*2124 The record does not furnish a basis for the determination of reasonable compensation for personal services actually rendered by officers of the corporation.
*436 The proceeding at Docket No. 18263 involves income and profits taxes for the calendar year 1920, and that at Docket No. 18262 involves similar taxes for the calendar year 1921. The cases were consolidated. The petitioner withdrew a claim for personal service classification and urged as the only error the failure of the Commissioner to allow deductions for compensation of an employee for 1920 and officers' salaries for both years.
*437 FINDINGS OF FACT.
The petitioner is a corporation with its principal office in San Francisco, Calif. It is engaged in business as a broker selling food stuffs, generally on commission. It was incorporated in 1919 and on January 1, 1920, took over the business which theretofore had been conducted by a partnership composed of Ralph E. Cotter and Charles Mel. Cotter and Mel had been successfully engaged in this business either individually or as partners since the first part of the year 1917.
*2125 The stock of the petitioner consisting of 1,000 shares of the par value of $100 per share was originally owned by Cotter and Mel equally. They allowed two shares to stand in the name of the bookkeeper in order to qualify him as the third director. Cotter has always been president and Mel vice president of the petitioner. H. B. Nowland had been employed by the partnership as a salesman on a commission basis. He remained with the petitioner. The only other employees of the petitioner were bookkeepers, stenographers and shipping clerks.
Cotter made sales for the petitioner and found goods to sell. Mel served the petitioner by selling goods, finding sources of supply, and representing one or two organizations of canners through which the petitioner might gain selling accounts.
Cotter and Mel decided to give Nowland one-fourth of the stock of the petitioner in recognition of his services. On March 10, 1921, the old certificates were canceled and new certificates were issued. Thereafter, Cotter and Mel each owned 375 shafes and Nowland owned 250 shares. After Nowland became a stockholder he was immediately made a director.
There was never any corporate action fixing*2126 salaries for Cotter, Mel, or Nowland as officers for either of the years involved herein. The man who had been employed to prepare the petitioner's tax return for the year 1920 advised the officers of the petitioner while preparing that return that they should claim that the petitioner was a personal service corporation, and to support this claim no officers' salaries should be allowed or claimed. Neither Cotter not Mel drew any amount as salary in either 1920 or 1921. Each had a drawing account through which they withdrew the following total amounts:
| 1920 | 1921 | |
| Cotter | $11,174.88 | $5,922.37 |
| Mel | 9,788.33 | 4,684.44 |
*438 Nowland also had a drawing account. This account contains the following credits under date of December 31, 1920:
| Salary Acct | $3,600 | |
| Coms. copra 1919 | $482.84 | |
| Coms. copra 1920 | 216.04 | |
| Coms. Grapes 1920 | 156.66 | 855.54 |
| Profit & Loss 1/4 Profit | 5,778.14 |
Under the same date there is a debit in this account charging back the item of salary, $3,600. The total withdrawals in this account for the year exceeded the total credits.
Nowland had some kind of an understanding with the corporation that he was to*2127 receive one-fourth of the profits for the year 1920. The $855.54 was credited to his account because he had made some sales which were not in the usual course of the petitioner's business and merited additional compensation.
The Commissioner did not allow any deduction for officers' salaries for 1920, but determined a deficiency of $4,228.63, after conputing the profits tax in accordance with the provisions of sections 327 and 328 of the Revenue Act of 1918. He determined that the petitioner's net income for 1921 was $7,302.80 and that there was a deficiency of $915.98, after computing the profits tax in accordance with the provisions of sections 327 and 328 of the Revenue Act of 1921.
OPINION.
MURDOCK: This case was submitted in Washington on the facts admitted in the pleadings and certain depositions taken in San Francisco, Calif. The petitioner contends that in the determination of the deficiencies in its income and profits taxes for the years 1920 and 1921 it has not been allowed any deduction for salaries or other compensation of its officers and it has not been allowed any deduction for salary or other compensation for Nowland, who served it in 1920 when he was not*2128 a stockholder, and in 1921 when he was a stockholder and director. It appears from the respondent's answers that he did not allow any deduction in either year for officers' salaries. Although it does not appear from the pleadings, it may be inferred from certain testimony that no deduction has been allowed for either year representing salary or other compensation for personal services actually rendered by Nowland. In 1920 he was not a stockholder, officer, or director of the petitioner but merely an employee. The record is not clear as to just what was his agreement with the corporation in regard to salary or compensation for 1920, but there is testimony to the effect that he was to receive 25 per cent of the profits for that year and $5,778.14, purporting to *439 represent one-fourth of the profits, was credited to his account on December 31, 1920. On the same date his account was credited with $855.54 representing additional compensation for certain sales outside the regular business of the petitioner. The petitioner makes no claim as to the latter. Perhaps it has been allowed. The amount of $5,778.14 represents a proper deduction under section 234(a)(1) of the Revenue*2129 Act of 1918 on either the cash receipts and disbursements or an accrual system.
Nowland was a director of the corporation during a part of 1921, but whether or not he was an officer of the corporation and as such entitled to salary or compensation for personal services actually rendered we have not been told. He served the corporation, but it may have been as an employee just as in the preceding year. We do not know how he was supposed to be compensated for his services rendered during that year. Perhaps he was an officer. There was not any authorization, accrual or payment of officers' salaries for either year. No doubt the officers of this corporation were entitled to, and the corporation incurred a liability for, reasonable compensation for the services which they rendered in each of these years, if those services were more than stockholders and directors might be expected to perform gratis. This is so even though they had no agreement with the corporation. The depositions contain expressions of opinions that $1,000 per month would have been reasonable compensation for Cotter and Mel, but these opinions are entitled to little weight in view of the other evidence and the*2130 fact that no bases for the opinions appear. We do not know how much time they gave to the business, the results which they accomplished, and many other facts which would help to show what their services were reasonably worth. If such salaries had been paid there would have been a considerable deficit for 1921. The amount of the 1920 income was not shown. We do not know the method used by the petitioner in keeping its books or rendering its returns, but assuming that an accrual system was used, we are unable to determine from the record the amount of the liability incurred which represented a reasonable allowance for salaries or other compensation for personal services actually rendered by its officers. The respondent has already granted special assessment of the profits taxes for both years under the provisions of sections 327 and 328. We can do no more than direct that a recomputation be made under Rule 50 allowing the deduction of the 1920 compensation to Nowland.
Judgment will be entered under Rule 50 for 1920. Judgment will be entered for the respondent for the year 1921.