Appeal of Boston Drug Co.

OPINION.

Graupner:

The first question presented is whether the taxpayer is entitled to a deduction from gross income for salaries of its president and secretary in excess of the amount allowed as reasonable by the Commissioner. Section 234 (a) (1) of both the Revenue Acts of 1918 and 1921 permits as a deduction “ a reasonable allowance for salaries or other compensation for personal services actually rendered.” The only evidence we have of activity in the corporation’s affairs on the part of the secretary, Mrs. Silverstone, is the testimony of her husband, which is set forth in the findings above. To our minds this testimony does not show any activity or interest on the part of Mrs. Silverstone other than would ordinarily be taken by a wife in the affairs of her husband, bearing in mind that they owned all the stock of the taxpayer corporation. That an arrangement to divide their salaries was made by the husband and wife, in view of the community property laws of the State in which they reside, can have no bearing on the case, as shell an arrangement would not in any way affect the liability of the corporation.

The second question involved is whether the amount, paid in 1920 to H. E. Silverstone from the proceeds of the sale of the drug store is an allowable deduction. In the petition filed it is alleged that this amount was paid as compensation and is a proper deduction as expense for services rendered and should date from January, 1919. The testimony of the president of the taxpayer was that H. E. Sil-verstone drew as salary approximately $500 per month during the period he was manager of the drug store. No evidence was offered to show that this was not ample compensation for the services rendered. nor is there anything in the record to establish liability on the part of the corporation to H. E. Silverstone for any portion of the proceeds realized from the sale of assets.