*3470 Salaries accrued during the taxable year, reasonable in amount, are deductible in computing net income.
*739 This proceeding is for the redetermination of a deficiency in income and profits taxes for the calendar year 1920 amounting to $2,087.26. The amount in controversy is $2,075.81.
FINDINGS OF FACT.
The petitioner is a New York corporation with principal office at 85 Avenue B, New York, N.Y.
Immediately upon incorporation, December 29, 1919, and during all the year 1920, petitioner engaged in the garage business and has at all times operated the said garage business in the name of "Central Park View Garage." From the time of incorporation and during the entire taxable year 1920, the officers, directors and stockholders of petitioner were J. Lebas, I. Nichthauser, and J. Diamond. Each of said officers during the taxable year 1920 owned one-third of the outstanding stock of petitioner.
At a meeting of the board of directors of petitioner, on May 12, 1920, the following resolution was adopted:
It is further*3471 resolved that J. Lebas and I. Nichthauser be engaged as the active general managers of the business of the corporation and that each of whom shall be entitled to draw a salary at the rate of $7,000 per annum and that the salary of J. Diamond be at the rate of $4,500 per annum payable weekly.
The petitioner during the year 1920 was on the accrual basis, and filed its return for that year on the accrual basis. The salaries fixed by the minutes, namely, $7,000 to Lebas, $7,000 to Nichthauser and $4,500 to Diamond were duly accrued on the books of the petitioner during 1920 and deducted from gross income for that year. They were reasonable in amount.
The amounts paid during the year 1920 to the officers were as follows:
| J. Lebas | $4,567.14 |
| I. Nichthauser | 4,567.14 |
| J. Diamond | 2,500.00 |
The remaining balance due these individuals was paid subsequent thereto.
*740 J. Lebas was the president of petitioner during the year 1920 and devoted his entire time during all of that year to the affairs and business of petitioner in soliciting business and managing the business with I. Nichthauser. I. Nichthauser was the secretary and treasurer of petitioner during*3472 the year 1920 and devoted his entire time during all of that year to the affairs and business of petitioner in soliciting business, managing the business with J. Lebas, and performing his duties as secretary and treasurer. J. Diamond was the vice president of petitioner during the taxable year 1920 and devoted his entire time during all of that year to the affairs and business of petitioner in soliciting business, assisting in managing the business, and performing his duties as vice president.
The lease to the premises on which the petitioner conducted its business was signed on December 29, 1919. Immediately thereafter petitioner entered upon its business preparing the premises and obtaining reservations for space. The garage was not formally opened until May 2, 1920. Prior to that time, the officers herein referred to, J. Lebas, I. Nichthauser, and J. Diamond, had already obtained 160 reservations for space. In addition thereto, said officers directed, supervised and assisted in the preparation of the premises so that it could be opened for business at the earliest possible moment.
The Commissioner allowed as a deduction in computing net income of the petitioner for the*3473 year 1920 the sum of $10,791.67 for officers' salaries (computed by taking seven-twelfths of the total of $18,500.00 claimed by the petitioner) upon the ground that inasmuch as the salaries voted were to be paid per annum, only seven-twelfths of the salaries claimed should be allowed, as the corporation did not formally open it doors until May, 1920. Commissioner disallowed the amount of $7,708.33 as a deduction for salaries.
OPINION.
PHILLIPS: The facts are stipulated. The Commissioner made his determination on the theory that since the garage did not start operations until May 12, no salary accrued prior to that date. The stipulation shows that valuable services were rendered to the corporation before the garage was formally opened and that the officers devoted their time to the corporation over the entire year. The petitioner is entitled to deduct the salaries accrued during the year (section 234(a)(1), Revenue Act of 1918) and not merely the amount which accrued after the garage was completed and put into operation.
Decision will be entered under Rule 50.