*2160 1. The amount of the deduction to which the petitioner is entitled for officers' salaries determined.
2. The determination of the respondent that withdrawals from the corporation by its president were not loans but constituted taxable income to him, approved.
*264 These are proceedings, duly consolidated for hearing and decision, for the redetermination of the income-tax liability of the petitioners. The determinations of the respondent, as stated in the deficiency letters, are shown in the following statement:
| Docket | Petitioner | Year | Deficiency | Over as- |
| No. | sessment | |||
| 34828 | S. Schulein Co | 1924 | $ 82.53 | |
| 1925 | $ 1,079.40 | |||
| 1926 | 727.56 | |||
| 45759 | S. Schulein Co | 1927 | 729.00 | |
| 1923 | ||||
| 1924 | ||||
| 34829 | Est. of Sigmund Schulein | 1925 | 983.47 | |
| 1926 |
In Docket No. 34828 the following error is alleged: "The salary of S. Schulein, President, has been reduced from $12,000.00 to $9,000.00 per year."
*265 In his amended answer in Docket No. 34828 the respondent affirmatively alleges*2161 that the correct deficiencies for the years 1925 and 1926 are $1,781.40 and $1,456.56, respectively. The respondent affirmatively alleges that the salary of S. Schulein, allowed in the amount of $9,000 in the deficiency letter, should be further reduced to $3,600 for each of the years 1924 and 1926.
In Docket No. 45759 the following error is alleged:
The failure of the Commissioner to find that the salary paid to B. Schulein in the amount of Nine Thousand Dollars ($9,000) for the year 1927 to be an allowable deduction from gross income in the year 1927.
In Docket No. 34829 the following error is alleged:
The amount of withdrawals by taxpayer during the years 1923, 1924, 1925 and 1926 from the S. Schulein Company, a corporation, have been added to the net income of the taxpayer as dividends and the said amount of withdrawals are charged on the books of the S. Schulein Company, to the personal account of Sigmund Schulein and are included in the assets of the said corporation as an account receivable.
FINDINGS OF FACT.
Sigmund Schulein settled in Sioux City, Iowa, in 1869, and between that time and 1904 he acquired a large quantity of real estate. In 1904 he incorporated*2162 under the laws of Iowa the S. Schulein Co., hereinafter referred to as the corporation, and transferred all his realty to the company for its entire capital stock of $100,000. From the inception of the corporation until the date of his death in 1926, Sigmund Schulein was the dominant figure in the business. He attended to all buying, selling, building, renting, repairing, tax and legal matters and all other necessary transactions. He kept a loose set of books. These consisted of check books and a single entry day book. Sigmund Schulein had no interest other than his interest in the corporation and he devoted his entire attention to it.
From 1904 to 1926 Sigmund Schulein was president and his son, Benjamin Schulein, was secretary of the corporation. The minutes of a meeting of the stockholders and directors held on March 9, 1908, provided in part:
It was resolved and unanimously adopted that Sigmund Schulein shall receive seven thousand dollars yearly salary as Manager for said corporation, said salary to commence from December 28th, 1904 and to continue as long as he acts as Manager for said corporation.
The minutes of a meeting of the stockholders and directors held*2163 on April 20, 1912, provided, in part, as follows:
The salary of the president and manager of this company to be twelve thousand dollars ($12,000.00) per annum as long as he lives, the same to be for the year (1912) nineteen hundred and twelve.
*266 The minutes of a meeting of the stockholders and directors of the corporation held on October 20, 1913, showed the following:
The president, Sigmund Schulein, notified the S. Schulein Company that he has this day sold and transferred for the consideration of one dollar and other valuable consideration, the following shares of the S. Schulein Company to the following persons, to viz. to Lillian Schulein twenty-five shares of the S. Schulein Company stock - also to Benjamin Schulein, twenty-four shares of the S. Schulein Company Stock - also to Solomon Schulein twenty-four shares of S. Schulein Company stock - also to Babette Shakman twenty-four shares of S. Schulein Company stock.
After the transfer of the stock as above described Sigmund Schulein owned 90 per cent of the stock of the corporation.
The minutes of a meeting of the stockholders and directors of the corporation held on September 25, 1918, showed the following:
*2164 Sigmund Schulein notified the company that he has transferred to Benjamin Schulein for valuable consideration one hundred and twelve shares of his stock in the company. He also has transferred for valuable consideration one hundred and twelve shares of his stock in the company to Solomon Schulein. He has transferred for valuable consideration one hundred and twelve shares of his stock in the S. Schulein Company (Inc.) to Babette Shakman. He has also transferred for valuable consideration one hundred and twelve shares of his stock in the S. Schulein Co. (Inc.) to Lillian Schulein.
This makes Sigmund Schulein owning this day four hundred and fifty-two shares in said company, Benjamin Schulein owns this day one hundred and thirty-seven shares in this company, Solomon Schulein owns this day one hundred and thirty-seven shares in this company, Babette Shakman owns this day one hundred and thirty-seven shares in this company, Illian Schulein owns one hundred and thirty-seven shares in this company this day.
The minutes of a meeting of the stockholders and directors of the corporation held on January 29, 1920, showed the following:
It is hereby resolved that Article V of the*2165 Articles of incorporation of S. Schulein Company is hereby amended so as to read as follows:
Article V.
The capital stock of said corporation shall be three hundred thousand dollars ($300,000.00) divided into three thousand (3,000) shares of one hundred dollars ( $100) each. One hundred thousand dollars of which stock is fully paid up and issued and the balance is to be issued for property now owned by said corporation as soon as an appraisement of same shall be approved, and permission given by the executive board of the State of Iowa to issue same.
The minutes of a special meeting of the stockholders of the corporation held on February 23, 1921, read as follows:
At a special meeting of the stockholders of the S. Schulein Company, held at Sioux City, Iowa, February 23rd, 1921, the following stockholders of said company being present and represented either in person or by proxy to wit. Sigmund Schulein now owning 876 shares, Benjamin Schulein now owning 531 *267 shares, Babette Shakman now owning 531 shares, Solomon Schulein now owning 531 shares, and Lillian Schulein now owning 531 shares of stock in said company. * * *
The minutes of a meeting of the stockholders*2166 and directors of the corporation held on April 17, 1912, state in part as follows:
It was voted and agreed that the living expenses of Illian Schulein be paid by this company as long as Sigmund Schulein is alive and she unmarried.
The stock was transferred by Sigmund Schulein as stated in the minutes hereinbefore quoted and dividends were paid on the stock up to four or five years before the death of Sigmund Schulein. During his last years Sigmund Schulein had some heavy personal expenses and, with the consent of the other stockholders, he withdrew money from the corporation. All withdrawals which he made were entered on the books.
Solomon Schulein was elected president of the corporation after Sigmund Schulein died in 1926. Prior to that time he was vice president.
The single entry records which Sigmund Schulein had kept were complete but from them it was not possible for the other stockholders to determine the financial condition of the corporation. The officers therefore hired an accountant, who made an analysis of the records which Sigmund Schulein had kept and opened a complete set of books. The examination disclosed the amount of money that Sigmund Schulein had*2167 drawn for personal uses and this amount was set up as an account receivable against the estate.
After the death of Sigmund Schulein Benjamin Schulein, the secretary of the corporation, was the only stockholder who was living in Sioux City. He was familiar with all of the properties and conditions because he had been in constant contact with Sigmund Schulein. The other stockholders had confidence in his ability and employed him to operate the properties of the corporation at a salary of $9,000 per year. He performed the same duties that Sigmund Schulein had theretofore performed. The stockholders did not consider that his services were as valuable as those of Sigmund Schulein. He operated a retail shoe store and did not devote all his time to the corporation.
During the years 1923 to 1926, inclusive the corporation owned five buildings, between 200 and 300 unimproved parcels of land, Schulein Park, and acreage in Texas. In 1925, 1926, and 1927 the approximate gross value of these assets was between $50,000 and $700,000. In those years the five buildings were rented, but the market was dormant and no property was sold.
*268 The income of the corporation as shown*2168 by its returns was as follows:
| Year | Gross income | Net income |
| 1924 | $43,919.00 | $16,427.00 |
| 1925 | 37,676.00 | 29.00 |
| 1926 | 38,299.00 | 8,190.30 |
| 1927 | 38,770.08 | 7,177.90 |
The above income was derived entirely from rent.
The deductions claimed in the returns as compensation of officers were as follows:
| 1924 | $9,000 |
| 1925 | 18,000 |
| 1926 | 12,000 |
| 1927 | 9,000 |
For each of the years 1925 and 1926 the corporation claimed as a deduction the salary of $12,000 paid to Sigmund Schulein. The respondent reduced the claimed deduction to $9,000 in each year.
OPINION.
McMAHON: Docket No. 34828 purports to cover the year 1924, bit since the respondent did not determine a deficiency for that year it is not within our jurisdiction.
It is alleged in the petition in that docket that the respondent erred in reducing the deduction claimed by the corporation as salary paid to its president, Sigmund Schulein, in the years 1925 and 1926, from $12,000 to $9,000. It is the contention of the petitioner that $12,000 was a reasonable salary for its president, who attended to all the details of managing the corporation's business. Petitioner claims that this is*2169 evidenced by the fact that that salary was authorized for Sigmund Schulein in 1912, at which time there were no income-tax acts in force. However, at the time this salary was authorized Sigmund Schulein was the owner of all the stock of the corporation and completely dominated it, and such authorization does not necessarily show that his services were worth that amount. The petitioner has introduced no other evidence which indicates that Sigmund Schulein's services were reasonably worth more than $9,000 per year.
At the hearing Solomon Schulein testified that real estate agents would have charged $5,000 or $6,000 per year to manage the properties of the corporation and that then the stockholders would not have been safeguarded as well as if one of its officers had charge of the properties. This is an opinion, argumentative in character, and we can not make a finding of fact upon it.
*269 The respondent, in his amended answer, affirmatively alleged that the deduction on account of Sigmund Schulein's salary for each of the years 1925 and 1926 should be further reduced to $3,600. However, the burden of proving that the deduction should be reduced is upon the respondent*2170 and he has introduced no evidence to show that Sigmund Schulein's services were reasonably worth less than $9,000 per year. We must approve the respondent's determination that a reasonable salary for Sigmund Schulein for the years 1925 and 1926 was $9,000.
In Docket No. 45759 it is alleged that the respondent erred in failing to find that the salary of $9,000 paid to B. Schulein in 1927 was an allowable deduction. We have no evidence to show just what the respondent did in this regard except the statement of counsel for the respondent at the hearing that the claimed deduction was reduced to $3,600. The evidence discloses that after Sigmund Schulein died, Benjamin Schulein, who was the secretary of the corporation, was authorized by the other stockholders to manage the properties of the corporation. He was familiar with the business, but devoted only a part of his time to it and the other stockholders did not consider his services as valuable as those of Sigmund Schulein had been. There is no evidence in the record upon which we can determine that the services of Benjamin Schulein were reasonably worth $9,000 per year. The determination of the respondent in this regard must*2171 be approved.
In Docket No. 34829 it is alleged that the respondent erred in adding to the net income of Sigmund Schulein for the years 1923, 1924, 1925, and 1926, as dividends, amounts of withdrawals made by him from the corporation. We are not advised as to these amounts. The revenue agent's report upon the S. Schulein Co., which was rendered in 1927, makes some reference to amounts withdrawn by Sigmund Schulein, but from this report we can not definitely determine just what amounts the respondent has held are taxable to him.
It is the contention of the petitioner that these withdrawals were loans made by the corporation to Sigmund Schulein. The main basis upon which the petitioner rests its contention is that the S. Schulein Co. during those years was operating at a deficit and that these withdrawals could not have been dividends, since there was no surplus out of which to declare dividends, and that to hold that they were dividends would be to hold that the corporation had violated the law of Iowa, which provides that dividends may not be declared in such circumstances. However, the petitioner has not introduced any evidence from which we can determine that the corporation*2172 was operating at a loss. The books of the corporation were not submitted in evidence. Petitioner did submit in evidence an analysis of the financial condition of the corporation which was based *270 upon a balance sheet and analyses of the corporation's surplus account as set forth in the revenue agent's report. Such evidence was received, without objection on the part of the respondent, for the sole purpose of showing what the respondent did. We are, therefore, without sufficient evidence upon which to base a conclusion as to the financial condition of the corporation. Even if the corporation had been operating at a loss, we do not believe that this would conclusively show that the amounts withdrawn were not taxable to Sigmund Schulein. Such withdrawals may have been distributions from capital of the corporation. The burden of proof as to this issue is upon the petitioner and there is a presumption that the respondent has correctly determined the petitioner's tax liability. The petitioner introduced no evidence to show that Sigmund Schulein gave the corporation any evidence of indebtedness on account of the withdrawals, that the withdrawals were treated on the original*2173 books of the corporation as loans, or that Sigmund Schulein evier repaid the amounts withdrawn. The petitioner has not introduced evidence sufficient to overcome the presumption of correctness of the respondent's determination, and such determination must be approved.
The record shows that for years 1923, 1924, 1925, and 1926 the respondent determined that there is a total of deficiencies in the amount of $983.47 against the Estate of Sigmund Schulein, but we are not advised as to the deficiency for each individual year.
Judgment will be entered under Rule 50.