William C. Raue & Sons Co. v. Commissioner

WILLIAM C. RAUE & SONS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

William C. Raue & Sons Co. v. Commissioner

Docket No. 8272.

United States Board of Tax Appeals

9 B.T.A. 1321; 1928 BTA LEXIS 4247;

January 16, 1928, Promulgated

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During the taxable year petitioner paid salaries which were inadequate. No further liability was incurred. Held, it may deduct only the amount paid.

Joseph J. Raue, Esq., for the petitioner.

A. LeRoy Deveney, Esq., for the respondent.

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PHILLIPS

This proceeding is for a redetermination of a deficiency in income tax for the year 1920 amounting to $677.04.

FINDINGS OF FACT.

Petitioner is a corporation located at Watertown, Wis. In 1920, all the officers of the petitioner were members of the same family. During that year, William C. Raue, president, was paid by petitioner as salary, $400; B. S. Raue, vice president, was paid a salary of $2,100; and J. J. Raue, as secretary and treasurer, was paid a salary of $2,150. These salaries were inadequate. It was the custom to pay additional amounts as the business might warrant. These three officers devoted their full time to the business of petitioner. During the year 1920, petitioner neither paid nor obligated itself to pay any salaries in addition to those stated above. The Commissioner refused to allow any further deduction for salaries paid or incurred, except those which were paid as stated above.

OPINION.

PHILLIPS: The petitioner claims that the salaries paid were merely nominal in amount, that a larger amount would have been paid before the close of the year, except for the sickness of the officer having charge of the accounts, and that it should be entitled to a further deduction for salaries in the amount of $1,550.

Section 234(a)(1) of the Revenue Act of 1918 provides that in computing the net income of a corporation there shall be allowed a a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered.

There is no evidence that any amount for salaries was paid or incurred by petitioner during the year 1920, except the amount of $4,650, which was paid to its three officers by petitioner during the year 1920 and which was allowed as a deduction by the Commissioner. The Board has consistently held that salaries, like all other expenses, must be paid or incurred in the taxable year in which they are claimed as deductions. We conclude that the Act does not permit of any further deduction for the year 1920 on account of salaries than has been allowed by the Commissioner.

Decision will be entered for the respondent.