*308 Deficiencies were determined against the petitioner as follows:
| 1923 | $622.08 |
| 1924 | 1,038.86 |
| 1925 | 344.19 |
| 1926 | 383.64 |
| Total | 2,388.77 |
Petitioner alleges as errors that the respondent erred in disallowing certain deductions from gross income for sums paid to W. G. Schweigert during the years in question as follows:
| 1923 | $5,830.00 |
| 1924 | 5,019.50 |
| 1925 | 2,590.00 |
| 1926 | 1,380.00 |
*309 The respondent determined that said sums were paid as commissions on the sale of capital stock, while petitioner contended that they were paid as salary for personal services actually performed by petitioner's secretary and general manager, Schweigert, and were reasonable compensation for such services and deductible as ordinary and necessary business expenses.
It was further alleged that the respondent erred in disallowing the sum of $1,431.80 as an embezzlement reserve, but this alleged error was abandoned at the hearing.
FINDINGS OF FACT.
The petitioner is a Colorado corporation engaged in the business of financing automobile*1899 purchases and paper. It was organized in February, 1923, with an authorized capital of $100,000 preferred stock and $200,000 common stock. W. G. Schweigert, one of the promoters and organizers of the company, was elected a director, secretary and manager. The company started in business with $17,500 in cash and subscriptions of $8,000, which took from February to the latter part of May, 1923, to get together. Then the company arranged a bank loan for $25,000 and started to do business June 1, 1923. In subsequent years it grew to have an annual business of $750,000.
On account of his familiarity with the business and in order to save expense of selling or underwriting the capital stock, it was agreed between Schweigert and the board of directors of petitioner that the preferred stock should be sold by Schweigert on a commission of 10 per cent and one-half share common stock for each share preferred stock sold. It was further agreed that for the first few months the amounts paid Schweigert as commissions for the sale of preferred stock should also serve as compensation for his miscellaneous services as secretary and manager of the corporation. He spent all of his time in the*1900 sale of this stock, conducting the business of the company, such as making automobile loans, collecting loans, taking repossessions, foreclosing liens and the other details incident to a business of that character. The first few months Schweigert spent more time in organizing the corporation and selling its capital stock than in performing his other duties as secretary and manager of the corporation. After 1923, he spent more of his time in the performance of his miscellaneous duties as secretary and general manager of the corporation than he did in selling its capital stock.
September 4, 1923, a few months after organization of petitioner the board of directors passed resolutions as follows:
President C. F. Oehlmann then brought to the attention of the directors the situation relative to the salary of the secretary and manager and the feasibility *310 of action in this regard at this time and after a general discussion of the entire board, it was moved by director Barth and seconded by Treasurer Phillips that the remuneration for services of the Secretary and Manager, W. G. Schweigert, beginning this day, September 4, 1923, will be his commission on the sale of capital*1901 stock and in case this earning does not equal $100 a week or more, the corporation will pay the difference between his commission and that amount, settlement to be made monthly.
It was then moved by Director Barth and seconded by Vice-President Phelps that when this corporation has subscriptions in the amount of $100,000, of which at least $90,000.00 is paid in cash or its equivalent, the salary of the Secretary and Manager will be $100.00 a week as a minimum. The earnings of the corporation will gauge any adjustment of the above salary at the discretion of the board of directors. Voted, carried, and adopted.
In 1923, in addition to the commissions on sale of capital stock amounting to $5,830, Schweigert was paid $1,170. Under the resolution above set out he was paid in 1924 commissions of $5,019.50, and an additional amount to apply on salary of $4,020; in 1925 commissions, $2,590, additional amount $5,900; and in 1926 commissions, $1,380, additional amount, $6,500. A reasonable salary for the miscellaneous services which Schweigert performed for the corporation as its secretary and general manager, and having no connection with his services in selling petitioner's capital*1902 stock, was, for 1923, $2,500; for 1924, $6,000; for 1925, $6,000; and for 1926, $6,500.
OPINION.
BLACK: The only question before us is the character of the payments made by petitioner to its secretary and general manager, Schweigert, during the taxable years 1923, 1924, 1925, and 1926. The petitioner contends that the entire sums paid by it to Schweigert were salary payments, and therefore deductible as ordinary and necessary expenses, while respondent contends that so much of said payments as were made under the contract as commissions for the sale of preferred stock were capital expenditures and not deductible in any amount.
If the contested payments made by petitioner to Schweigert in each of the taxable years were straight commissions for the sale of its preferred stock, there could be no question that such payments were capital expenditures made in procuring petitioner's working capital and are not deductibel as ordinary and necessary business expenses. ; ; *1903 .
But in the instant case the payments in question were of a mixed character. Upon the organization of petitioner, Schweigert was selected as secretary and general manager of the corporation. In order to save expenses and not burden the corporation with a heavy *311 expense account from the outset, Schweigert agreed that for the first year his entire compensation for the services of every character which he was to perform for the corporation should be measured by the commissions paid him for selling the preferred stock. This agreement was modified somewhat in the resolution of the corporation September 4, 1923. In the light of this original agreement, and as modified September 4, 1923, manifestly the payments which he received for selling the preferred stock were of a two-fold character. In part, they were payment of commissions for selling the stock, and to that extent were capital expenditures and not deductible. In part, these payments were for Schweigert's miscellaneous duties as general manager of the company and had no connection whatever with sale of the capital stock of the company. To the extent that these payments*1904 were made to Schweigert in payment of these miscellaneous services performed, they were ordinary and necessary business expenses of petitioner and are deductible in the years when paid. The composite character of these payments is shown by the resolution of the corporation dated September 4, 1923, set out in our findings of fact.
We have set out in our findings of fact what we deem a reasonable salary in each of the taxable years for the services which Schweigert performed for petitioner as its secretary and general manager, having no connection with his sale of the corporation's capital stock. These amounts should be allowed petitioner as a deduction from its gross income in each of the taxable years as ordinary and necessary business expenses. In all other respects the determination of the Commissioner is approved.
Decision will be entered under Rule 50.