G. M. Basford Co. v. United States , 59 F.2d 259 ( 1932 )

GREEN, Judge.

The plaintiff brings this suit to recover $10,448.09 with interest which it alleges it overpaid on its income taxes for the years 1919, 1920, and 1921. The claim upon which plaintiff’s case is based is that it is entitled to be classified as a personal service corporation under section 200 of the Revenue Acts of 1918 and 1921. Under such a classification the plaintiff should not have been taxed as a corporation but the individual stockholders would bo taxed in Ihe same manner as members of a. partnership.

During the years involved, the plaintiff was an advertising service agency. Its capital stock consisted (if 1,000 fully paid np shares of the par value of $100 each, of which George M. Basford, as president, owned 510 shares, and 490 shares were distributed among fourteen other stockholders.

George M. Basford, president of the plaintiff corporation, devoted all of his time to the business, and was in complete charge of it personally. None of the other stockholders took an active part in the business. The plaintiff had no capital, and appears to have derived the money necessary to carry on its business by receiving payments in advance on advertising contracts. It had no government contract, never traded as a principal, and was a domestic corporation. The evidence shows that it had valuable contracts for advertising, and its tax returns showed it received a considerable amount of income from its business, which consisted principally of rendering personal service. The concern had a number of employees, but its earnings appear to be due largely to the activities and management of its president, George M. Bas-ford, and the evidence fails to show that any of the other owners or stockholders took any part or had anything- to do with the business, although they held 49 per cent, of the stock. Among the minority stockholders, there was one who held 80 shares and five who held 77 shares of stock. Section 200 of the Revenue Act of 1918 (40 Stat. 1059) provides:

“The term ‘personal service corporation’ means a corporation whose income is to be ascribed primarily to the activities of the principal owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation. « S 77

Under the facts in the ease, we do not think that plaintiff came within this requirement, and therefore hold that it was not a personal service corporation.

It follows that plaintiff’s petition must be dismissed, and it is so ordered.