stock Co. of New Orleans, La., value_$4, 250. 00

200 shares preferred stock, National Chemical Co., $10 each,

200 shares common stock, National Chemical Co., par value $10 each, total value of both_$2,000.00

Mr. H. W. Allen presented an Amendment to the By-laws reading as follows : * * *

Upon motion duly made by Mr. H. W. Allen, seconded by E. M. Allen, that the By-laws of this company be and hereby are amended as above provided, which amendment is made in accordance with Article 18, Section 1, of the By-laws heretofore passed, said motion was unanimously carried.

There being no further business to come before the meeting, upon motion duly made and seconded, the meeting adjourned.

(Sig.) H. W. ALLEN

Secretary.

The books of account show that on January 21, 1918, the above-mentioned dividend of $30,000, payable on demand, was charged to surplus and credited to dividend reserve. Checks were issued and dividend reserve charged June 21, 1918. The minutes further show the following:

A special meeting of the Board of Directors of J. W. Allen & Co., pursuant to By-laws, was called by the Treasurer for May 20, 1918, at 2 P. M„ by agreement of the remaining members of the Board of Directors, to transact such business as might come before the meeting. On said date and hour the remaining directors, H. W. Allen and E. M. Allen met. The meeting was called to order and Minutes of meeting held on January 21, 1918, were read and approved as read.

H. W. Allen stated that on account of a vacancy in the Board of Directors, caused by the death of Mr. J. W. Allen, it was necessary to select one in his place and stead, as provided by the By-laws of this company. By unanimous consent of the Directors present W. N. Allen was elected as Director of this company for the unexpired term of Mr. J. W. Allen, deceased. W. N. Allen, being present, thereupon took part in the proceedings of the meeting.

Mr. H. W. Allen suggested that on account of the death of Mr. J. \V. Allen new officers be elected for the corporation, and it appearing that Mr. H. W. Allen presented his resignation as Secretary and Treasurer, and Mr. H. W. Allen being selected as Chairman of the meeting and 33. M. Allen as temporary secretary, motion was made by W. N. Allen, seconded by E. M. Allen, that the following directors be elected as officers of J. W. Allen & Co. until their suc-¡essors are elected, and that the Secretary cast a unanimous ballot for said officers, as provided by the By-laws:

H. W. Allen, President and Treasurer

E. M. Allen, Vice-president and Secretary.

There being no other nominees, the persons above mentioned were duly elected to the offices stated, and thereupon the Secretary cast the unanimous ballot and declared said officers duly elected.

The question of the salaries of the various officers and directors was also considered. It was therefore moved, duly seconded and unanimously carried, that salaries be paid to the following officers at the rate mentioned and set opposite their names, said salaries to commence on May 1, 1918, and to be paid in monthly installments or such installments as the Officers deem best

H. W. Allen, $500 per month

E. M. Allen, $150 per month.

Each director to be paid the sum of $25 per month for their services.

* * ⅜ ⅜ * * ⅜

There being no further business to come before the meeting, same was duly adjourned.

(Sig.) E. M. ALLEN

Secretary.

W. N. ALLEN

H. W. ALLEN

E. M. ALLEN.

The deficiencies are: For the calendar year 1919, $404-4%; for 1920, ' $276.4.1; and for 1921, $16.41. Order of redetermination will he intered accordingly.