*3264 Personal service classification denied.
*324 Income and profits taxes for the calendar year 1918 in the amount of $31,680 are in controversy. Errors alleged are the refusal of the Commissioner to grant personal service classification and assessing a tax under section 328 at an unfair and unreasonable rate in comparison with taxes of other taxpayers engaged in a similar business. By order this hearing was limited to the personal service issue. All of the facts were stipulated.
FINDINGS OF FACT.
The petitioner is a Virginia corporation with its principal office at Lynchburg, Va.
It was organized in February, 1916, with an authorized capital stock of $100,000, and as of January 1, 1918, it had $100,000 of its capital stock outstanding, all of which had been paid for. On October 5 the capitalization was reduced to $50,000, $50,000 in cash having been paid to retire $50,000 par value of the capital stock.
During the first three months of 1918, the petitioner sold coal on commission*3265 for coal-mining companies under various contracts. By these contracts the petitioner acted as selling agent for the mines and guaranteed to the mines the payment for all coal sold by it except under various circumstances described in the contracts. The contracts provided that the petitioner should remit to the mine on the 20th day of each month for all coal shipped by the mine during the preceding month. In accordance with these contracts, during these three months the petitioner made sales of coal amounting to approximately $500,000, and derived commissions of approximately $40,000 for these sales. For the remaining nine months of 1918, the petitioner acted as a coal-purchasing agent for various individuals and corporations with whom it entered into contracts. The contracts provided that the purchaser should pay the petitioner on or before the 10th day of each month for all coal shipped during the preceding month. Under these contracts for these nine months the purchases of coal made by the petitioner amounted to approximately $1,900,000 from which the petitioner derived commissions of approximately $88,000.
The accounts receivable for coal sold or purchased as shown on petitioner's*3266 books, the accounts payable due mines for said coal, and the amount advanced by the petitioner to mining companies prior to collection as at the end of each of the months during the year 1918, are shown by the following statement:
| Accounts | Accounts | Advanced | |
| receivable, | payable, | coal mine | |
| 1918 | 1918 | companies by petitioner | |
| Jan. 31 | $159,479.65 | $131,645.74 | $15,075.54 |
| Feb. 28 | 178,382.39 | 153,258.69 | 10,853.11 |
| Mar. 31 | 257,909.03 | 217,425.94 | 19,853.11 |
| Apr. 30 | 207,488.80 | 125,189.06 | 69,850.41 |
| May 31 | 206,805.06 | 191,312.14 | 3,084.62 |
| June 30 | 188,830.72 | 192,897.08 | |
| July 31 | 188,055.42 | 169,619.22 | 7,152.88 |
| Aug. 31 | 172,972.19 | 138,902.05 | 23,681.81 |
| Sept. 30 | 177,686.26 | 184,555.15 | |
| Oct. 31 | 151,688.33 | 141,279.52 | 1,307.51 |
| Nov. 30 | 247,790.06 | 181,393.06 | 51,529.60 |
| Dec. 31 | 172,200.67 | 141,706.00 | 20,162.63 |
*325 During the month of June the petitioner collected $15,396.20 in excess of the amount due coal mine companies, and during the month of September the petitioner collected $17,530.06 in excess of the amount due coal mine companies.
The petitioner's records show cash on hand at the end of December, 1917, and at the end*3267 of each of the twelve months in 1918, in the following amounts:
| Cash on hand | |
| 1917 | |
| December | $76,971.15 |
| 1918 | |
| January | 56,991.71 |
| February | 76,004.64 |
| March | 50,597.95 |
| April | 4,866.85 |
| May | 60,376.86 |
| June | $67,393.85 |
| July | 47,070.44 |
| August | 43,109.83 |
| September | 53,393.21 |
| October | 8,857.10 |
| November | 16,582.11 |
| December | 6,876.57 |
The total interest paid by the petitioner during the year 1918 amounted to $3,429.61, of which $3,290.94 was interest on money borrowed from the bank to purchase Liberty bonds in the amount of $65,000, from January 1, 1918, to October 1, 1918, and $40,000 from October 1, 1918, to December 31, 1918. The balance of the interest paid, $138.67, was interest on money borrowed for other purposes.
During the year 1918, the petitioner received interest in the amount of $4,104.78, of which $3,023.67 represented interest on Liberty bonds, $525.05 interest on money loaned to a coal-mining company for development purposes, and $556.06 interest on notes of stockholders for the purchase of stock.
The net taxable income of the petitioner for the year 1918 is $60,149.64.
The petitioner was allowed as a deduction from its income for*3268 the year 1918, $657.54 representing bad debts. These debts represented transactions entered into during the year 1917. No debts resulting from business transactions of the year 1918 have ever been charged off as worthless by the petitioner.
*326 A list of the notes receivable outstanding at the beginning of the year 1918 and notes taken during the year 1918, is as follows:
| Maker | Purpose of loan | Date | Due | Amount |
| Miss Florence L. Brown | Stock | Sept. 14, 1917 | Demand. | $133.00 |
| Miss Martha R. Fortune | Stock | Sept. 14, 1917 | Demand. | 174.50 |
| J. E. Moore Lumber Co | Sept. 27, 1917 | Dec. 29, 1917 | 962.96 | |
| J. E. Moore Lumber Co | Dec. 4, 1917 | Jan. 4, 1918 | 315.38 | |
| J. R. Morris Coal Co | For business | |||
| transacted in | ||||
| Valley Camp Coal Co | 1917. | Nov. 1, 1917 | Dec. 31, 1917 | 7,491.41 |
| Valley Camp Coal Co | Dec. 25, 1917 | Jan. 23, 1918 | 8,392.46 | |
| P. L. Hartzell | Feb. 27, 1918 | May 28, 1918 | 232.63 | |
| St. Paul Normal & | ||||
| Industrial School | Apr. 30, 1918 | May 29, 1918 | 100.00 | |
| St. Paul Normal & | ||||
| Industrial School | For business | |||
| transacted | ||||
| prior to | ||||
| Mar. 31, 1918. | Apr. 30, 1918 | June 28, 1918 | 162.07 | |
| George W. Hill | Stock | Apr. 1, 1918 | July 1, 1918 | 50.00 |
| George W. Hill | Stock | Apr. 1, 1918 | Oct. 1, 1918 | 50.00 |
| George W. Hill | Stock | Apr. 1, 1918 | Jan. 1, 1919 | 46.33 |
| J. J. Morrison | Stock | Apr. 27, 1918 | Demand. | 3,750.00 |
| Jos. Maloney | Stock | Apr. 27, 1918 | Apr. 27, 1918 | 1,500.00 |
| Sewell Valley Coal Co | Loan | May 1, 1918 | Demand. | 4,120.00 |
| Sewell Valley Coal Co | Loan | May 7, 1918 | Demand. | 9,750.00 |
| Huntington Seating Co | June 10, 1918 | July 9, 1918 | 254.95 | |
| Huntington Seating Co | June 15, 1918 | July 15, 1918 | 161.03 | |
| Sandusky Glass Mfg. Co | For business | |||
| transacted | ||||
| prior to Mar. | ||||
| 31, 1918. | July 8, 1918 | Aug. 7, 1918 | 1,614.14 | |
| J. E. Moore Lumber Co | Aug. 14, 1918 | Sept. 14, 1918 | 636.00 | |
| Huntington Seating Co | July 10, 1918 | Sept. 9, 1918 | 200.00 | |
| F. P. Umstead | Mar. 1, 1918 | Apr. 1, 1918 | 453.33 | |
| Jos. Maloney | Stock | Aug. 27, 1918 | Dec. 27, 1918 | 1,400.00 |
| Jos. Maloney | Stock | Dec. 27, 1918 | Apr. 27, 1919 | 1,350.00 |
| F. B. Miles & Son | May 15, 1918 | July 14, 1918 | 281.18 | |
| Ohio Gas Light & Coke | ||||
| Co | For business | |||
| transacted | ||||
| prior to Mar. | ||||
| 31, 1918. | July 15, 1916 | Sept. 15, 1916 | 4,311.46 | |
| Total | 48,892.03 |
*3269 During the first four months of the year 1918, the petitioner was not required to make, and did not make, any advances for freight on account of coal shipped. Beginning with the month of May, 1918, the petitioner shipped considerable coal to the lakes, coal being consigned to various pools of the Ore and Coal Exchange. Under the rules of the Ore and Coal Exchange its members were allowed credits as the coal was reported shipped from the mines and when the coal was dumped on board vessels in the lake front the member dumping the coal paid the freight on only the cars that they actually shipped. The freight on the other cars that were dumped in the petitioner's cargoes, and which were not shipped by the petitioner, was paid by other members of the Ore and Coal Exchange who had shipped the cars. The coal was handled at the lakes during the year 1918 under the above outlined plan due to the ruling of the United States Fuel Administration. The following schedule shows the amount of freight paid and the freight collected during each of the months from May to December, 1918 (where the petitioner advanced the freight prior to collection the advance was for a period ranging from five*3270 to seven days), to wit:
| Freight paid | Freight collected | |
| May | $18,173.53 | $38,076.00 |
| June | 25,714.00 | 33,074.00 |
| July | 38,621.00 | 32,464.00 |
| August | 56,357.00 | 34,334.00 |
| September | $55,818.00 | $35,131.00 |
| October | 53,801.00 | 31,524.00 |
| November | 14,262.00 | 49,282.00 |
| December | 727.00 | .78 |
*327 The balance sheet of the petitioner as at January 1, 1918, is as follows:
| ASSETS | ||||
| Current assets: | ||||
| Cash | $76,971.15 | |||
| Bills receivable | 18,469.71 | |||
| Accounts receivable | 174,295.24 | |||
| Unpaid stock subscription | 287.00 | |||
| Total current assets | $270,023.10 | |||
| Investments: | ||||
| United States Liberty bonds | 90,100.00 | |||
| Office furniture and fixtures: | ||||
| Lynchburg office | $1,300.00 | |||
| Cincinnati office | 175.00 | |||
| Total furniture and fixtures | 1,475.00 | |||
| Deferred charges: | ||||
| Cleveland office expense | $143.55 | |||
| Cincinnati office expense | 102.84 | |||
| George W. Hill expense | 17.34 | |||
| W. W. Ruby bond | 100.00 | |||
| Total deferred expense | 363.73 | |||
| Total assets | 361,961.83 | |||
| LIABILITIES | ||||
| Current liabilities: | ||||
| Bills payable | $65,000.00 | |||
| Accounts payable | 166,559.64 | |||
| Gardner and DeWitt | 9,419.99 | |||
| Freight - Island Lake | 442.26 | |||
| Total current liabilities | 241,421.89 | |||
| Deferred liabilities: | ||||
| Reserve for contingencies | $245.81 | |||
| Claim reserve | 13.31 | |||
| Total deferred liabilities | 259.12 | |||
| Total liabilities per records | 241,681.01 | |||
| Capital, surplus and net worth: | ||||
| Capital January 1, 1917 | $65,000.00 | |||
| Plus increase during 1917 | 35,000.00 | |||
| $100,000.00 | ||||
| Surplus January 1, 1917 | 9,500.90 | |||
| Add, gain | 84,779.92 | |||
| 94,280.82 | ||||
| Deduct dividends paid - | ||||
| June 15, 1917 | $39,000 | |||
| Sept. 15, 1917 | 35,000 | |||
| 74,000.00 | ||||
| Surplus December 31, 1917 | 20,280.82 | |||
| Net worth | 120,280.82 | |||
| Total liabilities, capital and | ||||
| surplus | 361,961.83 |
*3271 *328 The balance sheet of the petitioner as at December 31, 1918, is as follows:
| ASSETS | ||||
| Currents assets: | ||||
| Cash | $6,876.57 | |||
| Bills receivable | 19,152.50 | |||
| Accounts receivable | 172,200.67 | |||
| Claims against transportation | ||||
| companies | 1,364.82 | |||
| J. J. Morrison - for interest | 112.50 | |||
| Freight payments on pool | ||||
| shipments | 6,488.81 | |||
| Total current assets | $206,195.87 | |||
| Investments: | ||||
| United States Liberty bonds | 52,900.00 | |||
| Office furniture and fixtures: | ||||
| Lynchburg office | $1,800.77 | |||
| Western offices | 778.04 | |||
| $2,578.81 | ||||
| Less depreciation reserve | 607.63 | |||
| 1,971.18 | ||||
| Total | 261,067.05 | |||
| Deferred charges: | ||||
| Cleveland office expense | $268.91 | |||
| Cincinnati office expense | 95.55 | |||
| Huntington office expense | 250.00 | |||
| O. W. Gardner expense | 62.25 | |||
| Clinton DeWitt, Jr., expense | 84.96 | |||
| W. W. Ruby expense | 16.56 | |||
| George W. Hill expense | 56.75 | |||
| Total deferred charges | 834.98 | |||
| Total assets | 261,902.03 | |||
| LIABILITIES | ||||
| Current liabilities: | ||||
| Accounts payable (for coal) | $136,437.04 | |||
| Bills payable | 35,000.00 | |||
| Gardner and DeWitt (additional | ||||
| compensation) | 5,227.96 | |||
| Rent accrued (Peoples National | ||||
| Bank) | 208.00 | |||
| Total current liabilities | 176,873.00 | |||
| Reserves: | ||||
| Reserve for losses and | ||||
| adjustments | 2,166.41 | |||
| Capital and surplus: | ||||
| Capital stock January 1, 1918 | $100,000.00 | |||
| Less amount retired during year | 50,000.00 | |||
| $50,000.00 | ||||
| Surplus January 1, 1918 | 20,280.82 | |||
| Add, gain for year 1918 | 58,256.40 | |||
| 78,537.22 | ||||
| Deduct, income and | ||||
| excess-profits tax paid in 1917 | $11,204.60 | |||
| Dividends paid | 34,470.00 | |||
| 45,674.60 | ||||
| Surplus December 31, 1918 | 32,862.62 | |||
| Net worth | 82,862.62 | |||
| Total liabilities, capital and | ||||
| surplus | 261,902.03 |
*3272 *329 The following table shows the name of each stockholder and the stock holdings of each during the year 1918:
| Shares owned | Shares acquired | |
| Name of stockholder | Jan 1, 1918 | Date |
| H. P. Adams | 25 | |
| Florence Jones 1 | 2 | |
| Clinton DeWitt, jr. 1 | 215 | |
| Mrs. Clinton DeWitt, jr. 2 | Oct. 5, 1918 | 2 1/2 |
| Martha R. Fortune 1 | 3 | |
| Margaret Fortune 2 | 2 | |
| O. W. Gardner 1 | 144 | |
| C. M. Guggenheimer | 150 | |
| S. P. Halsey | 45 | |
| Richard Hancock | 37 | Apr. 2, 1918 |
| W. E. Hawks 2 | June 11, 1918 | 24 |
| George W. Hill 1 | 15 | |
| S. J. Hyman 1 | 41 | Feb. 21, 1918 |
| T. C. Jones 1 | 6 | |
| A. J. King | 41 | |
| F. T. Lee | Apr. 2, 1918 | |
| Estate of F. T. Lee 2 | July 12, 1918 | |
| Lucy N. Lee 2 | Oct. 15, 1918 | |
| B. F. Mills 1 | 75 | |
| James Morrison | 75 | |
| Joseph Maloney 1 | Apr. 27, 1918 | |
| J. J. Morrison | Apr. 27, 1918 | |
| A. B. Percy | 50 | |
| W. W. Ruby 1 | 10 | |
| Mrs. P. M. Ruby 2 | 3 | |
| W. W. Ruby, trustee 2 | 2 | |
| W. H. Ruby | 4 | Oct. 4, 1918 |
| Mrs. May Ruby 2 | 2 | |
| W. H. Ruby, trustee 2 | 1 | |
| R. C. Scott | 37 | |
| P. B. Winfree | 15 | |
| Clinton DeWitt, jr., trustee | Apr. 2, 1918 | |
| Clinton DeWitt, jr., trustee | Apr. 27, 1918 | |
| Ohio & Virginian Coal Co | Mar. 21, 1918 |
| Shares acquired | Shares sold | Shares | Average | |
| Number | Date | Number | owned | per cent of |
| Dec. 31. 1918 | total shares | |||
| held by each | ||||
| during year | ||||
| Oct. 5, 1918 | 12 1/2 | 12 1/2 | 2.5 | |
| Oct. 5, 1918 | 1 | 1 | .2 | |
| Oct. 5, 1918 | 110 | 105 | 21.38 | |
| 2 1/2 | .12 | |||
| Oct. 5, 1918 | 1 1/2 | 1 1/2 | .3 | |
| Oct. 5, 1918 | 1 | 1 | .2 | |
| Oct. 5, 1918 | 72 | 72 | 14.4 | |
| Oct. 5, 1918 | 75 | 75 | 15.0 | |
| Oct. 5, 1918 | 22 1/2 | 22 1/2 | 4.5 | |
| 13 | Oct. 5, 1918 | 25 | 25 | 4.6 |
| Oct. 5, 1918 | 12 | 12 | 1.3 | |
| Oct. 5, 1918 | 7 1/2 | 7 1/2 | 1.5 | |
| 41 | Mar. 21, 1918 | 82 | 1.24 | |
| Oct. 5, 1918 | 3 | 3 | .6 | |
| Feb. 21, 1918 | 41 | .6 | ||
| 10 | July 12, 1918 | 10 | .3 | |
| 10 | Oct. 15, 1918 | 10 | .26 | |
| 5 | 5 | .2 | ||
| Oct. 5, 1918 | 37 1/2 | 37 1/2 | 7.5 | |
| Oct. 5, 1918 | 37 1/2 | 37 1/2 | 7.5 | |
| 10 | Oct. 5, 1918 | 5 | 5 | .68 |
| 25 | Oct. 5, 1918 | 12 1/2 | 12 1/2 | 1.7 |
| Oct. 5, 1918 | 25 | 25 | 5.0 | |
| Oct. 5, 1918 | 5 | 5 | 1.0 | |
| Oct. 5, 1918 | 1 1/2 | 1 1/2 | .3 | |
| Oct. 5, 1918 | 1 | 1 | .2 | |
| 3 | Oct. 5, 1918 | 3 1/2 | 3 1/2 | .47 |
| Oct. 4, 1918 | 2 | .2 | ||
| Oct. 4, 1918 | 1 | .08 | ||
| Oct. 5, 1918 | 18 1/2 | 18 1/2 | 3.7 | |
| Oct. 5, 1918 | 7 1/2 | 7 1/2 | 1.5 | |
| 59 | Apr. 27, 1918 | 59 | ||
| 24 | June 11, 1918 | 24 | .97 | |
| 82 | Apr. 2, 1918 | 82 |
On March 21, 1918, the petitioner purchased 82 shares of its stock, paying therefor $150 per share. On April 2, 1918, the petitioner sold to F. T. Lee 10 shares at $150 per share, and to Richard Hancock 13 shares at $150 per share. On April 2, 1918, the petitioner transferred to Clinton DeWitt, Jr., as trustee for the petitioner, 59 shares of said 82 shares of Stock. On April 27, 1918, Clinton DeWitt, Jr., trustee, transferred to Joseph Maloney 10 shares at $150 per share, and to J. J. Mrrison 25 shares at $150 per share, and caused the petitioner to cancel the certificate issued to Clinton DeWitt, Jr., trustee, for said 59 shares and reissue a new certificate to said trustee for 24 shares. On June 11, 1918, Clinton DeWitt, Jr., trustee, transferred the 24 shares to W. E. Hawks at $150 per share.
Mrs. Florence Jones was employed full time as a stenographer by the petitioner and was paid $730 for her services during the year.
Martha R. Fortune was employed full time by the*3274 petitioner as stenographer and assistant bookkeeper and for the year 1918 was paid $810.
*330 T. C. Jones was employed full time by the petitioner as assistant secretary and treasurer, and auditor and bookkeeper until May 31, 1918, at which time he entered the United States Army. Following the year 1918, when he was discharged from the Army, he reentered the petitioner's employ. For the services of five months rendered by him during the year 1918 he was paid $580.
Joseph Maloney became a stockholder on April 1, 1918, and at or about the same time was placed in charge of the petitioner's office at Huntington, W. Va., where he remained for the rest of the year and was paid $1,850. Previous to April 1, 1918, he had been assistant manager of the Huntington office under S. J. Hyman, who personally compensated him for his services.
George W. Hill devoted his entire time to the petitioner's business as manager of the Cincinnati office and was paid $2,330 for the year 1918.
B. F. Mills devoted his entire time to the petitioner's business as western manager located at Cleveland, Ohio, and received $7,025.99 as compensation for the year 1918.
S. J. Hyman, for the first*3275 three months of 1918, devoted his entire time to the petitioner's business as manager of the Huntington office. During the year 1918, the petitioner paid him $10,532.69, part of which was compensation for services rendered and the remainder was reimbursement for expense incurred on behalf of the petitioner.
W. W. Ruby devoted his entire time to the petitioner's business as eastern salesman located at Lynchburg, and for the year 1918 was paid $2,330.
O. W. Gardner devoted his entire time to the petitioner's business. He was president, supervised the salesmen, and was in active charge of all the petitioner's affairs. For the year 1918 his total compensation was $8,698.
At the time that the petitioner was organized the stockholders and directors agreed that O. W. Gardner, president, and Clinton DeWitt, Jr., secretary and treasurer, should receive in addition to their salary a commission of 10 per cent of the net profits. During the year 1918, this commission was actually divided among O. W. Gardner, Clinton DeWitt, Jr., and B. F. Mills and is included in their total compensation as stated herein.
Clinton DeWitt, Jr., devoted his entire time to the petitioner's business*3276 as secretary and treasurer. He was in charge of all financial matters and assisted the president in the general management of the business. His total compensation for the year 1918 was $8,413.67. He was also an officer of three coal companies, from each of which he received a small salary.
H. P. Adams was an officer in three coal companies and treasurer of the City of Lynchburg, Va. During the year 1918, the population *331 of Lynchburg was approximately 30,000. He used his influence to have the coal companies of which he was an officer sell their coal through the petitioner during the year 1918. When in Lynchburg, he was in daily communication with the petitioner in connection with sales of the coal of his companies made through the petitioner. He was interested in the successful conduct of the petitioner's business and on various occasions gave advice relative to the disposition of coal of other companies selling through the petitioner, in which companies he was not interested. He received no compensation from the petitioner.
S. P. Halsey held large interests in various coal mines in the States of West Virginia and Kentucky. He was an officer or director of*3277 several coal companies. He was interested in real estate in Lynchburg. It was his practice to meet daily with other officers and stockholders of various coal mines in which he was interested, at which conferences a representative of the petitioner would be called in to discuss the sales of coal of such companies made through the petitioner. He was the vice president and a substantial stockholder in the Alpha Pocahontas Coal Co., located in West Virginia, and generally sold the coal of that company through any sales agency which he desired. During eight months of the year 1918 he sold this coal through the petitioner, from which sales the petitioner received commissions of approximately $14,000. Halsey received no compensation from the petitioner.
P. B. Winfree was a director of one coal company and a stockholder in four other coal companies. During 1918 he was employed at a substantial salary by the Glamorgam Pipe & Foundry Co., located at Lynchburg. At various times he gave advice to the petitioner and on several occasions advised the petitioner of persons desiring to purchase coal to whom the petitioner made sales. He received no compensation from the petitioner.
During*3278 the year 1918 the petitioner sold some of its capital stock to J. J. Morrison for the reason that he and members of his family were interested in various coal mines in the State of West Virginia, and it was thought that he might influence some of these mines to sell some of their coal to the petitioner. The petitioner sold coal during the year 1918 for some of these mines. He was paid no compensation by the petitioner, but drew a salary from the Brown, Morrison Co., Printers.
W. H. Ruby was president and general manager of a coal company in West Virginia from which he drew a salary. None of the coal of this company was sold to the petitioner during the year 1918. His brother, W. W. Ruby, was employed by the petitioner. At times he advised the petitioner where it could obtain coal. He was paid no compensation by the petitioner.
*332 A. J. King was president and general manager of four coal companies located in West Virginia, from which companies he drew salaries during the year 1918. The petitioner sold coal for three of these companies both before and after King sold his stock in the petitioner. He was paid no compensation by the petitioner.
C. M. Guggenheimer*3279 owned a large dry goods department store in Lynchburg, from which he derived a substantial income. He was also interested in various coal mines located in West Virginia, some of which he influenced to dispose of their coal through the petitioner during 1918. In company with an officer of the petitioner he made two trips to New York City during the year 1918. On the first trip he was to use his influence for the petitioner with certain coal agencies. The second trip was for the purpose of conferring with counsel in regard to the petitioner's income-tax returns. On another occasion during the year 1918 he accompanied one of the petitioner's officers to Cleveland, Ohio, for the purpose of discussing with counsel certain litigation which arose in connection with a contract under which the petitioner had sold coal prior to the year 1918. Guggenheimer maintained close contact with the officers of the petitioner and discussed with them the petitioner's business policies. During the year 1918 he had at least 150 discussions of this kind either by phone or in person. He was director and vice president of the petitioner, but received no compensation.
Richard Hancock was an officer*3280 of several coal companies in West virginia, from which he drew small salaries. He was a director of the petitioner and also of the J. R. Milliner Co. of Lynchburg. During the year 1918 he was Fuel Administrator for the United States Government at Lynchburg, Va., in which capacity he at times advised the petitioner of industries which should be furnished coal. He was in daily contact with the petitioner, discussed its business, and offered advice which he thought would benefit the petitioner. He was paid no compensation.
R. C. Scott was president of the Lynchburg Milling Co., from which he drew a salary for the year 1918. He was also a stockholder in many coal mines located in West Virginia and Kentucky. He was a director of some of these companies and was also a director of the petitioner. It was his practice to meet daily with other stockholders of coal companies in which he was interested, at which meetings a representative of the petitioner would be called in to discuss coal sales made by the petitioner for the various companies. At these conferences the business practices and affairs of the petitioner were also discussed. He received no compensation.
A. B. Percy*3281 was an attorney at law at Lynchburg. During the year 1918, he was located at Spartanburg, S.C. as a Major in the *333 United States Army. He was a stockholder in various companies some of which companies were engaged in the coal-mining business. The petitioner paid him a retainer of $300 a year as general counsel, but paid him no other compensation during the year 1918. At various times officers of the petitioner corresponded with him as to the petitioner's affairs and when he was in Lynchburg on furlough he spent a substantial portion of his time at the office of the petitioner. Following the year 1918, when he was discharged from the Army, his relations with the petitioner were resumed on the same basis as had existed at the time he entered the Army.
James Morrison was an eye, ear and throat specialist at Lynchburg, from which profession he received a substantial income. He was a stockholder in various corporations, some of which were engaged in the coal-mining business. Some of these latter disposed of their coal through the petitioner. He used his influence in causing companies engaged in the coal-mining business to dispose of their coal through the petitioner. *3282 He was in constant touch with the affairs of the petitioner. He was paid no compensation.
OPINION.
MURDOCK: Section 200 of the Revenue Act of 1918 defines a personal service corporation as one "whose income is to be ascribed primarily to the activities of the principal owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation and in which capital (whether invested or borrowed) is not a material income-producing factor * * *."
The respondent concedes that stockholders owning 48.8 per cent of the stock were themselves regularly engaged in the active conduct of the affairs of the corporation. The petitioner attempts to show that in addition to these stockholders others, whose stockholdings increase the total stockholdings to 94.8 per cent, were also regularly engaged in the active conduct of the affairs of the corporation. The contention that certain of these stockholders were so engaged is not without merit, but in regard to others as, for example, Adams, Halsey, Winfree, J. J. Morrison, W. H. Ruby, King, and Hancock, we can not find from the record that they were themselves regularly engaged in the active conduct*3283 of the affairs of the corporation.
To entitle the petitioner to personal service classification, not only must the principal stockholders be regularly engaged in the active conduct of the affairs of the corporation, but also it must appear that the income of the corporation is to be ascribed primarily to the activities of such principal owners so engaged. In other words, the classification is not supported by proof that the activities of certain stockholders are primarily responsible for the income, unless it also appears *334 that those same stockholders are themselves regularly engaged in the active conduct of the affairs of the corporation. Thus it is not convincing to have the petitioner argue that its income is primarily due to the activities or influence of certain stockholders among whom are some who, in our opinion, are not regularly engaged in the active conduct of the petitioner's business. The combination of circumstances required by the Act is not present.
The petitioner during the first three months of 1918 was a selling agent for certain mines having coal to sell. During the remaining nine months of 1918 it was a purchasing agent for certain persons and*3284 corporations desiring to purchase coal. But at all times during the year 1918 it earned its commissions by bringing together two persons, one desiring to sell and the other desiring to purchase coal. In order to do this the petitioner had to find some one with coal for sale who would allow that coal to be sold through the petitioner, and also some one desirous of purchasing coal who would permit the purchase to be made through the petitioner. We can not determine that one of these functions was any more important or was any more the source of income than the other. The petitioner attempts to show that, through the activities or influence of its principal stockholders, coal-mining companies were induced to sell their product through the petitioner, and claims that its income is to be ascribed primarily to these activities. It has made no effort to show that these same or other stockholders were active in the succeeding, but equally important step - finding purchasers for this coal. In fact, it has made no effort to show who was responsible for the sale of the coal, but asks us to take judicial notice that coal was easily sold during 1918, the difficulty being to get the coal to*3285 sell. We have no knowledge of conditions in the coal business. If such a condition existed that fact should have been proven.
The petitioner was no doubt fortunate in having a large portion of its stock held by people closely associated with coal-mining operations. Yet we can not find from the evidence the portion of the coal sold through it which was sold through it because of the activities of the stockholders. So far as we know 85 per cent or more of the coal which was sold through the petitioner during the year 1918 might have come from the mines of coal companies with which the stockholders of the petitioner had nothing whatever to do and might have been sold through the petitioner for reasons that we know nothing about. We can not determine to what the income of the petitioner for the year 1918 is to be primarily ascribed. The salesmanship or purchasing ability of nonstockholders might have been the important thing, or a favorable location, or any one of a number of different things.
*335 The petitioner relies upon the case of *3286 , reversing a decision of this Board. In our opinion that case is not authority for the various contentions of the petitioner in the present case. The facts in the two cases are quite different. The New Orleans Shipwright Co., Ltd. did practically no work for any steamship company save for those steamship companies for whom its stockholders were New Orleans agents. The court apparently considered this an important fact, necessary for its holding that the stockholders in that case were responsible for the income. As heretofore pointed out, in the present case we do not know what proportion of the total coal sold through the petitioner during the taxable year came from mines in which the petitioner's stockholders were interested or over which they exercised any influence and what proportion came from mines in which the petitioner's stockholders were not interested and over which they exercised no influence. The contention of the respondent that the petitioner is not entitled to classification as a personal service corporation is therefore sustained. We need not discuss the question of whether*3287 or not capital was an income-producing factor.
Further proceedings will be had under Rule 62(b).