*2994 Profits collected by the president of a corporation from contracts entered into between it and certain counties which it was at all times under bonds to complete, and which were performed by the president and secretary of the corporation without notice to said counties, held income to the corporation for the year in which paid.
*1048 Respondent asserted deficiencies in the income and excess-profits tax of petitioner for the fiscal year ended February 28, 1922, in the sum of $21,654.30, all of which is in dispute. Petitioner alleges error on the part of the Commissioner (1) in his adding to its income for the *1049 year in question the sum of $110,656.57, representing money paid upon construction contracts entered into between it and certain counties in Iowa, Minnesota, North Dakota, and South Dakota, and (2) in his determination of its invested capital. The last-mentioned error, however, has been disposed of by stipulation of the parties, which establishes the amount of invested capital at $92,385.78.
FINDINGS OF FACT.
The facts show*2995 that the petitioner is a corporation organized and existing under and by virtue of the laws of the State of Iowa, with principal offices at Des Moines. Its capital stock is divided into 1,000 shares, of a par value of $100, each, all of which are owned by its president, J. S. Carpenter, excepting two shares. The business of petitioner is that of building roads and bridges, and during the early part of 1921, it was engaged in the carrying out of a large number of contracts for the building of bridges for certain counties in the States of Iowa, Minnesota, North Dakota, and South Dakota, for which it was under bonds to complete. The petitioner was at that time in good financial circumstances, with more than $92,000 invested in its plant and equipment. Its credit was good; it was under efficient management, and in every way fully competent to carry out the contracts in which it was then employed. On May 28, 1921, petitioner had completed a number of its bridge contracts for counties which had not accepted or paid for them. It had also a large number of contracts in varying stages of completion on which it was engaged. On said date a meeting was held by the stockholders of petitioner, *2996 at which a resolution was adopted by unanimous vote, providing in part, as shown by the minutes of the secretary of the meeting, as follows:
It was further moved, seconded and unanimously carried that the Iowa Bridge Company of Des Moines, Iowa, sell, assign and transfer to J. S. Carpenter, all contracts and parts of contracts for bridges where any part of the bridge work specified therein is not completed and accepted on the first day of June, 1921. The said J. S. Carpenter shall pay to the Iowa Bridge Company an amount equal to the actual cash invested by the said company in any or all the aforesaid contracts, for labor and material, and the said J. S. Carpenter shall relieve the said Iowa Bridge Company from any further responsibility in connection with the completion of said contracts and the said J. S. Carpenter shall complete according to the terms of all such contracts the work hereinbefore assigned by him. All contracts taken by and in the name of the Iowa Bridge Company after the first day of June, 1921, are hereby assigned and shall be immediately turned over to J. S. Carpenter, who shall assume and do everything necessary to complete same, and relieve the said Iowa Bridge*2997 Company of any responsibility or liability in connection therewith. The contracts and parts of contracts assigned but not completed by June 1st, 1921, are more fully and completely described as follows:
*1050 [Here followed a list of 93 contracts, designated by numbers, with various named counties in the States of Iowa, Minnesota, North Dakota and South Dakota.]
The minutes show stockholders and officers present and voting at said meeting to be as follows: J. S. Carpenter, president, owner of 748 shares of stock; Donald Macdonald, secretary, owner of 1 share of stock; and D. S. Carpenter, owner of 1 share of stock.
No action was taken by the board of directors to carry into effect the transfer of contracts thus authorized. No acceptance of the terms of said proposed transfer, or of the obligations imposed, was made by the said Carpenter. No agreement in writing or otherwise was entered into between petitioner and said Carpenter to carry into effect said proposed transfer. No notice was given to any of the several counties interested in said contracts of any intention on the part of petitioner to transfer its obligations under them to another, nor was any notice*2998 given to bondsmen of petitioner who had signed its construction bonds of any intended transfers. There was no accounting of any kind had between petitioner and said Carpenter of the work done or money expended by it in connection with said contracts, nor any payments of money made to it on account thereof.
On the 31st day of May, following the adoption of said resolution, at the close of business an account was opened in the ledger of petitioner's books under a caption reading as follows: "IOWA BRIDGE COMPANY - CORPORATION. ACCOUNTS TRANSFERRED TO IOWA BRIDGE CONSTRUCTION COMPANY (SINGLE PROPRIETORSHIP) MAY 31, 1921." Under this caption appeared three columns of entries. In the first column, under the heading "AS PER BOOKS BEFORE TRANSFER" were listed, without descriptive details, assets valued at $308,856.69. In the middle column, under the heading "ACCOUNTS TRANSFERRED BY RUBBER STAMPING IOWA BRIDGE CONSTRUCTION CO.," appeared similar entries totaling a value of $215,432.69. In the third column, at the right of the page, under the caption, "ACCOUNTS NOT TRANSFERRED," appeared items of a total value of $196,621.06. Only a few of these accounts were itemized to show the character*2999 of the property composing them, being mostly grouped under an arbitrary classification with the total value in figures set opposite. In the column of accounts transferred, however, are found these specific items:
| Peoples Savings Bank - Certified check account | $14,500.00 |
| Peoples Savings Bank Checking account | 5,984.38 |
| Certified Checks - Des Moines | 2,500.00 |
| Certified Checks - Minneapolis, | 3,000.00 |
| Office Furniture and Fixtures | 1,071.75 |
| Office Furniture and Fixtures | 493.48 |
| Tool House | 413.75 |
| Tools - Des Moines | 11,237.67 |
| Tools - Minneapolis | 4,068.19 |
*1051 Following his receipt of the above listed property, Carpenter opened an account in the Peoples Savings Bank under the name of Iowa Bridge Construction Co., and with the other equipment of petitioner proceeded to perform and complete the contracts of petitioner on his own account, but using "Iowa Bridge Construction Company" as a trade name in all dealings and matters connected therewith. In this work Macdonald, secretary of petitioner, acted as secretary for Carpenter, and bank checks drawn against the newly opened account were signed by said Macdonald for the said Iowa Bridge Construction Co. *3000 and countersigned by D. S. Carpenter, the only other stockholder of petitioner.
Ninety of these contracts were completed by Carpenter during 1921, but there is no showing that any of the work has been finally accepted by the several counties interested or that any work has been done on the following contracts:
| Beadle County, South Dakota | No. 6516 |
| Sanborn County, South Dakota | No. 6370 |
| Mills County, Iowa | No. 6447 |
During these operations Carpenter purchased tools and equipment of a total value of $5,356.95, which were turned over to the petitioner after the completion of the above work, at which time he abandoned the trade name of "Iowa Bridge Construction Company." Other assets, money, and property, of a total value of $80,204.97, were turned over to the petitioner by Carpenter on December 31, 1921. Carpenter collected $110,565.57 during the taxable year in profits from the work done on the contracts hereinabove specified, all of which was retained by him as personal profit and income. Petitioner functioned during this year as a construction corporation and, except as to the contracts hereinabove specified, carried on its regular business as such. During*3001 the whole of the year Carpenter remained the principal stockholder and president of petitioner.
OPINION.
LANSDON: The single question for determination here is whether the profits collected during the taxable year from the construction contracts between petitioner and the several counties was income to the petitioner. The answer to this question depends upon the force and effect to be given to the efforts made by petitioner on May 28, 1921, to assign said contracts to its president, J. S. Carpenter.
The resolution of the stockholders proposed to transfer to Carpenter all contracts and parts of contracts which were then uncompleted or which had been completed but not accepted by the counties on June 1 thereafter. Certain conditions were imposed, including one which required Carpenter to secure the release of the petitioner *1052 from all its obligations connected with the contracts to be transferred. The record shows that on many of the contracts all the work had been completed and that upon the acceptance thereof, the petitioner could collect the amounts due it. It is also apparent that practically all the work had been done and the outlay necessary to the completion*3002 thereof incurred on a great majority of the contracts that were listed as unfinished. In these conditions there were for the most part no obligations from which Carpenter could have secured the release of the petitioner, since all that remained to be done was the collection of the contract prices after the acceptance of the work. Carpenter paid the petitioner the outlay that it had incurred and acquired the right to make collections for the finished and unfinished contracts which he took over from the petitioner. In these circumstances the alleged transfer of contracts resolves itself into a mere attempt to transfer income already earned.
On the whole, the record shows that the contracts on which the profits herein considered were earned were obligations of the petitioner from which it was never released. The acts of its president in carrying out the contracts in question, under the circumstances of this case, were the acts of petitioner and, aside from the question as to any rights he might have in them by reason of the manner in which they were earned, the profits paid to him from such were income to the corporation.
Reviewed by the Board.
Decision will be entered*3003 under Rule 50.
MILLIKEN concurs in the result.