*1826 1. A corporation fixed the salaries of officers who were substantial stockholders, at specified percentages of net sales for the current year, and each month tentatively credited to their accounts amounts computed upon an estimated current figure of sales. Amounts actually drawn and paid were charged to these accounts. By agreement amounts less than the full amounts of the fixed percentages could be withdrawn or paid periodically, and the balances due were to be paid after the current net sales for the entire year had been ascertained. Held, the full amount of salaries was not subject to their demand so as to require the application of the doctrine of constructive receipt.
2. Upon varying figures shown in corporate tax returns, corporate information returns, corporate books, oral testimony and in respondent's determination, the amount of salaries received by such officers is determined upon the salary accounts appearing in the corporation's ledger.
*615 The respondent determined deficiencies*1827 in these petitioners' income taxes as follows:
| Year | Robert K. Wehner | John S. DeHart, Jr. |
| 1923 | $921.07 | |
| 1924 | 1,835.03 | $2,604.62 |
| 1925 | 405.20 |
The petitioners originally contested these deficiencies in their entirety but at the hearing certain of the issues were abandoned, leaving only for consideration the amount of petitioners' income derived from salaries paid by the corporation of which they were both officers.
FINDINGS OF FACT.
John S. DeHart, Jr., was, prior to and including 1924, the president of the Isbell-Porter Co. Robert K. Wehner was, prior to and during 1923, 1924, and 1925, vice president and treasurer of the said company. Both were, during the taxable years in question, substantial stockholders of the said corporation. Their salaries had for many years been measured as follows: At the beginning of each year the directors resolved that the aggregate salaries of officers should be 4.7 per cent of net sales for the current year. These salaries were divided among the officers, DeHart being entitled to 1.8 per cent and Wehner 1.5 per cent. It was, however, understood that these percentages were not in their entirety to be currently paid*1828 to and received by these officers, but that the officers were to have a regular monthly and quarterly drawing account of something less than their percentage of current net sales and that subsequently when the current net sales for the entire year could be ascertained the officers should be paid the remaining unpaid amount to which they were by the percentage arrangement entitled. The corporation's accounts contained an individual salary account for each of the officers, to which was tentatively credited monthly the amounts computed upon an assumed or estimated current figure of sales. *616 Against these credits were debited the amounts actually paid to and drawn by the officers during the year.
Wehner actually received from the corporation as salary in 1923, $7,500; in 1924, $21,123.64; in 1925, $22,500. DeHart actually received in 1924 from the corporation salary of $25,348.19.
OPINION.
STERNHAGEN: The respondent, by applying the doctrine of constructive receipt, has included in the income of these petitioners for the years in question amounts in excess of those actually received as shown by the findings of fact; and from the revenue agent's report appearing in*1829 evidence the explanation for the respondent's action appears to be that, since the petitioners were officers and stockholders of the corporation and thus in control of its affairs, they were in position to elect whether or not they would receive the full amounts to which they ultimately proved to be entitled by the percentage method of measuring their salaries. This, however, leaves out of consideration the agreement clearly appearing from the evidence by which the petitioners were not to receive the amounts in excess of their drawing accounts until the net sales for the entire year to be used as the basis of the percentage computation could be definitely ascertained. This was after the close of the year. These petitioners were not in a position where they could demand and cause to be paid the full percentage amounts at their pleasure, or before the end of the year, and there is, therefore, no basis for saying that, although not actually, the amounts were constructively received.
It appears in evidence that the corporation upon its return deducted salaries of these petitioners in excess of the amounts shown by the petitioners as received. The income of the corporation, however, *1830 was computed upon an accrual basis, while that of the petitioners was, as stipulated by counsel, upon the basis of actual receipts. The inconsistency is, therefore, permissible and has no significance in the present issue. There are some inconsistencies and uncertainties in the evidence to show the amount of the salaries - the corporate tax returns, the corporate information returns, the corporate books, the oral testimony, and the respondent's determination show varying figures. In our opinion, however, the evidence justifies reliance upon the salary accounts appearing in the corporation's ledger, and the amounts stated in the foregoing findings of fact as actually received are taken from the debit side of those accounts.
The petitioner Wehner, having attacked the deficiency for 1925 upon another ground, withdrew his assignments of error as to this *617 year. The respondent, however, properly moved at the hearing to increase the deficiency for each of the years to the extent required by the findings of fact. This motion was, by reason of section 274(e) of the Revenue Act of 1926, allowed, and our findings include the amount of salary properly to be included in Wehner's*1831 income for 1925.
Judgment will be entered under Rule 50.