Crowley Bros., Inc. v. Commissioner

*478OPINION.

Marquette:

There is no absolute standard in business as to the duties, services, and value of services of corporate officers. A cor*479porate officer is but an individual bearing a title, elected under the laws of the State of incorporation by the stockholders or by the directors. He may have certain statutory duties to perform. Usually the statutory functions of a president are to preside at stockholders’ meetings, to sign stock certificates, and, generally, to be chairman of the board of directors. In business organizations done in the corporate form, the directors decide policies and delegate the execution of those policies to officers or to employees such as a general manager, superintendent, and so forth. The matter may be limited by the by-laws or may be left to the directors at their discretion. One man may hold several titles; he may have one set of duties as an employee and another set as an officer. His entire compensation may be paid him as an employee or as an officer, or it may be divided. His services as an official may be merely perfunctory while he has the full responsibility for the management of the business as an employee and yet his compensation may be received under the designation of a vice president or some other title. A man may be a corporate officer and have nothing to do with the active management of the enterprise. In the present appeal D. T. Crowley is an apt illustration of the latter situation, and not an unusual one to be found in corporate business. Likewise, a man may be the manager, and, as such, the j)erson -who is, really, responsible for the business success and still not hold any corporate office.

A grouping of the salaries of “ corporate officers ” in one company and comparing them with the salaries paid “ corporate officers ” in another company is a futile effort and unproductive of a fair basis for comparison.

D. T. Crowley was a vice president of the taxpayer and had no active connection with -the business. Edson-Moore & Co. had two vice presidents who devoted all of their time to that business. Obviously enough the taxpayer had “employees” who performed services in their company similar to those performed by “ vice presidents ” in Edson-Moore & Co. and their compensation was included within the $274,582 paid as wages and salaries to others than officials.' In both of those companies the “ treasurer ” was the real manager of the business and the salaries respectively paid them were, approximately, in the same ratio as the comparative sales of the two companies.

The taxpayer, it should be noted, does not seek to have its net income reduced by an additional allowance as reasonable salaries. If the further amount of $70,000 were deducted from its income, the excess profits tax of the taxpayer would still be a larger percentage of the net income than the tax of Edson-Moore & Co. Rather, the taxpayer seeks the benefit of a smaller percentage solely because no salary was paid its president. That, to our minds, is insufficient as *480evidence of abnormality to justify the special relief afforded by sections 827 and 328 of the Revenue Act of 1918.

That the president of the taxpayer devoted some of his time to the affairs of the taxpayer without expecting compensation is not peculiar or unnatural. He owned 55 per cent of the stock and was interested in such execution of policies that would result in the largest possible dividends. He owned about half of the stock in the Crowley-Millner Co. which bought goods from the taxpayer. As an investor his eggs were divided between two baskets and quite properly he was wise to watch both baskets with equal care. The omission to pay a salary was clearly intentional. If otherwise, the taxpayer would be asking for a further deduction from income as reasonable salaries instead of trying to justify such salaries solely as a basis for comparatives to prove abnormality.

ARUndell not participating.