*2622 Taxpayer was not a personal service corporation during the fiscal year ended April 30, 1921.
*545 Before GREEN, TRUSSELL, and MORRIS.
This is an appeal from the determination of a deficiency of $2,313.06 in income and profits taxes for the fiscal year ended April 30, 1921, arising from the refusal of the Commissioner to classify the taxpayer as a personal service corporation.
FINDINGS OF FACT.
The taxpayer is a Minnesota corporation, engaged in the insurance agency business.
For many years prior to 1912 the Conklin-Zonne-Loomis Co., a corporation, was engaged in the management of office buildings, the placing of loans, and the selling of insurance. In September, 1912, this corporation desired to take in one, J. M. Harrison, who had been in the insurance business for 12 years or more, to handle the insurance department. It was later decided to segregate the insurance business, which resulted in the incorporation of the taxpayer, to which was transferred all of Harrison's insurance business and that of the Conklin-Zonne-Loomis Co. *2623 , and stock of the par value of $100 was issued therefor as follows:
| Shares. | |
| J. M. Harrison | 100 |
| Conklin-Zonne-Loomis Co | 200 |
In 1918 Harrison received an additional 50 shares of stock, which, together with 35 shares of stock issued to one Sanford prior to that time, resulted in the following stock holdings in the taxpayer during the taxable year in question:
| Shares. | |
| J. M. Harrison | 150 |
| L. W. Sanford | 35 |
| Conklin-Zonne-Loomis Co | 150 |
| Total | 335 |
No cash was paid in for the additional stock issued.
Harrison and Sanford devoted their entire time to the business. Only one sub-agent was employed, whose activities produced a net income of $25 during the taxable year. A solicitor was also employed in order to give him a chance to pay off his creditors, among whom was the taxpayer. He produced approximately $75,000 worth of business out of $329,806.33. About 15 per cent of the total premium volume was written by outside brokers, who were in the same line of business and transferred insurance to the taxpayer in excess of their writing capacity. Other employees included an office force of 13 or 14, consisting of the usual policy writers, bookkeepers, *2624 stenographers, and clerks. The cost of the cashier and switchboard operators was shared with the Conklin-Zonne-Loomis Co. The pay *546 roll of the office for the year ended April 30, 1921, was $20,002.39, in addition to the stockholders' salaries, amounting to $8,828.12. Uncollected premiums remitted to the insurance companies for two typical months during the taxable year in question were 9.8 and 13.7 per cent. Its bad debts were nominal. Renewals constituted approximately 75 per cent of the business.
The balance sheets of the taxpayer as of April 30, 1920 and 1921, were as follows:
| Apr. 30, 1920. | Apr. 30, 1921. | |
| ASSETS. | ||
| Cash | $449.51 | $655.35 |
| Trade accounts receivable | 57,207.89 | 66,513.87 |
| Other accounts receivable | 337.50 | 143.03 |
| Liberty bonds and war savings stamps | 4,284.40 | 3,892.79 |
| Minneapolis Underwriters bond | 125.00 | 135.00 |
| Investment | 262.50 | 525.00 |
| Loans and advances to members | 4,597.36 | 5,797.65 |
| Furniture and fixtures | 2,838.41 | 2,932.54 |
| Automobile | 400.00 | |
| Good will | 33,700.00 | 33,500.00 |
| Total | 104,202.57 | 114,095.23 |
| LIABILITIES. | ||
| Notes payable | 310.00 | 10.00 |
| Accounts payable | 59,587.73 | 66,446.11 |
| Capital stock | 33,500.00 | 33,500.00 |
| Surplus and undivided profits | 10,804.84 | 14,139.12 |
| Total | 104,202.57 | 114,095.23 |
*2625 The accounts receivable included the commissions due the taxpayer, and the accounts payable represented the net amount due the insurance companies at the end of the year. Notes payable of $310 at the beginning and $10 at the end of the fiscal year represented the unpaid portion of a loan which was made to purchase another insurance agency.
The stockholders of the Conklin-Zonne-Loomis Co. were as follows:
| Shares | |
| A. E. Zonne | 124 |
| G. B. Loomis | 41 |
| J. F. Conklin | 1 |
| Total | 166 |
The stockholders A. E. Zonne and G. B. Loomis devoted all their time to the business of that company. J. F. Conklin, owning one share, did not take an active part in the business but acted in an advisory capacity. This corporation did not own any buildings or realty, but its main source of income was from commissions received on rentals of office buildings and other properties which were managed for its customers. In the course of such real-estate business it was instrumental in placing much insurance business with the *547 taxpayer. Its balance sheets as of April 30, 1920 and 1921, were as follows:
| Apr. 30, 1920. | Apr. 30, 1921. | |
| ASSETS. | ||
| Cash | $1,661.16 | $7,097.01 |
| Accounts receivable | 37,138.79 | 28,241.77 |
| Liberty bonds | 21,550.00 | 21,550.00 |
| Corporate stocks and bonds | 45,086.25 | 42,701.25 |
| Mortgages receivable | 680.00 | 480.00 |
| Life insurance - cash surrender value | 4,142.93 | 5,898.73 |
| Furniture and fixtures | 1,939.94 | 1,745.95 |
| Notes receivable - employees | 250.00 | 250.00 |
| Due from Conklin-Zonne-Harrison Agency | 3,000.00 | 3,000.00 |
| Contingent fund | 20.27 | 33.83 |
| Manager's fund | 300.00 | 300.00 |
| Total | 115,769.34 | 111,298.54 |
| LIABILITIES. | ||
| Accounts payable | 69,543.18 | 66,354.61 |
| Special reserve | 13,400.00 | 13,400.00 |
| Capital stock | 16,600.00 | 16,600.00 |
| Surplus | 16,226.16 | 14,943.93 |
| Total | 115,769.34 | 111,298.54 |
*2626 Its gross income for the fiscal year ended April 30, 1921, was derived from the following sources:
| Income. | |
| Year ended Apr. 30, 1921. | |
| Commissions on rents collected for principals | $49,467.44 |
| Commissions on sales and loans | 629.00 |
| Commissions on coal sales | 1,551.43 |
| Interest on bank deposits | 319.05 |
| Interest on investments and notes receivable | 363.80 |
| Interest on Liberty bonds | 1,017.32 |
| Rentals | |
| Dividends received from: | |
| Boston Block Trust Co. | 250.00 |
| Minneapolis Real Estate Associates | 1,000.00 |
| Share of net income earned by the Conklin-Zonne-Harrison Agency | 3,000.00 |
| Total | $57,598.04 |
The Commissioner denied the taxpayer personal service classification.
DECISION.
The determination of the Commissioner is approved. ; . See also .