Marshall & Spencer Co. v. Commissioner

OPINION.

Smith :

The only question presented by this proceeding is whether the $24,000 which was charged as salaries on the petitioner’s books of account and paid to its principal officers during the year 1921 is deductible from gross income in its income-tax return. The respondent has disallowed the deduction of $9,600 of the amount taken as a deduction and has allowed the deduction of only the same amount as was shown as a deduction from gross income in the income-tax return for 1920.

At the hearing of this proceeding, several prominent business men of Jacksonville testified as to the reasonableness of the salaries paid to Spencer and Marshall. Although the payment of large salaries to the principal officers of a corporation, who own substantialy all the stock of the corporation, invites scrutiny to determine whether they are simply a distribution of profits to shareholders, we are of the opinion that in the instant case the amounts paid represent only reasonable compensation and that the $24,000 paid by the corporation for the salaries of its principal officers is deductible from gross income of 1921.

Judgment will be entered for the petitioner on 15 days' notice, under Rule 50.