*3623 INCOME. - For the years 1919 and 1921, petitioner, on the cash basis, actually received only a portion of the salaries credited to him on the books of a corporation and the undrawn salaries were not available to him. Held, that only the amounts received by petitioner in each of the said years may be included in his gross income for those years.
*1 Petitioner herein appeals from the respondent's determination of deficiencies in the amounts of $364.02 for the calendar year 1919 and $828.71 for the calendar year 1921, and alleges that respondent erred in including in petitioner's taxable income the total amounts credited to his account as salary by the corporation of which he was president. The entire amounts of the deficiencies are not in dispute.
FINDINGS OF FACT.
Petitioner is a resident of Dayton, Ohio, and was during the year s in question, president of the Huber Fireproof Garage Co., a corporation doing business at Dayton. Petitioner's salary account upon the books of the corporation*3624 was credited with the amounts of $9,220 and $14,973.30 for the calendar years 1919 and 1921, respectively. During those years, petitioner actually withdrew from the corporation as salary the amounts of $7,982.50 for 1919 and $13,040 for 1921.
Petitioner's annual salary was fixed at $10,000 but it was agreed between the stockholders and officers of the corporation that salaries would be withdrawn only as justified or warranted by the financial condition of the corporation and that any undrawn salaries would be paid at such time as the money was available. That practice was followed for several years.
*2 Petitioner owned 60 per cent of the outstanding capital stock of the Huber Fireproof Garage Co.
The corporation's books of account show that on December 31, 1919, and December 31, 1921, it had cash on hand in an amount equal to or in excess of petitioner's undrawn salary credits, but it was necessary for the corporation to keep such cash on hand to meet its current liabilities and had petitioner withdrawn the full amount credited to him as salary the corporation would have been financially embarrassed. The corporation had accounts receivable, but it had learned by*3625 experience and loss of customers that it could not force prompt payment of such accounts. Many of the corporation's customers were slow in making payment, but the accounts were otherwise good. The corporation rented the building in which it conducted its business and its fixed assets consisted of furniture, fixtures, accessories, machinery, tools, etc.
In the latter part of 1921 the capital stock of the corporation was increased from $10,000 to $100,000 and a stock dividend of $12,000 was declared. At that time the corporation's earned surplus amounted to $12,646.98 but it was invested in fixed assets and it would have been impossible to declare a cash dividend without borrowing the money.
The Huber Fireproof Garage Co. did not have available the necessary funds with which to pay the undrawn salaries in the years in question.
Petitioner made and filed his income-tax returns for the years in question upon the cash receipts and disbursements basis. The respondent claims that the amounts credited to petitioner's salary account upon the corporation's books were income to him in those years.
OPINION.
TRUSSELL: The petition alleged that the respondent erred in disallowing*3626 a deduction for a loss sustained upon the sale of a residence in 1919, but petitioner waived that issue at the hearing. Respondent determined an overassessment for the year 1920.
The only issue presented is whether the respondent properly included in petitioner's gross income for 1919 and 1920 the amounts credited to petitioner's salary account upon the books of a corporation when in fact petitioner, who was on a cash basis, received amounts less than such credits. The evidence shows that the Huber Fireproof Garage Co. had sufficient assets to pay the particular amounts due petitioner as undrawn salaries, but it further shows that the corporation had other obligations and would have become financially embarrassed had petitioner withdrawn the balance of his salary credits. The Revenue Acts do not require any business to impair *3 its financial standing in order to make available undrawn salaries and we have found as a fact that the amounts of the undrawn salary credits were not available to petitioner. Respondent erred in his determination with respect to the issue here involved. See *3627 ; ; and .
The amount of income received by petitioner as salary from the Huber Fireproof Garage Co. amounted to $7,982.50 for 1919 and $13,040 for 1921.
Judgment will be entered pursuant to Rule 50.