*3345 Personal service classification denied petitioner for years 1919 and 1920, since it was not shown that during those years its income was to be ascribed primarily to the activities of the principal stockholders, or that capital was not a material income-producing factor.
*1377 This is a proceeding for the redetermination of deficiencies in income and profits taxes in the amount of $980.15, for the year 1919, and $1,401.39 for the year 1920.
The error assigned is the failure of the respondent to allow the petitioner classification as a personal service corporation during the years in controversy.
FINDINGS OF FACT.
The petitioner is a Missouri corporation having its office at St. Louis, Mo.
In 1919 and 1920 the stockholders of the petitioner were George G. Chapline, Byrdie J. Chapline and Louis R. Masek. The stock of the petitioner had a par value of $100 per share and was owned as follows: George G. Chapline, 25 shares; Byrdie J. Chapline, wife of George G. Chapline, 4 1/2 shares; and Louis R. Masek, 20 1/2 shares. During the years 1919*3346 and 1920, George G. Chapline was president of petitioner and Louis R. Masek was secretary. Both devoted all their time to the business of petitioner during those years.
The business of the petitioner during 1919 and 1920, consisted of making alterations to untenantable buildings in order to make the building more profitable, in constructing new buildings and in advising landlords and property owners as to repairs and alterations. In most cases the petitioner submitted an estimate of the cost of the particular job to the owner of the premises. The petitioner usually received 10 per cent of the cost of labor and materials involved, but in some cases the petitioner was paid a stipulated amount. In most cases the contracts were oral but in some cases they were written.
The contract entered into between the petitioner and Hammar Brothers White Lead Co., which was typical of the contracts executed by petitioner, provided in part:
*1378 In consideration of the performance of the contract, the Owner agrees to pay the Contractor, in current funds, as compensation for his services hereunder, a profit of ten (10) per cent to the total expenditures, or final cost of all labor, *3347 materials, etc., which shall be paid as follows: Five (5) per cent monthly to be added to the total of each statement rendered, and the balance of five (5) per cent, Thirty (30) days after final statement is rendered.
The petitioner sometimes paid for labor and materials before it received payment from the owner of the premises under repair. The labor bill had to be paid by petitioner each week but the material bills were usually paid monthly, after receiving payment from the owners of the premises.
The petitioner keeps no record of the number of men employed, but on a job like the Hammar Brothers White Lead Co. job, which was undertaken by the petitioner in 1920, between 40 and 50 men were used. This job lasted about a year.
On some of the jobs the owner of the premises made contracts with subcontractors. Payment was made each month by the owner to the petitioner and the petitioner in turn paid the subcontractor in the same proportion that the petitioner was paid. The payments to the petitioner included payments for all of the materials received for the job during the month. Sometimes the petitioner paid for both labor and materials before receiving payment from the*3348 owner, in order to retain the good will of the owner. While it was not compulsory, the petitioner during 1919 and 1920, on small jobs, paid its workmen prior to receiving payment from the owner. The petitioner paid its men in cash which was drawn from its bank account. This was in order to simplify the bookkeeping. No discounts were taken by the petitioner. The owners received the benefit of any discounts.
In 1919, the petitioner had three or four foremen in charge of its different branches of work. Louis R. Masek looked after the smaller jobs. Skilled labor was employed on all jobs in 1919 and 1920. Draftsmen were also often employed. Men were hired as needed on the different jobs and their compensation was charged to the particular job.
The petitioner has been in existence since 1897, and during this time has acquired certain equipment and secondhand lumber and building material which it carries in its inventory from year to year. Petitioner would purchase equipment for certain jobs and at the completion of a job, if the owner had no need for the same, it would be sold to petitioner. If the equipment owned by petitioner were used on a job, the owner was charged for*3349 the use and repair of same.
*1379 The following is a list of jobs during 1919 and 1920:
| Name | Labor | Materials, | 1919 commissions | Amount of |
| etc. | received | bill | ||
| Houser Real Estate Co | $5,758.51 | $67,549.13 | $10,788.57 | $84,096.21 |
| Laclede Iron Works | 29.85 | 29.25 | 59.10 | |
| St. Louis Transfer Co | 67.75 | 211.75 | 62.11 | 341.61 |
| Mercantile Library Ass'n | 24.65 | 9.20 | 25.85 | 59.70 |
| Roettger-Masek Realty Co | 180.52 | 269.90 | 230.77 | 681.19 |
| Linde Air Products Co | 61.75 | 100.36 | 33.84 | 195.95 |
| Louis R. Masek | 28.12 | 38.65 | 66.77 | |
| Roettger-Masek Realty Co | 139.15 | 1,004.16 | 1,021.69 | 2,165.00 |
| Thos. G. Rutledge, et al | 47.25 | 325.47 | 252.28 | 625.00 |
| Chapline & Masek | 657.98 | 5,188.83 | 5,846.81 | |
| Chapline & Masek | 95.28 | 368.84 | 464.12 | |
| Bradbury Marble Co | 3.00 | 3.00 | ||
| Continental Portland | ||||
| Cement Co | 1.10 | 1.10 | ||
| Geo. G. Chapline | 92.74 | 92.74 | ||
| Hugh H. Stewart | 25.80 | 17.62 | 21.74 | 65.16 |
| James Kearney & Co | 30.54 | 11.46 | 42.00 | |
| Mr. F. X. Walsh | 675.01 | 2,971.13 | 1,067.28 | 4,713.42 |
| Louis R. Masek | 24.35 | 63.45 | 87.80 | |
| Geo. B. Gilmore | 124.00 | 123.74 | 45.44 | 202.30 |
| Jost Miller Real Estate | ||||
| Co | 30.52 | 26.33 | 29.64 | 86.49 |
| Union Biscuit Co | 45.47 | 1.55 | 202.98 | 250.00 |
| Mr. F. X. Walsh | 1.85 | 6.15 | 8.00 | |
| St. Louis Smelting & | ||||
| Refining Works | 1,762.12 | 6,288.06 | 1,458.36 | 9,508.54 |
| Missouri Portland | ||||
| Cement Co | 10.95 | 10.95 | ||
| Hunkins-Willis L. & C. | ||||
| Co | 1.95 | 1.95 | ||
| Pulitzer Publishing Co | 16.00 | 16.00 | ||
| Ganahl Lumber Co | 20.20 | 104.02 | 124.22 | |
| John Prost | 50.00 | 2.25 | 52.25 | |
| P. Gruner & Bros. Lbr. | ||||
| Co | 42.00 | 42.00 | ||
| Mrs. Emma Bauer | 37.60 | 9.40 | 47.00 | |
| Bradbury Marble Co | 29.75 | 29.75 | ||
| Ganahl Lumber Co | 50.00 | 50.00 | ||
| 9,780.62 | 84,894.92 | 15,360.59 | 110,036.13 | |
| 1920 | ||||
| National Lead Co | 9,158.37 | 16,048.17 | 4,882.75 | 30,089.29 |
| Chapline & Masek | 709.73 | 4,467.29 | 5,177.02 | |
| Hammar Bros. White Lead | ||||
| Co | 49,510.50 | 130,604.72 | 17,951.26 | 198,066.48 |
| Geo. G. Chapline | 21.49 | 44.68 | 66.17 | |
| Louis R. Masek | 9.69 | 182.52 | 192.21 | |
| P. Gruner & Bros. Lbr. | ||||
| Co | 20.00 | 20.00 | ||
| Linde Air Products Co | 39.50 | 15.50 | 55.00 | |
| Mr. E. C. Lowe | 15.62 | 15.62 | ||
| 1553 S. Grand Ave | .63 | .63 | ||
| Roettger-Masek Realty Co | 25.62 | 12.45 | 41.10 | 79.17 |
| Mrs. Emma Bauer | 113.45 | 10.55 | 124.00 | |
| 59,451.65 | 151,532.78 | 22,901.16 | 233,885.59 |
*3350 George G. Chapline is a practical carpenter, and Louis R. Masek was trained in the iron construction business. Byrdie Chapline devoted practically no time to the business.
Balance sheets of the petitioner were as follows:
| Assets: | January, 1919 |
| Cash on hand | $7,419.43 |
| Equipment | 10,550.93 |
| Accounts receivable | 4,133.08 |
| 22,103.44 | |
| Liabilities: | |
| Capital | 5,000.00 |
| Surplus and undivided profits | 14,624.79 |
| Accounts payable | 190.10 |
| Uncompleted work | 2,288.55 |
| 22,103.44 | |
| Assets: | January 1, 1920 |
| Cash on hand | $11,799.02 |
| Equipment | 10,297.35 |
| Accounts receivable | 3,671.83 |
| 25,768.20 | |
| Liabilities: | |
| Capital | 5,000.00 |
| Surplus & undivided profits | 20,768.20 |
| 25,768.20 | |
| Assets: | January 1, 1921 |
| Cash on hand | $3,698.65 |
| Notes receivable | 22,081.11 |
| Equipment | 6,129.95 |
| Accounts receivable | 1,155.27 |
| 33,064.98 | |
| Liabilities: | |
| Capital | $5,000.00 |
| Surplus & undivided profits | 28,064.98 |
| 33,064.98 |
*1380 In 1919 the amount of completed contracts was $110,036.13. The cost of executing these was $94,675.54 and the profit from this source was $15,360.59.
Other income received during 1919 was as follows:
| Interest on bank deposits | $132.55 |
| Interest on notes | 151.48 |
| 248.03 |
*3351 Overhead expenses during 1919 were as follows:
| Office rent | $480.00 |
| Clerk salary | 782.75 |
| Telephones | 133.90 |
| Miscellaneous office expense | 331.81 |
| Auto and warehouse expense | 741.21 |
| Insurance and water license | 105.30 |
| 2,574.97 |
The amount of $6,600 was paid as compensation to the members.
In 1920, the amount of completed contracts was $233,885.59, the cost of executing these was $210,984.43, and the profit from contracting was $22,901.16.
Other income received during 1920 was interest on bank deposits in the amount of $134.25.
Overhead expenses during 1920 was as follows:
| Office rent | $480.00 |
| Clerk salaries | 1,301.50 |
| Telephones | 144.52 |
| Miscellaneous office expenses | 6,061.15 |
| Warehouse rent | 420.00 |
| Miscellaneous auto and warehouse expense | 458.12 |
| Insurance and water license | 116.27 |
| Officers' expense account | 2,400.00 |
| 5,926.56 |
*1381 Interest and stamps on notes during 1920 cost the petitioner $112.33. Compensation of members amounted to $7,200 during 1920.
OPINION.
SIEFKIN: The sole question to be decided in this proceeding is whether the petitioner, during the years 1919 and 1920, was a personal service corporation*3352 within the meaning of section 200 of the Revenue Act of 1918, which provides:
The term "personal service corporation" means a corporation whose income is to be ascribed primarily to the activities of the principal owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation and in which capital (whether invested or borrowed) is not a material income-producing factor; * * *
In the instant proceeding, it was shown that the principal stockholders were regularly engaged in the active conduct of the business during the years 1919 and 1920, but it was not shown how many employees the petitioner had during those years. The testimony was to the effect that on some jobs the number of men employed varied from 2 to 50, and that in some cases, subcontractors were employed to do the work. From all of the evidence adduced we are of the opinion that the petitioner has failed to show that its income during the years in controversy was to be ascribed primarily to the activities of the principal stockholders.
Nor has the petitioner shown that capital was not a material income-producing factor. The evidence discloses that in numerous instances*3353 payments of both material and labor bills were made by the petitioner before it received payment from the owner of the premises under alteration or construction. The amounts involved in such payments are not shown.
We must hold that the petitioner, during the years 1919 and 1920, was not a personal service corporation within the meaning of section 200 of the Revenue Act of 1918.
Judgment will be entered for the respondent.