*1131 SMITH: This is a proceeding for the redetermination of a deficiency in income and profits tax for the calendar year 1921 in the amount of $1,410.49 arising from the denial of personal service classification to the petitioner for such year.
FINDINGS OF FACT.
The petitioner is a Georgia corporation organized in November, 1919. It is a successor to the individual business of S. T. Weyman, who succeeded the partnership of Weyman & Connors, which was established in 1890. In 1921 it had a capital stock of $50,000, divided into 500 shares held as follows:
| Shares. | |
| S. T. Weyman | 400 |
| A. E. Chapman | 50 |
| W. B. Gibson | 50 |
At the date of organization assets of a value of $306,805.99 were turned over to the corporation for its capital stock of $50,000 and liabilities were assumed by the corporation of $256,805.97. The real estate acquired by the corporation had a value at the time paid in of $184,931.20; cash paid in amounted to $2,487; notes receivable $55,799.20; Liberty bonds $1,831.71; office furniture and fixtures $794.75. The liabilities*2085 assumed were an overdraft on the Fourth National Bank of $6,669.84; notes payable $210,050.84; accounts payable $40,086.15.
The business of the petitioner during the year 1921 consisted principally of placing loans for investors on a commission basis. Its principal client was the Penn Mutual Life Insurance Co. Its special method of placing loans for this company was as follows:
When an application for a loan was received it was presented to the lender, the Penn Mutual Life Insurance Co. That company required that a building be constructed and completed before it would place a loan upon it. Often the applicant for the loan had not constructed the building and in such case the petitioner would advance the money to the borrower or endorse the borrower's note and obtain the money from a bank in Atlanta. When the building was completed and the insurance company advanced the loan the petitioner was reimbursed or the loan at the bank was taken up. The petitioner received a commission of 5 per cent upon such loans, which commission ordinarily covered the cost of searching the title and miscellaneous charges. The loans and notes payable of the petitioner at the beginning of the*2086 taxable year were $304,665.18 and at the end *1132 of the taxable year $273,017. The petitioner employed in its business during the year 1921, $300,000 or $400,000 of borrowed money.
The petitioner was not engaged as a business in the buying and selling of real estate. It had, however, acquired at organization two apartment houses, each containing 14 apartments, and a number of rental properties which it operated during the year 1921 and from which it received an income. Its income-tax return for the year 1921 shows income from -
| Commissions, etc | $76,234.77 |
| Interest | 4,544.35 |
| Rents | 22,817.25 |
| Total income | 103,596.37 |
The return shows as deductions from gross income -
| Expenses | $35,170.01 |
| Compensation of Partners or stockholders | 34,999.96 |
| Repairs | 541.52 |
| Interest | 13,124.78 |
| Taxes | 3,548.43 |
| Bad debts | 67.01 |
| Exhaustion, wear and tear | 2,569.69 |
| Total | 90,021.40 |
| Profit from operations | 13,574.97 |
| Less loss on sale of capital assets | 1,515.53 |
| 12,059.44 |
During the year 1921 the petitioner obtained an insurance agency and conducted an insurance business in connection with its loan business.
The petitioner's balance sheets*2087 at the beginning and close of 1921 show as follows:
| ASSETS. | ||
| Jan. 1, 1921 | Dec. 31, 1921 | |
| Cash | $24,889.25 | $19,940.08 |
| Premium accounts, insurance | 6,531.88 | |
| Notes receivable from clients | 108,461.50 | 37,380.95 |
| Loans and advances to officers, employees and others | 92,008.24 | 112,927.01 |
| Fixed assets, including furniture and fixtures | 172,982.97 | 173,895.05 |
| Miscellaneous | 287.74 | |
| Total | 398,341.96 | 350,962.71 |
| LIABILITIES. | ||
| Loans and notes payable | 304,665.18 | 273,017.00 |
| Due home offices for insurance | 6,443.75 | |
| Accounts payable, officers | 4,660.20 | |
| Reserve for depreciation | 2,535.83 | 5,105.52 |
| Capital stock | 50,000.00 | 50,000.00 |
| Surplus | 41,140.95 | 11,736.24 |
| Total | 398,341.96 | 350,962.71 |
Judgment for the Commissioner.