*1130 The petitioner owns 50 percent of the stock of A corporation. By agreement therewith he pays into such concern all the compensation received from B corporation, or which he is an officer and stockholder. Held, that the amount so paid is in the nature of a capital investment in A corporation and is income to him, taxable as and when received from B corporation.
*377 The respondent has determined deficiencies in income tax for the year 1929 in the respective amounts of $273.49 and $273.49. The only error pleaded is that the respondent erroneously included the cash value of two insurance policies in the income of A. D. Saenger for the taxable year. The two proceedings were consolidated for hearing and report. The parties filed a stipulation, which the Board accepts and adopts as its findings of fact.
FINDINGS OF FACT.
The petitioners, A. D. Saenger and Bertha H. Saenger, husband and wife, filed separate returns on the cash receipts and disbursements basis for the taxable year 1929, each reporting under the community property laws of the State*1131 of Louisiana, one half of what they considered to be their total combined net income. The returns were filed with the collector of internal revenue at New Orleans, Louisiana.
A. D. Saenger was an officer of Saenger Theatres, Inc., prior to July 1929, when all of its capital stock was acquired by the Paramount Publix Corporation. At a meeting of the board of directors of Saenger Theatres, Inc., on June 17, 1929, the following resolution was adopted:
*378 RESOLVED, That in consideration of the services rendered by the parties hereinafter mentioned and as extra compensation therefor, during their connection with this corporation, and in consideration of their agreeing to pay the future premiums thereon, accruing from and after August 1st, 1929, this corporation do assign the following named policies of life insurance in the Prudential Life Insurance Company of America to said assured or to the beneficiaries designated by them, to wit:
| E. V. Richards | Policies Nos. | 4593790-1, each | for $50,000.00 |
| J. H. Saenger | Policies Nos. | 4584388-9, each | for 50,000.00 |
| L. M. Ash | Policies Nos. | 4584386-7, each | for 50,000.00 |
| A. D. Saenger | Policies Nos. | 4597371-2, each | for 50,000.00 |
| Wm. H. Gueringer | Policies Nos. | 4594158 | for 25,000.00 |
| Wm. H. Gueringer | Policies Nos. | 4594159 | for 50,000.00 |
| E. M. Clark | Policies Nos. | 4819754 and | |
| 4841386 | for 50,000.00 |
*1132 RESOLVED, FURTHER, That J. H. Saenger, Chairman of the Board E. V. Richards, President and L. M. Ash, Vice-President, or either of them, be authorized to sign, execute and deliver said assignments and sign such other instruments or agreements as may be necessary to carry out this resolution.
The policies above referred to were on the lives of the individuals named who were officers of the Saenger Theatres, Inc.
The cash surrender value of the policies #4597371 and #4597372 on the life of A. D. Saenger was $5,725 each. The Saenger Theatres, Inc., was the original beneficiary under the policies.
These policies, at the written request of A. D. Saenger dated September 12, 1929, were assigned by Saenger Theatres, Inc., to A & J., Inc., and A. & J., Inc., was designated the new beneficiary. The effective date of the assignments was October 5, 1929.
A. & J., Inc., was incorporated in March 1927, under the laws of the State of Louisiana, taking over the partnership business of Saenger Brothers conducted by A. D. and J. H. Saenger, pursuant to a preliminary agreement dated February 28, 1927, which is filed as a documentary exhibit. The Saengers each received 7,499 shares par*1133 value $100 of the total 15,000 shares of stock issued by the corporation.
At a meeting held on March 3, 1927, there being present A. D. and J. H. Saenger and H. K. Oliphint, secretary, the following resolution was adopted:
On motion of Mr. A. D. Saenger, duly seconded, a resolution was unanimously carried to the effect that the charter so prepared was satisfactory, and that same be adopted and signed as a charter of A. & J., Inc., to take the place of, as the universal successor to the firm of Saenger Brothers, with the exception that the individual members of the firm of Saenger Bros. should retain each his common stock in Saenger Theatres, Inc., and with the agreement on the part of the individual members of Saenger Bros. that all earnings of every character accruing or paid to such member by any individual, firm or corporation for any services rendered by him should be the property of A. & J., Inc., in the same manner and to the same extent as were such earnings the *379 property of the partnership prior to the formation of the corporation; it being understood that J. H. Saenger and A. D. Saenger were under obligation to the corporation for a period of ten years from*1134 this date to devote each his entire time to the affairs of the said corporation and that all of his earnings of every character should belong thereto.
The petitioners reported no portion of the cash surrender value of such policies as taxable income for the year 1929. The Commissioner in the deficiency notice to the petitioners has added to the net income reported by each $5,725 representing one half of the total cash surrender value of the policies so assigned by the Saenger Theatres, Inc.
The Saenger Theatres, Inc., in its income tax return for the calendar year 1929 deducted as an expense, representing additional compensation of officers, an amount equivalent to the total cash surrender value of the policies so assigned. The deduction so claimed was allowed by the Commissioner as an ordinary and necessary business expense incurred by the Saenger Theatres, Inc., during the year 1929.
The amounts of the cash surrender value of the policies were not included as income in the income tax return filed by A. & J., Inc., for the calendar year 1929.
OPINION.
LANSDON: In the circumstances set out in our findings of fact we are of the opinion that the cash value of the two*1135 insurance policies paid to A. D. Saenger in the taxable year as additional compensation for services rendered to Saenger Theatres, Inc., was income to Saenger in that year. The terms of the partnership agreement between the Saenger brothers have no bearing on this issue. Upon the organization of A. & J., Inc., petitioner A. D. Saenger transferred to that enterprise all his interest in Saenger Brothers partnership and, in addition, agreed to pay to such corporation the full amount of all salaries and fees received as compensation for services rendered to others and received 7,499 shares of the capital stock of the corporation which had a par value of $100 per share in consideration of such transfer and agreement. In these circumstances it is obvious that any amounts which Saenger later paid to the corporation in conformity with his agreement must be regarded as additional capital contributions to the corporation.
On brief petitioner relies on . Since Muir was not a stockholder of the concern which received his salary by virtue of agreement to that effect, that proceeding varies so widely as to its facts that it has no bearing on the*1136 issue in this controversy.
Decision will be entered for the respondent.