*2424 1. Held that for such portions of the fiscal years ended August 31, 1917, and August 31, 1918, as fell within the calendar year 1917, the petitioner had more than a nominal capital, hence, was not entitled to have its profits tax computed under section 209 of the Revenue Act of 1917.
2. The respondent's denial of personal service classification for such portion of the fiscal year ended August 31, 1918, as fell within the calendar year 1918, approved.
*1202 This proceeding is for the redetermination of deficiencies in income and profits taxes for the fiscal years ended August 31, 1917, and August 31, 1918, in the amounts of $1,388.99 and $2,049, respectively. The petitioner also asks that refunds be "allowed" for each of the taxable periods involved.
The petition asserts error in the respondent's failure to compute its taxes for so much of the taxable periods involved as fell in the calendar year 1917, under section 209 of the Revenue Act of 1917, and for denying personal service classification for such of the taxable periods involved as fell in*2425 the calendar year 1918.
FINDINGS OF FACT.
The petitioner is a New York corporation, with its principal office at Quincy, Fla.
The petitioner was organized in 1910 by Oscar Altschul, his father, Joseph Altschul, and Lyman Baum, who held respectively, 60, 30 and 10 per cent of its total authorized capital stock amounting to $5,000. The percentages of stock ownership remained unchanged until May, 1917, when Oscar Altschul died.
*1203 At the time the petitioner was organized, the Altschuls were in bankruptcy. In return for the stock issued to them they assigned to the petitioner certain contracts which they held for the packing and sale of tobacco. The petitioner's minute books indicate that they also paid in 5,012 pounds of tobacco for the stock. Lyman Baum, who resided in New York, attended to the details of organization and was issued his stock for such services.
The business of the petitioner consisted of the packing of tobacco and its sale, principally on a commission basis. Tobacco farmers would deliver their crops to the petitioner just as it was picked in the fields. The petitioner would subject this raw tobacco to a fermentation process, then sort and*2426 grade it according to color, texture, thickness and soundness. The tobacco was then dried and baled.
When the farmers delivered their tobacco to the warehouse of the petitioner they were given a receipt stating the number of pounds received. The petitioner did not purchase tobacco. The tobacco delivered by each farmer was processed separately and that of different owners was not mixed except when small poundages left over in packing various consignments were put into standard size bales of 200 pounds.
The petitioner's usual charge for its services was 5 cents per pound and 10 per cent of the gross selling price. When tobacco was delivered to the petitioner a fraction of the packing charge, usually about 1 1/2 cents per pound, was paid by the farmer. As the petitioner's treatment of the tobacco progressed, the farmer was called upon to pay further installments of the packing charge until 5 cents per pound had been paid.
The charge of 5 cents per pound was used by the petitioner to pay its warehouse rent and labor, to purchase mats in which the tobacco was wrapped and to derive a profit for the supervision of Oscar Altschul. The annual rent of the warehouse was $1,000. *2427 The only appliances necessary in treating the tobacco were bulk platforms, bins, and chopping boards. The cost of packing mats for a crop of 40,000 pounds was approximately $125.
When the tobacco was packed the petitioner would sell it, either through solicitation by traveling salesmen, through brokers, or through submission of samples upon inquiries. The sales were made in the name of the petitioner, but entirely upon responsibility of the farmers. Sales were charged to purchasers and credited to the individual farmers. Collections were made by the petitioner and transmitted to the farmers or if a loss occurred on a sales account, the loss was charged to the individual farmer.
Tobacco in the petitioner's warehouse was insured in the name of the petitioner for the benefit of the farmers.
*1204 In 1911 Mark Munroe, a banker of Quincy, found that the health of his son, Lee Munroe, required the latter to stop working in his father's bank and find outside employment. At about the same time Mark Munroe learned that a certain tobacco farm, hereinafter referred to as the Altschul Farm, was to be offered for sale at public auction. Mark Munroe thereupon offered to furnish*2428 the money necessary to buy the Altschul Farm, provided Lee would operate it. Mark Munroe also suggested that Oscar Altschul should be made a partner with his son in the operation of the farm. The son assented to this proposal.
Mark Munroe bought the Altschul Farm and by deed of September 11, 1915, conveyed it to Lee Munroe and Oscar Altschul, as cotenants, reserving a vendor's lien for the purchase money. It was understood that Oscar Altschul would attend to the packing and sale of tobacco raised on the farm. It is desirable that a tobacco farmer have an agreement with some packer for the disposition of the crop, else he may not be able to have his tobacco processed properly or sold advantageously. Until Lee Munroe became competent to manage the farm alone, Oscar Altschul assisted him in the management.
Sometime after Lee Munroe and Oscar Altschul commenced operation of the Altschul Farm, Oscar Altschul proposed that the duties he had undertaken individually in relation to the Altschul Farm tobacco crop be assumed by his firm, the petitioner herein. Since Oscar Altschul would continue to devote his personal attention to the crop, this proposal was accepted.
Oscar Altschul*2429 thereafter caused all of the tobacco produced on the Altschul Farm to be delivered to the petitioner for packing and sale. It was agreed that the petitioner's services would be rendered to the Altschul Farm at cost and that one-half of the profits were to be paid the petitioner in lieu of the customary commissions. The petitioner did not finance the packing of the Altschul Farm crop, but drew on the partners operating that farm for such purposes.
Mark Munroe advanced money for the operation of the Altschul Farm until the cotenants were able to finance it themselves. The advancements so made and the purchase money were eventually repaid him.
Prior to August 31, 1917, the operating account of the Altschul Farm was carried in the petitioner's books. One-half of the profits of this farm was treated as income of the petitioner, but was in fact retained by Oscar Altschul. The petitioner therefore charged Oscar Altschul with the profits so retained as advances to him. The amounts of such "advances" as determined by a revenue agent were, on August 31, 1916, $29,927.12; on August 31, 1917, $39,939.92; and on August 31, 1918, $64,292.46. Subsequent to the death of Oscar Altschul*2430 in May, 1917, the "advances" were charged to his estate.
*1205 Balance sheets of the petitioner as shown in a revenue agent's report follow:
| Balance sheet as at August 31, 1916 | |||||
| Assets | Books | Amended | Liabilities | Books | Amended |
| Cash | $3,167.27 | $3,167.27 | Accounts payable | $13,512.87 | $13,512.87 |
| Accounts receivable | 19,423.85 | 19,423.85 | Bills | 17,000.00 | 17,000.00 |
| Bills receivable | 1,557.41 | 1,557.41 | Capital stock | 5,000.00 | 5,000.00 |
| Estate O. Altschul | 35,587.12 | 29,927.12 | Surplus | 51,837.55 | 46,177.55 |
| Prepaid expenses | 455.87 | 455.87 | |||
| Inventory | 27,158.90 | 27,158.90 | |||
| Totals | 87,350.42 | 81,690.42 | Totals | 87,350.42 | 81,690.42 |
| Balance sheet August 31, 1917 | |||||
| Assets | Books | Amended | Liabilities | Books | Amended |
| Cash | $18,169.10 | 18,169.90 | Account payable | $50,547.25 | $50,547.25 |
| Accounts receivable | 8,583.13 | 8,583.13 | Capital stock | 5,000.00 | 5,000.00 |
| Bills receivable | 19,715.09 | 19,715.09 | Surplus | 76,149.18 | 63,413.54 |
| Estate of O. | Reserve for | ||||
| Altschul | 52,685.56 | 39,949.92 | 1918 profits | 2,116.25 | 2,116.25 |
| Prepaid expenses | 402.00 | 402.00 | |||
| Inventory | 33,507.00 | 33,507.00 | |||
| Automobile | 750.00 | 750.00 | |||
| Totals | 133,812.68 | 121,077.04 | Totals | 133,812.68 | 121,077.04 |
| Correct total | 133,811.88 |
| Balance sheet August 31, 1918 | |||||
| Assets | Books | Amended | Liabilities | Books | Amended |
| Cash | $29,303.92 | $29,303.82 | Account payable | $27,791.35 | $27,791.35 |
| Accounts | |||||
| receivable | 5,971.39 | 5,971.39 | Accrued taxes | 160.00 | 160.00 |
| Bills | Reserved for | ||||
| receivable | 13,391.60 | 13,391.60 | income tax | 1,791.48 | 1,791.48 |
| Prepaid | |||||
| expenses | 2,340.93 | 2,340.93 | Capital stock | 75,000.00 | 75,000.00 |
| Liberty Bonds | 1,834.00 | 1,834.00 | Surplus | 21,186.18 | 12,391.37 |
| Estate of | |||||
| Oscar Altschul | 73,087.27 | 64,292.46 | |||
| Totals | 125,929.01 | 117,134.20 | 125,929.01 | 117,134.20 |
On the balance sheet at August 31, 1917, "Cash" among the asset items represents cash in bank. "Accounts receivable" represents amounts due from tobacco purchasers which, when collected, would be credited to various farmers' accounts. "Bills receivable" represent notes taken in payment for tobacco, the proceeds of which would also be credited to various farmers' accounts. The asset item "Estate of O. Altschul" represents the accumulated share of Oscar Altschul in the profits of the Altschul Farm, which as hereinbefore explained were retained by him and charged to him as advances by*2432 the petitioner.
The asset item "Prepaid expenses" relates to various expenses, possibly including warehouse rent.
The asset item "Inventory" relates to one-half the value of the tobacco from the Altschul Farm, and possibly to some tobacco from *1206 the Quincy Farm, on hand as of the date of the balance sheet and priced at the market price prevailing when such tobacco was received from the farms. The petitioner did not in fact carry an inventory of its own.
The liability item "Accounts payable," represents the amount then due the "Packing Account," i.e., the farmers, for tobacco sold for such accounts. The petitioner was liable for payment of such accounts only to the extent that it collected them from tobacco purchasers.
On the balance sheet at August 31, 1918, the asset items "Cash," "Accounts receivable," "Bills receivable," and "Estate of Oscar Altschul," refer to the same matters as have been described for similarly termed items on the balance sheet at August 31, 1917. The asset item "Prepaid expense" in the amount of $2,340.93 relates to expenses applicable to the next crop.
The liability item "Capital stock, $75,000," on the balance sheet at August 31, 1918, results*2433 from a 1,400 per cent stock dividend of November 22, 1917, by which the petitioner's capital stock was increased from $5,000 to $75,000 by a capitalization of surplus.
Between August 31, 1917, and August 31, 1918, the petitioner had engaged the services of auditors who reorganized its books. No inventory item appears on the balance sheet at August 31, 1918, because the auditors determined that no such item should appear, since the tobacco held by the petitioner was merely held for the accounts of farmers for whom the petitioner packed it. As of August 31, 1917, the auditors opened a separate set of books for the petitioner's accounts with the Altschul Farm. The farm property itself was not carried on the petitioner's books. It was understood that in the event the farm was sold the petitioner would have no interest in the proceeds.
Two types of tobacco are raised in the vicinity of Quincy. They are "wrappers" and "fillers." The tobacco packed by the petitioner was almost entirely "wrappers" and was sold in competition with low grade "Sumatra" and "Java" tobaccos grown in India. Prewar prices of tobacco packed by the petitioner ranged between $1.65 and $1.85 per pound. During*2434 1917 the American market became almost bare of competing foreign-grown tobaccos, with the result that tobacco packed by the petitioner advanced from $1.65 to $3.50 per pound.
Until his death in May, 1917, Oscar Altschul, who was an expert in the packing of tobacco, supervised the petitioner's packing, had charge of its warehouse, and assisted in sales made to such buyers as visited Quincy. Joseph Altschul assisted in the operation of the warehouse, kept books, and traveled extensively as a salesman for the petitioner. Both of the Altschuls devoted their entire time to *1207 the petitioner's business. Each drew only living expenses from the petitioner.
Lyman Baum attended to occasional business matters, including sales, for the petitioner around New York City. Baum was not paid for such services. The petitioner also sold through a tobacco broker in York County, Pennsylvania, and another in New York. During 1917 most of the tobacco was sold to brokers or manufacturers who visited the warehouse at Quincy.
Subsequent to the death of Oscar Altschul, his widow, Frieda Altschul, took an active part in the conduct of the business. The petitioner also employed a bookkeeper*2435 at certain times.
All of the warehouse labor was paid from the charge of five cents per pound made to the farmers for packing the tobacco.
In 1928 the estate of Oscar Altschul paid to the petitioner the amount herein referred to as advances to him, representing a one-half share of the profits derived from operation of the Altschul Farm. Neither Oscar Altschul nor his estate ever paid the petitioner interest upon such advances.
OPINION.
LOVE: The petitioner contends that for so much of the taxable periods involved as fell within the calendar year 1917, its profits taxes should be computed under section 209 of the Revenue Act of 1917 as a trade or business having "no invested capital or not more than a nominal capital." For the period January 1, 1918, to August 31, 1918, petitioner claims classification as a personal service corporation.
The Commissioner denied the petitioner's contentions largely on the ground that he decided that petitioner owned a one-half interest in the Altschul Farm. While we conclude from the evidence that such was not the case, yet it is shown that in the latter part of 1917 petitioner carried a large surplus including quite a considerable amount*2436 of cash. While those items may not have been deemed or treated as capital in the technical sense of that term, yet they served the same purpose as capital assets and preclude the computation of the tax under section 209 of the Revenue Act of 1917, because the petitioner had more than a nominal capital.
The claim for personal service classification for the period from January 1, 1918, to August 31, 1918, presents a somewhat different problem, and yet involving the same, together with other requirements. Section 200 of the Revenue Act of 1918 defines a personal service corporation to be, among other things, "a corporation whose income is to be ascribed primarily to the activities of the principal *1208 owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation * * *."
The Board has repeatedly held that a taxpayer must satisfy every requirement of section 200 of the Revenue Act of 1918 in order to be entitled to the benefits of that section. ; *2437 . It is therefore only necessary to look for one of these requirements at a time, and if it be not found from the evidence, the claim fails and it is unnecessary to consider whether the remaining statutory attributes are present. In the instant case, in addition to the presence of a considerable surplus, serving the purpose of capital, another requirement is wanting.
Oscar Altschul, who owned 60 per cent of the petitioner's capital stock, died in May, 1917. Thereafter his widow, Frieda Altschul, took an active part in the conduct of the petitioner's business. we have vague suggestions but no evidence that Frieda Altschul was a stockholder of the petitioner, and, that its income was primarily ascribable to her activities.
It appears that advances such as the petitioner had theretofore made to Oscar Altschul individually were, subsequent to his death, made to his estate. Upon the record it would seem that the estate of Oscar Altschul was the petitioner's principal stockholder during 1918. An estate can not render personal service as contemplated by the statute. *2438 . See also . We must approve the respondent's denial of personal service classification for so much of the petitioner's fiscal year ended August 31, 1918, as fell within the calendar year 1918.
In view of our decision in regard to the personal service feature, and the failure of petitioner to bring itself within the purview of section 209 of the Revenue Act of 1917, it is needless to consider the request to hold that petitioner is entitled to a refund.
Judgment will be entered for the respondent.