*2642 Deductions on account of additional compensation to officers disallowed upon the ground that there was no obligation on the part of the corporation during the year to pay the same.
*209 This is a proceeding for the redetermination of deficiencies in income and profits taxes for the calendar years 1919, 1920, 1921, and 1922 in the amounts of $1,240.72, $1,631.91, $6,971, and $346.02, respectively. All errors assigned relating to the years other than 1921 were waived and for 1921 all of the issues were waived except that relating to the disallowance by the respondent of the deduction claimed on account of additional compensation to the officers of the corporation during that year.
FINDINGS OF FACT.
The petitioner is a corporation organized under the laws of California, with its principal office at Oakland. Its capital stock was $50,000 divided into 50,000 shares of the par value $1of each. Carrie E. Hall owned 12,250 shares; J. N. Borroughs owned 31,249 shares; 88 shares remained in the treasury; and the balance was issued to and held by others.
*2643 During 1921 Carrie E. Hall was a director, secretary, and treasurer of the corporation. She had charge of the welfare work among the girls employed by the corporation, there being about 125. She also looked after the cafeteria. She made out some of the bills for collection and undertook to collect the particularly difficult accounts. She looked after the books, signed checks which were made out by some one else, and consulted with Borroughs as to the management and conduct of the business.
Borroughs was general manager and had been since 1911. Prior to 1921 Mrs. Hall was paid a salary of $1,200 per annum. During that year she was paid a salary of $1,750. During 1921 Mrs. Hall and Borroughs informally discussed between themselves the question of raising their salaries for that year. Mrs. Hall left the matter to Borroughs to decide. Near the end of 1921 Borroughs stated that he did not know that the company was in a position at that time to pay any increased salaries but that after the books were audited and "it would justify it our salaries would both be raised."
The books were audited sometime in February, 1922, and in March, 1922, the amount of $1,750 was paid to*2644 Mrs. Hall and an undisclosed amount to Borroughs in addition to the amounts they had received as compensation for 1921.
The respondent disallowed the amount of $4,500 claimed by the petitioner in its return representing the amount paid in 1922 for services claimed as additional compensation for services in 1921, upon the ground that it appeared that no obligation to pay the same had been incurred in 1921.
*210 OPINION.
TRAMMELL: From the evidence presented there appears to have been no obligation during 1921 to pay the additional compensation which was decided upon and paid in 1922. Mrs. Hall was asked the question: "You did not know that you were going to get anything after the first of the year until in March; you did not know you were going to get anything extra? A. No. Q. And of course you did not know how much you were going to get? A. No." Mrs. Hall also testified that she had no other conversation with Borroughs about compensation after the latter part of 1921 because she "thought when the time came he would give me what he felt we could afford to pay - that he could afford to give me."
There having been no obligation created during the year 1921 to*2645 pay the additional compensation which is involved herein, in our opinion, the respondent properly disallowed the deduction claimed with respect thereto for that year.
Judgment will be entered for the respondent on 15 days' notice, under Rule 50.
Considered by MORRIS, MURDOCK, and SIEFKIN.