*2460 1. The taxpayer was not a personal service corporation.
2. Salary deductions, as allowed by the Commissioner, approved.
*324 Before IVINS, MARQUETTE, and MORRIS.
This appeal is from a determination by the Commissioner of a deficiency in income and profits taxes for the years 1919 and 1920, amounting to $1,412.64. The issues raised are (1) whether the taxpayer was a personal service corporation, and, if not, (2) whether the entire net income for each year was deductible as salaries or compensation.
From the testimony and exhibits introduced at the hearing, the Board makes the following
FINDINGS OF FACT.
The taxpayer is a New York corporation with office located in New York City.
The taxpayer, during the years 1919 and 1920, was engaged in the business of furnishing and erecting structural steel for buildings. It had derricks, tools, etc., used in erecting structural steel which cost $7,352.15 in 1913, and on which it charged off depreciation upon its return for 1919 in the amount of $1,488.98. It had capital stock in 1919 and 1920 of $20,000, fully*2461 paid in on organization in 1914.
During the years from 1898 to 1913, inclusive, Leopold Eidlitz, Jr., and Donald Ross were associated as co-partners, engaged in the practice of their profession as civil and consulting engineers in a general engineering and structural iron and steel business. On January 7, 1914, Eidlitz and Ross, together with a third person, united in forming the taxpayer as a corporation for the purpose of continuing and carrying on the general engineering and structural iron and steel business formerly done by the co-partnership. From taxpayer was held and owned by:
| Leopold Eidlitz, Jr | 100 shares. |
| Donald Ross | 100 shares. |
Since February 28, 1920, the capital stock has been held and owned by:
| Donald Ross | 185 shares. |
| Wm. H. Higbie | 10 shares. |
| Walter J. Hatch | 5 shares. |
*325 During the period from January, 1914, through 1919, the salaries of Eidlitz and Ross, respectively, were to be equal to one-half of the annual net earnings of the taxpayer, with a drawing account against each salary of $240 per month. A portion of the resolutions read:
Resolved that the salary of Mr. Leopold Eidlitz, Jr., as President and Treasurer, *2462 for the services to be performed by him as such for this corporation * * *
Resolved that the salary of Mr. Donald Ross, as Vice-President and Secretary, for the services to be performed by him as such for this corporation * * *
Resolutions of February 28, 1920, provided for the salaries of officers for the year 1920 as follows:
| Person. | Office. | Per cent | |
| of net | |||
| earnings. | Drawing account. | ||
| Donald Ross | President-treasurer | 64.75 | $625 per month. |
| William H. Higbie | Vice president | 18.875 | $216.67 per month. |
| Walter J. Hatch | Secretary | 16.375 | $195 per month. |
The returns of the taxpayer showed:
| 1919. | 1920. | |
| Gross sales | $242,852.75 | $411,580.04 |
| Less cost of goods sold | 168,977.81 | 319,128.91 |
| 73,874.94 | 92,451.13 | |
| Income from other sources | 306.02 | 624.30 |
| 74,180.96 | 93,075.43 | |
| Ordinary and necessary expense | 46,691.98 | 54,909.81 |
| Compensation of officers | 26,000.00 | 38,165.62 |
| Depreciation | ||
| 1,488.98 | ||
| 74,180.96 | 93,075.43 | |
| Net income | None. | None. |
The salaries reported as paid in 1919 were:
Eidlitz, $13,000.
Ross, $13,000.
The Commissioner allowed $12,000 for each. The salaries reported as paid in 1920*2463 and as allowed by the Commissioner were:
| Paid. | Allowed. | |
| Leopold Eidlitz, Jr. (2 months) | $3,832.10 | $2,000 |
| Donald Ross | 23,158.25 | 18,000 |
| William H. Higbie | 5,946.29 | 5,000 |
| Walter J. Hatch | 5,228.98 | 5,000 |
| Total | 38,165.62 | 30,000 |
*326 Both Eidlitz and Ross were civil and consulting engineers of high standing and repute in their profession.
Four building operations were carried on by the taxpayer in 1919, at the aggregate contract price of $242,852.75, of which $107,512 was received on two cost-plus contracts. The balance was received on contracts obtained by competitive bidding. There were nineteen building operations in 1920, totaling $411,580.04, of which eight were on cost-plus contracts for $166,248.70. The remaining eleven were awarded as the result of competitive bidding, and totaled $245,331.34. Seventeen of the 1920 operations were for the New York Telephone Co.
By percentages, 56 per cent of the gross business in 1919 was done on a cost-plus basis, and the balance on contracts obtained by competitive bidding. In 1920, 40 per cent of the gross business was on a cost-plus basis.
The amounts received as partnership earnings, *2464 and as corporation salaries, were:
| Eidlitz. | Ross. | |
| 1905 | $17,109.87 | $9,334.93 |
| 1906 | 15,909.02 | 9,039.51 |
| 1907 | 3,581.89 | 3,101.90 |
| 1908 | 5,111.46 | 5,111.46 |
| 1909 | 9,966.09 | 9,966.09 |
| 1910 | 2,735.51 | 2,735.51 |
| 1911 | 15,448.58 | 15,448.58 |
| 1912 | 10,023.72 | 10,023.72 |
| 1913 | 2,880.00 | 2,880.00 |
| 1914 | 2,880.00 | 2,880.00 |
| 1915 | $2,880.00 | $2,880.00 |
| 1916 | 6,280.00 | 6,280.00 |
| 1917 | 14,880.00 | 14,880.00 |
| 1918 | 5,380.00 | 5,380.00 |
| 1919 | 13,000.00 | 13,000.00 |
| 1920 | 3,832.10 | 23,158.23 |
| 1921 | 10,245.04 | |
| 1922 | 8,136.43 | |
| 1923 | 16,735.02 |
The taxpayer purchased material on credit, generally 30 days, but if the foundation work on a building was not ready, necessitating the storing of material by the taxpayer, further extensions of 60 and 90 days' credit were afforded the taxpayer by the sellers of the steel and iron.
As work progressed, monthly payments were made to the taxpayer by the building owners, and in all cases the taxpayer was paid by the owner before it had to pay the bills of the steel mills.
The Commissioner determined deficiencies for the years 1919 and 1920 in the aggregate amount of $1,412.64, and from that determination the taxpayer duly appealed*2465 to this Board.
DECISION.
The determination of the Commissioner is approved.