Memorandum Opinion
VAN FOSSAN, Judge: The respondent determined deficiencies as follows:
| 1940 | 1941 | |
| Income tax | $3,307.70 | $2,869.02 |
| Declared value excess | ||
| profits tax | 600.68 | |
| Excess profits tax | 894.91 | 5,079.75 |
The sole question presented is the reasonableness of salaries paid to petitioner's president and two of its employees.
[The Facts]
The pertinent facts are as follows:
The petitioner was originally organized as a partnership but was incorporated in the year 1920 to engage in the business of manufacturing and selling supplies to the pattern making industry.
The stock of petitioner for the years 1938 to 1941, inclusive, was held as follows:
| Shares | Shares | Shares | Shares | |
| Outstanding | Outstanding | Outstanding | Outstanding | |
| Stockholder | Dec. 31, 1938 | Dec. 31, 1939 | Dec. 31, 1940 | Dec. 31, 1941 |
| E. T. Kindt | 648 | 648 | 734 | 1,568 |
| David T. Kindt | 0 | 0 | 15 | 90 |
| Ernest F. Kindt | 0 | 0 | 15 | 90 |
| Raymond Krieger | 1 | 1 | 1 | 2 |
| G. H. Hott | 1 | 1 | 1 | 2 |
| Total shares outstanding | 650 | 650 | 766 | 1,752 |
The petitioner does not manufacture all the products that it sells; some of the pattern shop machinery that it sells being manufactured for it by other companies. It also sells disc grinding machines which it designed but the parts for which machines are manufactured for it by other companies.
E. T. Kindt is, and has been, president and treasurer of the company since its incorporation in 1920 and is its dominating force. He learned the trade of pattern making with the United States Steel Corporation. Being of an inquiring type of mind, he early began experimenting in an effort to improve the pattern making industry. Throughout his entire experience, he has continued to develop new ideas and improvements in the industry. Among the products developed by him, useful in the industry, are a wax fillet, a machine for producing the same, and a Master dowel pin which is today accepted as standard throughout the world and is an exclusive product of petitioner. He also developed Master sheet wax and a machine to produce it. Other products so developed were a Master disc grinder, *222 a dural cement, the Master aluminum melting furnace and aluminum pattern plates, Master aluminum wax; Master spindle machine, and other rotary machines. Some of the above products were patented and others were made by secret processes.
In 1940 petitioner developed a product known as Master layout purple; also a product known as pat-kote, the same being a new patented coating, and a Master plaster release.
In 1941 he developed Master core vent wax.
In developing all of the above products, Kindt was the moving spirit and guiding genius. He had assistants in working out the processes but at all times maintained direction and control of the same. These products were exclusive products of petitioner and placed it in the position where it had little, if any, competition in the same.
Kindt performed all the normal duties of the president of the corporation and, in addition, supervised the research work of the company, having complete charge of its laboratory.
E. T. Kindt was paid a salary for 1940 of $20,560 and for 1941 a salary of $24,000.
Ernest F. Kindt, age approximately 35, is the elder son of E. T. Kindt. He attended Western Reserve University for two years then spent a*223 year as manager of the Detroit branch of the petitioner company in Detroit, thereafter graduated from Wharton School of Finance at the University of Pennsylvania, having specialized in courses of particular value in petitioner's business.
Ernest F. Kindt started to work for the petitioner in 1923 while attending school, doing routine labor work during vacations. In 1932, on graduation from college, he started to work for the company steadily as a clerk. He worked in the office, familiarizing himself with office details and general office work. After one and one-half years he took a job with another company to gain experience that might be useful in petitioner's business, returning to petitioner in 1937. He worked steadily for petitioner until he entered the Navy, where he earned a commission as Lieutenant, junior grade. In 1940 he was made sales manager of the company and had charge of sales policy, advertising, and was the general assistant to his father, the president. At the beginning of 1940 the company had 1,700 accounts on its books. At the end of 1941 it had 2,700 accounts.
For the year 1940, Ernest F. Kindt was paid a salary of $6,000, of which amount $3,000 was paid in*224 cash and the balance of $3,000 in stock of the petitioner corporation. For 1941 he was paid a salary of $9,300, part of which was paid in stock of the petitioner.
David T. Kindt is the younger son of the president and has been employed by the company for a number of years, his employment having been interrupted for 2 1/2 years commencing in 1942 during which time he was trained as, and became, a bomber pilot in the United States Army Air Forces. He has recently resumed his duties with the company. He attended Ohio State University, Fenn College, and Cleveland Advertising School. Like his brother, he worked for the company during school vacations, being first employed in the lumber department learning the different types of lumber required by pattern makers. He was employed in the shipping room and in keeping the records. He worked successively in the wax department, machinery department, and engineering department. Thereafter he was transferred to the office, the plan being that he should prepare himself to become an executive of the company. In 1938 he assumed full-time duties with the company as assistant to the plant engineer, engaged in mechanical drawing and designing machinery. *225 Since his transfer to the office he has charge of the general office routine and has several employees working immediately under him. He had charge of purchasing and credit, the handling of delinquent accounts and also assisted in advertising and preparation of advertising circulars.
For 1940 petitioner paid David T. Kindt $4,793.40, part of the same being paid in stock. For 1941 he was paid a salary of $7,962.73.
Petitioner company in 1926 outgrew its plant on St. Clair Avenue, Cleveland, Ohio, and purchased land on Elmwood Avenue, Cleveland, on which it erected a modern lumber storage plant and in 1929, a factory building. In 1939 a more modern lumber storage plant was erected and in 1940 a new factory building was erected.
Petitioner experienced a considerable increase in business by reason of the armament program in connection with the prosecution of the World War. A large part of this business was due to the demand of pattern makers engaged in making patterns for airplane parts used by Curtiss-Wright Corporation and Pratt Whitney Airplane Engine Company.
The business of petitioner is peculiar to itself in that it deals in complete pattern shop supplies. The petitioner*226 sells everything the pattern makers need, plus such a service as it gives them in the nature of assistance in laying out plans for manufacturing and as to the type of machinery that should be used. Not all of the machinery sold by the petitioner is manufactured by it.
The sales, net profits of the corporation, and salaries paid to E. T. Kindt during the years 1932 to 1941 were as follows:
| Year | Sales | Profit | Salary |
| 1932 | $ 79,229.95 | ($ 6,310.02) | $ 6,664 |
| 1933 | 106,058.25 | 399.76 | 6,296 |
| 1934 | 145,488.63 | 6,011.60 | 8,400 |
| 1935 | 190,866.03 | 9,203.42 | 9,900 |
| 1936 | 239,467.37 | 4,513.13 | 8,400 |
| 1937 | 329,701.38 | 7,994.63 | 10,400 |
| 1938 | 235,152.59 | 14,861.17 | 12,500 |
| 1939 | 317,894.63 | 15,401.97 | 12,500 |
| 1940 | 419,388.78 | 24,606.93 | 20,560 |
| 1941 | 707,795.58 | 56,896.01 | 24,000 |
The deductions claimed by the petitioner as compensation to E. T. Kindt, Ernest F. Kindt and David T. Kindt and the amounts allowed by the respondent for the years 1940 and 1941 are as follows:
| 1940 | ||
| Salary | Salary | |
| Name | Claimed | Allowed |
| E. T. Kindt | $20,560.00 | $15,000 |
| Ernest F. Kindt | 6,000.00 | 3,000 |
| David T. Kindt | 4,793.40 | 2,500 |
| 1941 | ||
| E. T. Kindt | $24,000.00 | $18,000 |
| Ernest F. Kindt | 9,300.00 | 4,500 |
| David T. Kindt | 7,962.73 | 4,000 |
*227 Considering the growth and volume of petitioner's business, the training and experience of the several employees and their contribution to the company's business, and all other pertinent facts of record, we are of the opinion that the salaries paid and claimed for the years 1940 and 1941 were reasonable. Respondent's action in disallowing part of such salaries is, therefore, disapproved.
Decision will be entered under Rule 50.