*3531 Petitioner was not a personal service corporation in 1920.
*449 This is a proceeding for the redetermination of a deficiency in income and profits taxes for 1920 in the amount of $1,529.55. The petition raised two issues but at the hearing only one issue was presented, the other issue being waived. The only issue presented at the hearing was whether the petitioner was a personal service corporation during 1920.
*450 FINDINGS OF FACT.
The petitioner is a corporation organized under the laws of New York with its principal office at Luna Park, Coney Island. The corporation had a capital stock of $100,000 par value at the time of its organization, all of which stock was issued to Martin A. Couney and another individual who carried on the same kind of business as a partnership in Europe for the assets of the business then being carried on. During 1920 there were five stockholders as follows: Martin A. Couney and his wife, May Couney, Isadore Schulz, Benjamin Schulz, Sol Schulz and Louise Recht.
The corporation carried on its business at*3532 four places during the taxable year, to wit: Palisades, N.J., Chicago, Ill., Coney Island, N.Y., and Atlantic City, N.J. In each of these cities the petitioner operated places in the nature of hospitals where prematurely born and undeveloped infants were taken care of. The petitioner had infant incubators in which it was necessary to keep the infants on account of their lack of normal development. In all of the places combined the petitioner had approximately 40 incubators, which cost approximately $245 each. The petitioner also had nursery appliances, linens, hospital furniture, sterilizers and other things which were necessary for the care of the infants. The total value of these assets in 1920 was approximately $20,000.
The public was admitted to these places upon an admission charge of 25 cents each. Scientific demonstrations were given in the rearing and preserving the lives of prematurely born infants. These infants are sent to the petitioner's places from the city hospitals, private individuals, and physicians. No charges are made for the treatment and care of the infants, the petitioner paying all expenses. The only income which the petitioner receives is the admission*3533 charges.
The petitioner employed a ticket seller and a ticket taker at each of the places, instructors or lecturers who explained the treatment and care of the infants to the public. At each place the petitioner had four to six lecturers. The petitioner also had from four to eight nurses at each place who were especially trained graduate nurses. There were also cooks, kitchen help and other minor employees at each place.
Each of the stockholders was regularly engaged in the active conduct of the affairs of the corporation, each devoting his entire time to the work.
In some of the cities the petitioner paid rental from $5,000 to $7,000 per annum for the space occupied. In Luna Park, however, the petitioner paid a commission instead of rent to the owner of the building who furnished light, heat and water. Total commissions of $13,913.38 were paid in 1920.
*451 When the company was organized in 1905 it had a capital stock fully paid of $100,000. At that time and for some years subsequently, the petitioner operated a chemical establishment but this was unsuccessful and it was abandoned prior to the taxable year. Prior to the taxable year it also suffered fire*3534 losses. Approximately $50,000 of assets were destroyed in one fire and approximately $54,000 of assets destroyed in another fire, and approximately $30,000 destroyed in another fire several years before the taxable year. During the taxable year the petitioner owned a building in Chicago which cost $8,000. This building was on rented land and in October, 1920, the petitioner abandoned that building and thereafter rented a building in Chicago.
OPINION.
TRAMMELL: The only question in this case is whether the petitioner is a personal service corporation as defined by the Revenue Act of 1918. One of the necessary requirements in order to entitle it to that classification is clearly met, that is, all of the stockholders were regularly engaged in the active conduct of the business of the corporation. There are other requirements, however, which must be met in order to entitle the petitioner to such classification. The fact that all of the stockholders were regularly engaged in the active conduct of the business does not mean that the income of the corporation is to be ascribed primarily to the activities of the principal owners or stockholders. We think from a consideration of*3535 all the evidence that it can not fairly be said that the income is to be ascribed primarily to the activities of the stockholders. In reaching this conclusion we have considered the capital invested in its business, the value of the assets owned which were used in the production of income, the large number of skilled employees without whose services the corporation could not have operated its business. We think that these facts were factors which contributed very largely to the production of the income of the petitioner; in fact, to such a great extent that it could not be said that the income was primarily ascribable to the activities of the stockholders.
The corporation received its income from the public as admission charges to the public exhibitions of the operation of the infant incubators which were explained by lecturers or instructors, and while we do not discount the important public spirited service rendered by the petitioner corporation, it seems to us that this service was not the principal income-producing factor in the business. On the other hand, we are impressed with the fact that capital was a material income-producing factor and that the corporation does not*3536 meet the requirements of the statute to entitle it to classification as a personal service corporation.
Judgment will be entered under Rule 50.