*200OPINION.
Lansdon:The record contains evidence that convinces us that capital was a material income-producing factor during the taxable period. In addition to Seymour and Weaver, who were designated as officers and apparently were stockholders only to the extent necessary to qualify them as directors, there were “ account executives ” and other employees who, during the period here involved, received pay in the total amount of $58,651.71. We believe that such an expenditure must have been for the purpose of securing additional income, and it is reasonable to assume that services secured at such cost were of an income-producing nature. It is evident that much of the income of the petitioner was produced by employees who were not stockholders.
In its income and profits-tax return, in which it claimed personal service classification, the petitioner made no deduction from gloss income on account of salary for services rendered by its principal stockholder and president, Eoss. In the event that the Board finds that it is not entitled to personal service classification during the taxable year, the petitioner makes the alternative contention that it is entitled to deduct from its gross income a reasonable salary for its president, who was chief executive and general manager. The petitioner is a close corporation operating under the laws of New York. Informal action of the directors of such corporation in that State is sufficient to create salary liability.
To bring itself within the statute providing for the deductions here claimed, the petitioner must prove that it either paid the salary or incurred a liability for such payment in 1920. At the very beginning of the petitioner’s operations it was determined by informal *201corporate action that Boss should have a drawing account in the amount of $400 per week.
It is alleged that the drawing account provided for. Boss by the petitioner was not intended to represent and did not represent the full measure of his compensation and that from the very first it was clearly understood, and the directors of the petitioner all agreed that, for the taxable period here involved, Boss should receive all the net profits as his salary. Shortly after the close of the year 1920, and prior to the closing of the petitioner’s books of account thereof, this understanding was carried out, and Boss was paid the amount of $25,438.80, as his compensation for personal services rendered during the year 1920. The necessary entries and adjustments were made on the books as of that year. That one of the several entries required to complete the record was' erroneously dated in January, 1921, is not material, since all the accounting entries relating to the salary in question were adjustments of the petitioner’s books for 1920. If the petitioner incurred a salary for Boss during the taxable year its liability therefor can not be affected by accounting entries whether made in error or otherwise, as it is now well established that tax liability may not be determined by mere bookkeeping entries. In the light of all the evidence, we are convinced that the petitioner incurred liability for a salary for Boss during the taxable period.
Having decided that the petitioner incurred liability for salary to Boss for services rendered in the year 1920, we must now determine the amount of such liability. The evidence discloses that Boss had drawn an average salary of $27,000 for three years preceding his organization of the petitioner; that he was then generally known as a competent, successful and experienced advertising man; that other concerns were ready to employ him at a salary much higher than the amount here in controversy; and that the large earnings of the petitioner were due largely to his knowledge, ability, and industry. All these averments may be admitted without in any way strengthening or affecting the claim of this petitioner. The salaries drawn by Boss from previous employers, or that may have been offered him during the taxable year, can hardly be regarded as fair measures of the value of his services to the petitioner. The reasonableness of salary for services rendered relates more closely to the value of such services to the employer than to the competency or ability of the man employed. A man worth $75,000 per year to one corporation may not be worth half that amount to another engaged in a similar business, if the opportunities for producing income are less by half or more.
We are convinced that a liability to pay Boss a salary in the amount of $400 a week was established by proper corporate action and that, in the circumstances of this petitioner, such a salary was *202reasonable. In the light of all the evidence, we are of the opinion that the petitioner is entitled to deduct from gross income for the taxable year .the amount of $400 per week from March 15 to December 31, 1920, as salary for its president.
Judgment toill be entered on 15 days’ notice, under Rule 50.