*3164 Salaries of officers held to have accrued as an expense for the calendar year 1921.
*835 The Commissioner determined a deficiency in income and profits tax for the calendar year 1921 in the amount of $28,675.23, of which only the amount of $16,853.02 is in controversy.
The controversy arises over the Commissioner's refusal to allow as a proper deductible expense from income portions of salaries as originally agreed on of two officers in the amount of $38,000, which it is alleged were incurred though not actually paid in 1921.
The facts were stipulated.
FINDINGS OF FACT.
Petitioner is a Pennsylvania corporation engaged in the business of spinning, mercerizing, and dyeing cotton yarns, with office and place of business at Philadelphia. Its entire capital stock during 1921 was equally owned by Robert C. Boger and Alfred Crawford. who were officers of the corporation and were actively engaged as executives, buyers, salesmen and practical mill operators.
At the annual meeting of stockholders held January 16, 1920, it was agreed that the*3165 salaries to be paid to Robert C. Boger and Alfred *836 Crawford were to aggregate $24,000 per annum each. The agreement for the performance of services and payment of salaries remained unchanged during 1920 and 1921. Both officers gave their full time and attention to the business during the year 1921.
After the taking of the annual inventory for the calendar year 1921 and on January 10, 1922, the two officers and stockholders voluntarily relinquished five-sixths of their salaries and on that date, January 10, 1922, caused to be entered as of December 30, 1921, in the minute book, the following resolution:
A meeting of the Board of Directors was held Friday, December 30th, at 2 p.m. Owing to the unsatisfactory business conditions, the officers of the corporation decided to relinquish five-sixths of their salary for the year 1921.
The motion having been carried and there being no further business to transact, the meeting adjourned.
s/ ELSIE M. WEISE,
Secretary.
During the calendar year 1921 Boger and Crawford were paid as salary only $5,000 each, which salary was reported in their returns for the calendar year 1921.
The difference between the salaries*3166 authorized by the resolution of the board of directors on January 16, 1920, and the amount paid during 1921, to wit, $38,000, was not accrued as a liability on the books of petitioner for the calendar year 1921. The difference between the salaries authorized by this resolution and the amount paid during 1921, to wit, $38,000, was not reported by Boger and Crawford in their tax returns for 1921.
The books of petitioner were kept, and its return for 1921 was filed, on the accrual basis.
OPINION.
LITTLETON: The issue is whether or not the petitioner is entitled to deduct in 1921 as an ordinary and necessary expense the full amount of officers' salaries fixed by the directors January 16, 1920, for Boger and Crawford. The original agreement provided that such salaries should aggregate $24,000 per annum each. Boger and Crawford gave their full time and attention to the business of petitioner during the year 1921, and there was no change in the agreement for the performance of services by them, or as to payment of salaries during 1920 and 1921. It does not appear when or how the salaries were to be paid, but it does appear that on January 10, 1922, the directors caused to be*3167 entered in the minute book of petitioner, as of December 30, 1921, the resolution to the effect that they each relinquished five-sixths of his salary as fixed in 1920, for the year 1921. Upon this resolution each of said officers claim that his salary for 1921 was only $4,000, but the evidence shows that each *837 actually received $5,000 as salary for 1921, which they reported in their respective individual tax returns for that year.
Section 234(a) of the Revenue Act of 1921 provides:
That in computing the net income of a corporation * * * there shall be allowed as deductions:
(1) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, * * *.
It is insisted in behalf of petitioner that salaries of these officers to the amount of $48,000 were incurred and accrued as an expense of the corporation in 1921, though only $10,000 in salaries was actually paid them; that, such salaries having been lawfully incurred and reasonable in amount, are deductible from gross income as an ordinary and necessary*3168 expense.
We are of opinion that petitioner's contention is correct. The salaries of these two officers were fixed in January, 1920, by the directors at $24,000 per annum each, and this resolution was in no wise modified until after the close of the taxable year 1921. At December 31, 1921, the salaries of these two officers had accrued and constituted a liability of the corporation. See . The mere fact that at December 31, 1921, no entry had been made upon the books accruing these salaries as an expense does not prevent the deduction thereof for that taxable year as an ordinary and necessary business expense. .
Reviewed by the Board.
Judgment will be entered under Rule 50.
LANSDON, SMITH, PHILLIPS, and ARUNDELL dissent.