Barker, Frost & Chapman Co. v. Commissioner

APPEAL OF BARKER, FROST & CHAPMAN CO.

Barker, Frost & Chapman Co. v. Commissioner

Docket No. 2753.

United States Board of Tax Appeals

3 B.T.A. 37; 1925 BTA LEXIS 2056;

November 14, 1925, Decided Submitted September 16, 1925.

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Taxpayer held not entitled to classification as a personal-service corporation for the years 1919 and 1920.

Homer Sullivan, Esq., for the taxpayer.

J. Arthur Adams, Esq., for the Commissioner.

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Before GRAUPNER, TRAMMELL, and PHILLIPS.

This is an appeal from the determination of a deficiency in income and profits taxes in the amount of $2,344.78 for the calendar years 1919 and 1920. The only issue involved is whether the taxpayer is entitled to personal-service classification.

FINDINGS OF FACT.

The taxpayer is an Ohio corporation, organized in 1912, with its principal office at Toledo, and is engaged in the business of conducting an insurance agency.

During the years here involved the taxpayer's income consisted of fees and commissions on the writing of insurance policies. It represented and wrote insurance policies for a number of insurance companies. Business was solicited by some of its stockholders, foreign brokers, office brokers, and subagents.

The president of the taxpayer corporation testified that the gross income from commissions for 1919 and 1920 was as follows:

	1919	1920
Produced by stockholders	$92,892.46	$107,723.49
Produced by foreign brokers	12,389.67	7,589.91
Produced by office brokers	683.63	2,063.37
Produced by subagents	331.98	597.11
Total	106,297.74	117,973.88

Schedules attached to the income-tax returns for 1919 and 1920, showing income produced by office brokers and agents, are as follows:

	Gross profits.	Commissions paid agents	Net returns to B.F. & C. Co.
1919.
C. P. Curtis	$78.03	$46.82	$31.21
E. W. Zehner	392.60	235.56	157.04
C. D. Wernert	114.14	72.32	41.82
F. W. Holewinski	98.86	62.58	36.28
Charles G. Smith	11,987.69	7,605.24	4,382.45
	12,671.32	8,022.52	4,648.80
1920.
C. D. Wernert	422.43	267.40	155.03
C. P. Curtis	73.85	44.31	29.54
F. W. Holewinski	823.05	520.99	302.06
L. P. Malone	682.22	341.11	341.11
J. A. Atkinson	61.82	30.91	30.91
Charles G. Smith	15,314.74	9,408.50	5,906.24
	17,378.11	10,613.22	6,764.89

The persons listed above were not stockholders.

Office brokers are persons employed on full time by the taxpayer and are paid a salary and commission. They are not stockholders. Foreign brokers or outside brokers are those located in other States but licensed to do business in the State of Ohio. Approximately 90 per cent of the taxpayer's business which was handled through outside brokers had originally been procured and handled by the taxpayer itself, but during the years here involved, for business reasons, had been handled through the offices of the outside brokers and the commissions divided between such brokers and the taxpayer.

The corporation had an authorized capital stock of $75,000, of which only $48,100 was issued. It was held as follows:

Stockholders.	Beginning of 1919.	End of 1919.	End of 1920.
L. L. D. Chapman	$19,000.00	$19,000.00	$22,100.00
Calvin Barker	18,100.00	18,100.00
J. D. Nolan	5,000.00	5,000.00	5,000.00
F. J. Rogers	1,000.00	1,000.00	1,000.00
A. H. Hunker	4,000.00
C. F. Wall, Jr	1,000.00	1,000.00	1,000.00
P. H. Chapman		2,000.00	2,000.00
J. J. Lovett		1,000.00	1,600.00
Barker and L. L. D. Chapman, trustees	1,000.00	1,000.00
L. L. D. Chapman and J. D. Nolan, trustees			14,400.00
Total	48,100.00	48,100.00	48,100.00

Of the above stockholders, L. L. D. Chapman, Calvin Barker, J. D. Nolan, F. J. Rogers, J. J. Lovett, and P. H. Chapman devoted their entire time to the conduct of the business of the taxpayer.

When the corporation was organized in 1912 it took over the business which had been successfully operated since 1878 by a partnership. The partnership in 1912 was composed of L. L. D. Chapman, Calvin Barker, and Andrew Hunker. The corporation issued $34,000 of its capital stock for the good will of the partnership and the balance of the stock for the tangible assets, including the bank account.

The taxpayer borrowed no money during the years 1919 and 1920.

In April and October, 1919 and 1920, the premiums on policies written by the taxpayer and the payments made by it to insurance companies in advance of receipt of the premiums from policy holders were as follows:

	Premiums on policies written.	Advanced to insurers.
April, 1919	$45,965.73	$3,504.00
October, 1919	25,570.93	4,031.52
April, 1920	48,602.57	10,918.41
October, 1920	42,259.78	12,129.13

At the close of the year 1919, the taxpayer's books showed $102,216.73 due from agents, customers, and brokers, and $93,620.83 due to insurance companies, agents, and brokers.

DECISION.

The determination of the Commissioner is approved.