*2901 1. ASSOCIATIONS. - During the years involved petitioner operated, under a declaration of trust agreement, in the mode and form of a corporation, the shareholders of which exercised a large degree of control over the business. Held, to be an association taxable as a corporation.
2. DEDUCTIONS. - Amounts of salary deductions determined.
3. STATUTE OF LIMITATIONS. - Held, not to bar assessment of taxes for 1920.
*199 The deficiencies in controversy in this proceeding are in the amounts of $1,811.21 for the taxable period April 7 to December 31, 1920; $250.35 for the calendar year 1923, and $192.62 for the calendar year 1924.
It is alleged that respondent erred in taxing petitioner as a corporation instead of determining it to have been a partnership during *200 each of the years in controversy; that, if petitioner is taxable as a corporation for the said years, respondent erred in disallowing the total of officers' salaries as deductions; and that respondent erred in determining any deficiency for the period April 7 to December 31, 1920, it*2902 being further alleged that assessment thereof is now barred by the statute of limitations.
FINDINGS OF FACT.
The petitioner was duly incorporated on or about January 1, 1927, and is engaged in designing, manufacturing and installing ventilating and dust-collecting systems in industrial plants in and around Milwaukee, Wis. Prior to April, 1920, the business was owned and conducted by Alfred C. Goethel and Otto P. Jurisch as copartners under the firm name and style of Alfred C. Goethel Co.
On April 7, 1920, the following declaration of trust was executed, and thereupon the property designated was transferred and delivered as agreed:
THIS AGREEMENT, made this 7th day of April, A.D. 1920, by and between ALFRED C. GOETHEL, OTTO P. JURISCH and A. E. WINKLER, all of the City of Milwaukee, County of Milwaukee and State of Wisconsin, as subscribers, and ALFRED C. GOETHEL, OTTO P. JURISCH and A. E. WINKLER, of the same place, as trustees, WITNESSETH, THAT:
WHEREAS, the subscribers proposed to transfer, assign and deliver to the trustees above named under the designation of the ALFRED C. GOETHEL COMPANY, all of the assets of whatsoever nature of the business heretofore conducted*2903 as a partnership under the name of Alfred C. Goethel Company, and consisting in the main of the following items, to-wit:
Tools, machines, material and inventory on hand, accounts receivable contracts, actually received or in working, together with all other assets of whatsoever nature belonging to the said co-partnership and including cash on hand and in bank.
And the trustees, for the purpose of defining the interests of the subscribers and their assigns in such property, have agreed to issue to the subscribers negotiable certificates for three hundred and sixty (360) shares, which shares shall all be common stock, each share to be expressed of the value of One Hundred Dollars ( $100) and said shares to be issued to the subscribers as follows:
One Hundred and Twenty (120) shares to Alfred C. Goethel;
One Hundred and Twenty (120) shares to Otto P. Jurisch;
One Hundred and Twenty (120) shares to A. E. Winkler.
NOW, THEREFORE, the trustees hereby declare that they will hold said money and property to be transferred to them as well as all other property of whatsover nature which they may acquire as trustees, together with the proceeds and profits thereof, in trust, to manage*2904 and dispose of the same for the benefit of the holders from time to time of shares issued hereunder and in the manner and subject to the stipulations herein contained, to-wit:
FIRST: The trustees, in their collective capacity, shall be designated, so far as possible, as the Alfred C. Goethel Company, and under that name shall, so far as practicable, conduct all business and execute all instruments in writing in performance of their trust.
*201 It is expressly declared that a trust and not a partnership is hereby created, and that for all debts the trustees shall be liable as such to the extent of the trust fund only.
SECOND (a): The trustees shall always be three in number, except that the said trustes are hereby empowered, by unanimous consent of the three trustees in office, to reduce the number of trustees to two by resolution duly passed upon the minutes of the company, and from and after said time the trustees shall always be two in number. Of the trustees herein mentioned, all shall hold office until the annual meeting of the shareholders in 1921, or until their successors have been elected and have accepted this trust.
(b) The shareholders shall at every annual*2905 meeting or adjournment thereof elect three trustees to serve for the ensuing year, or until their successors are duly elected and qualified, unless a resolution is duly passed by the three trustees decreasing the number of trustees to two, as hereinbefore set forth, and after which time there shall be two trustees elected annually.
THIRD: (2) The trustees shall hold the legal title to all the property at any time belonging to their trust, and shall have and exercise the entire and exclusive management and control of the same. They shall assume all contracts for and obligations and liabilities in connection with or growing out of the property assigned to them and the management of the same in the business of the Alfred C. Goethel Company, as before specified, and to the extent of the value of such property and business, but not personally. They agree to hold the subscribers and any person associated with or acting with them harmless and indemnified from and against any loss, cost, expense or liability by reason of or in connection with any such contract, obligation or liability; they may adopt and use a common seal; they may collect, sue for and receipt for all moneys at any time*2906 coming due to said trust; they may employ counsel to begin, prosecute, defend or settle suits at law in equity or otherwise; they may borrow money for purposes incidental to the proper management and conduct of said trust, and may pledge the property of said trust in such manner as they may deem best to secure said loan; they shall have power to vote in person or by proxy upon all shares of stock at any time belonging to the trust. The trustees may sell, mortgage, pledge, encumber or dispose of any shares of stock, securities, or any other property, real or personal, from time to time held by them, upon such terms and for such purposes as the trustees at any meeting may approve. They may buy, sell, mortgage, hypothecate, lease, exchange, trade, or use both real and personal property as trustees, and are authorized to take, hold, or transfer the title to the same; and are authorized to do all things which would be lawful for an individual to do in properly conducting business, and without special notice to or consent from the subscribers to the trust; and may do any other matter or thing in connection with any property coming into their possession and the profits thereof, which they*2907 may deem advisable and necessary for the best interests of the shareholders.
(b) So far as strangers to this trust are concerned, a resolution of the trustees, authorizing a particular act to be done, shall be conclusive evidence in favor of such strangers that such act is within the powers of the trustees, and no purchaser from the trustees, or anyone else, loaning money to the trustees shall be bound to see the application of the purchase money or loan money or other consideration paid or delivered by or for said purchaser or loaner to or for said trustees.
FOURTH: Stated meetings of the trustees shall be held from time to time upon the call of the president or the secretary. A majority of the board of trustees shall constitute a quorum, unless the said board of trustees is decreased to two, *202 in which event the concurrence of all the trustees shall be necessary to the validity of any action done by them. When the board of trustees shall consist of three members, the concurrence of all the trustees shall not be necessary to the validity of any action done by them. The trustees may make, adopt, amend or repeal such by-laws, rules and regulations not inconsistent*2908 with the terms of this instrument as they may deem necessary or desirable for the conduct of their business, or for the government of themselves, their agents, servants, or representatives.
FIFTH: (a) The trustees shall annually elect from their number a president, vice-president, secretary and treasurer, who shall have the authority and duties usual and incident to like officers in corporations, or such other duties as the trustees may determine, and shall have the authority to appoint such other officers, agents or attorneys as they may from time to time deem necessary or expedient for the conduct of their business. They may combine the duties of several officers in one person. Two of such officers elected at least shall be from among their own number. The trustees shall have authority to elect temporary officers to serve during the absence or disability of regular officers; to fix the compensation of any and all officers or agents they may appoint, and are likewise authorized to pay themselves such compensation for their services as they may deem reasonable. They shall have authority to accept resignations and fill all vacancies in the offices of president, treasurer or secretary*2909 for the unexpired term, and any vacancy in the number of trustees may be filled by the remaining trustees until the next annual meeting of the shareholders or special meeting called for the purpose of filling such vacancy. The acting trustees from time to time shall have all the powers of the original trustees. Upon resignation, decease, incapacity, or removal or vacancy for any cause, the title of the outgoingtrustees shall remain in the remaining trustees, and upon the filling of any vacancy by the shareholders as aforesaid, the title of the whole trust property shall rest in the new board jointly.
(b) The trustees shall not be liable for errors of judgment either in holding property originally conveyed to them or in acquiring and afterwards holding additional property, nor for any loss arising out of any investment, or in disposing of any property conveyed to or acquired by them, nor for any act or omission to act performed or omitted by them in the execution of their trust in good faith, nor shall they be liable for the acts or omissions of each other or of any officer, agent, servant, or representative appointed by or acting for them, and they shall not be obliged to give*2910 bond to secure the due performance of this trust by them.
SIXTH: Certificates of shares hereunder shall be of the expressed par value of One Hundred Dollars ( $100) per share, and shall all be common stock. In case of the loss or destruction of any certificates of shares issued by the trustees, the trustees may, under such conditions as they may deem expedient, issue new certificates in place of the ones lost or destroyed. As evidence of the ownership of shares, the trustees shall cause to be issued to each shareholder a negotiable certificate or certificates in such form as they may hereafter determine.
SEVENTH: In addition to the shares to be originally issued to the subscribers, as hereinafter provided, the trustees may from time to time issue and sell, upon such terms and for such prices as they may deem expedient, such additional shares as may be necessary to provide for further funds for carrying on the business of the said Company, and for the purpose of acquiring means for the acquisition of additional property, or otherwise accomplishing the purpose of this trust, but no such additional shares of stock in excess of the *203 shares originally issued shall be*2911 issued by the trustees without the consent of at least two-thirds (2/3) of the shareholders present and voting at any meeting called for that purpose, and the shareholders at such meeting may direct the trustees as to the terms and in what manner such additional shares shall be issued.
EIGHTH: The trustees may from time to time declare and pay such dividends out of the net earnings from time to time received by them as they may deem advisable, but the amount of such dividends and the payment of them shall be wholly in the discretion of the trustees, and the surplus earnings or profits shall not be maintained as a separate fund, but shall be merged into the body of the trust property.
NINTH: (a) Annual meetings of the shareholders for the election of trustees and for the transaction of other business shall be held in the City of Milwaukee, County of Milwaukee and State of Wisconsin, on the second Tuesday in January of each year, beginning with the year 1921, of which meeting the secretary or acting secretary shall give notice by mail to each shareholder at his registered address at least five (5) days before such meeting.
(b) Special meetings of the shareholders may be called*2912 at any time upon eight (8) days' notice given as aforesaid, when ordered by the president or by the trustees. At all meetings of the shareholders, each holder of shares shall be entitled to one vote for each share held by him, and any shareholder may vote by proxy.
(c) No business shall be transacted at any special meeting of the shareholders unless notice of such business has been given in the call for such meeting.
(d) No business except to adjourn shall be transacted at any meeting of the shareholders unless a majority of all shares outstanding are present in person or by proxy.
TENTH: (a) The death of a shareholder or trustee during the continuance of this trust shall not operate to terminate the trust, nor shall it entitle the legal representative of the deceased to an accounting, or to take any action in the courts, or elsewhere, against the trustees; but the executors, administrators or assigns of any deceased shareholder shall succed only to the rights of said decedent under this trust, upon surrender of the certificate for the shares owned by him.
(b) The ownership of shares hereunder shall not entitle the shareholders to any title in or to the trust property*2913 whatsoever, or right to call for a partition or division of same, or for an accounting, or for any voice or control whatsoever of the trust property or of the management of said property or business connected therewith by the trustees.
ELEVENTH: (a) The trustees shall have no power to bind the shareholders personally, and the subscribers and their assigns and all persons and corporations extending credit to, contracting with, or having any claim against the trustees, shall look only to the funds and property of the trust for payment under such contract or claim, or for the payment of any debt, damage, judgment or decree, or of any money that may otherwise become due or payable to them from the trustees, so that neither the trustees nor the shareholders, present or future, shall be personally liable therefor.
(b) In every written order, contract or obligation which the trustees shall give or enter into, it shall be the duty of the trustees to stipulate that neither the trustees nor the shareholders shall be held to any personal liability under or by reason of such contract, order or obligation.
TWELFTH: (a) This trust shall not continue in any event longer than for the term*2914 of thirty-five (35) years, at which time the then board of trustees *204 shall proceed to wind up its affairs, liquidate its assets, and distribute the same among the holders of the shares according to the number of shares held by them, provided, however, that if prior to the expiration of said period, the holders of at least two-thirds of the shares then outstanding shall, at a meeting called for that purpose, vote to terminate or continue this trust, then said trust shall either terminate or continue in existence for a further like period or such shorter period as may then be determined.
(b) For the purpose of winding up their affairs and liquidating the assets of the trust, the then board shall continue in office until such duties have been fully performed.
(c) This agreement and declaration of trust may be altered or amended, except as regards the liabilities of the trustees or shareholders, at any annual or special meeting of the shareholders, with the consent of the holders of at least two-thirds of the then outstanding shares; provided notice of the proposed amendment or alteration shall have been given in the call for the meeting; and in case of said amendment*2915 or alteration, the same shall be certified by the chairman of such meeting and countersigned by at least one of the then board of trustees, and shall be attached to and made a part of these articles, and a copy thereof shall be filed with the Register of Deeds of Milwaukee County, State of Wisconsin.
THIRTEENTH: The trustees herein declare that they will engage the property and funds coming into their possession for the purpose of carrying on and conducting in the main a sheet metal works business and especially blower systems, eventilating systems and other lines connected therewith, and generally, to buy, sell and deal in all kinds of goods, wares, merchandise and manufacturing the same, to own, hold, sell and transfer real estate, and for the further purpose of transacting such other business of whatsoever nature as the trustees may from time to time determine.
IN WITNESS WHEREOF, the said ALFRED C. GOETHEL, OTTO P. JURISCH and A. E. WINKLER, TRUSTEES, hereinbefore mentioned, have set their hands and seals in token of their acceptance of the trust herein specified, for themselves and their successors, and the said ALFRED C. GOETHEL, OTTO P. JURISCH, and A. E. WINKLER, SUBSCRIBERS, *2916 have hereunto set their hands and seals in token of their assent and approval of said terms of trust, for themselves and their assigns, the day and year first above written.
| TRUSTEES | SUBSCRIBERS |
| (Signed) Alfred C. Goethel (SEAL) | (Signed) Alfred C. Goethel (SEAL) |
| (Signed) Otto P. Jurisch (SEAL) | (Signed) Otto P. Jurisch (SEAL) |
| (Signed) Adolph E. Winkler (SEAL) | (Signed) Adolph E. Winkler (SEAL) |
On April 7, 1920, Goethel, Jurisch and A. E. Winkler, as organizers and trustees of the Alfred C. Goethel Co., held a meeting "for the purpose of organizing the board of trustees and such other business as might properly come before the meeting." Goethel was elected president, Jurisch was elected vice president and Winkler was elected secretary and treasurer. The trustees were authorized to receive from the subscribers a transfer and bill of sale of all the personal property described in the declaration of trust. The proper officers were authorized to issue negotiable certificates as per the trust agreement and to prepare and have made a common seal. *205 There were adopted by-laws for the government of the board of trustees which were*2917 set forth in various articles headed "Stockholders' Meetings," "Trustees' Meetings," "Duties of Officers," "Stock Certificates," and article V provided that the officers "shall submit to the shareholders at the annual meeting detailed reports of the business of the Company since the last preceding annual meeting;" that "dividends shall be declared annually or more frequently, if the trustees shall so direct, from the surplus or net profits arising from the business of the Company," and that the trustees may amend or repeal the by-laws but that notice of such change must be mailed to the shareholders within 10 days after their adoption.
During the period from April 7, 1920, to December 31, 1624, inclusive, the organization created under the declaration of trust carried on and conducted a business consisting of sheet metal works, the designing, manufacture and installation of blower and ventilating systems and other lines connected therewith, and the buying and selling of goods, wares and merchandise. All of the shareholders took an active part in conducting the business, both as executives and workmen, until June, 1922, at which time Jurisch resigned as trustee and officer of the*2918 organization, but retained his shareholdings. In each of the years the shareholders held their regular annual meetings and voted for the election of trustees and officers, the adoption of asset and liability statements, and in certain years voted salaries for officers.
At the first regular meeting of the board of trustees on April 27, 1920, the salary of each of the three officers was fixed at $50 per week. That amount was intended as a drawing account and so limited until it could be determined how the business would succeed. On January 11, 1921, the shareholders, at their regular annual meeting, voted "that $9,000.00 back salary be divided among Stock Holders, one third to each." At the meeting of the trustees on January 10, 1923, the trustees' salaries were fixed at $6,000 each, and at that time there were only two trustees, namely, goethel and Winkler. The shareholders did not vote on the question of salaries for the year 1923 and the record does not disclose what salary, if any, was paid to Fred Roeser, who became the owner of 15 shares on January 31, 1921, and who was elected vice president at the annual shareholders' meeting held on January 9, 1923. The trustees' salaries*2919 were fixed at $6,000 for the year 1924 at a meeting held on January 9, 1924. Fred Roeser was elected vice president for the year 1924, but the record does not disclose the amount of his salary for that year nor does it appear that he became one of the trustees.
*206 For each of the taxable years here in controversy, petitioner distributed among its shareholders the total net earnings, which were:
| For period April 7 to December 31, 1920 | $19,474.79 |
| For the calendar year 1923 | 14,630.02 |
| For the calendar year 1924 | 13,889.50 |
Respondent determined that a portion of those amounts constituted salaries and a portion dividends. Respondent admits that petitioner is entitled to a deduction in the amount of $15,000 as salaries for the period of April 7 to December 31, 1920. Petitioner contends that, if it is taxable as a corporation it is entitled to deduct the total amounts stated above for each of the said years as salaries, thus wiping out net earnings and resulting in no tax liability.
On March 12, 1921, petitioner filed its income-tax return for the period of April 7 to December 31, 1920, upon the basis of it being a partnership. With respect to that*2920 taxable period, the following waiver was duly executed:
TREASURY DEPARTMENT
INTERNAL REVENUE SERVICE
Form 872A
INCOME AND PROFITS TAX WAIVER
For taxable years ended prior to January 1, 1922.
MILWAUKEE, WISCONSIN,
November 21, 1925.
In pursuance of the provisions of existing Internal Revenue Laws The Alfred C. Goethel Company, a taxpayer of Milwaukee, Wisconsin and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) 1920-1921 under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date*2921 of mailing of said notice of deficiency and the date of final decision by said Board.
THE ALFRED C. GOETHEL CO.,
A Common Law Company,
Taxpayer.
By A. E. WINKLER, Secy. Treas.
D. H. BLAIR, Commissioner.
W B.
On March 31, 1926, respondent mailed to petitioner a notice of his final determination, which notice was the so-called 60-day letter, and *207 petitioner initiated this proceeding on April 9, 1926, pursuant to the provisions of section of 274 of the Revenue Act of 1926.
OPINION.
TRUSSELL: In view of the decisions of the courts and of this Board, upon the first issue in the case at bar, it is deemed necessary only to point out that petitioner was organized on April 7, 1920, for the purpose of conducting a business; that it did so conduct a business and was an income-producing entity; that the beneficiaries were holders of negotiable shares of the par value of $100 each; that the shareholders held regular meetings and elected the trustees and in fact controlled the business which was conducted in the mode and form of a corporation. We are of the opinion that, for Federal income-tax purposes, petitioner was an association during the taxable*2922 years in question and as such was taxable as a corporation under the Revenue Acts of 1918, 1921, and 1924. See ; ; and . As to the first issue, respondent's action is affirmed.
The second issue is with respect to allowable deductions on account of salaries of petitioner's officers and/or trustees during the three years involved. Respondent has admitted that petitioner is entitled to a salary deduction in the amount of $15,000 for the period April 7 to December 31, 1920, and we are of the opinion that that amount should be allowed as a reasonable amount for salaries. As to the years 1923 and 1924, the record discloses authorized salaries in the amount of $12,000, which amount should be allowed as a deduction in each of said years. The amount of the salary, if any, of the vice president for those two years does not appear in the record.
The last issue is with respect to the running of the statute of limitations against the making of an assessment for the period of April 7 to December 31, 1920. Petitioner filed*2923 its return for that period on March 12, 1921, and on November 21, 1925, it duly executed a valid waiver extending the time for making an assessment until December 31, 1926. Respondent mailed the 60-day deficiency notice on March 31, 1926, and petitioner filed its appeal therefrom to this Board on April 9, 1926. The filing of the appeal further extended the period within which the taxes in controversy may be assessed from the date of mailing of the deficiency notice until the date the Board's decision becomes final and for 60 days thereafter. See section 504 of the Revenue Act of 1928. The assessment of the deficiency, if any, for the period of April 7 to December 31, 1920, is not barred by the statute of limitations.
Judgment will be entered pursuant to Rule 50.