Cultivator Publishing Co. v. Commissioner

This appeal involves a deficiency in income and profits taxes for the calendar year 1920 and is based on the disallowance by the Commissioner of a deduction claimed as representing a salary payment to one of its officers in that year.

FINDINGS OF FACT.

1. The taxpayer is a California corporation with its principal place of business at Los Angeles.

*5172. It was- organized in 1908 with a capital stock of $40,000, divided into 800 shares of a par value of $50 each. Frank H. Thomas and It. M. Teague each owned 399 shares, or all but 2 qualifying shares. The business of the taxpayer was managed by Thomas, who in 1920 was president and general manager. Teague gave little or no time to the business. Thomas drew a salary of $200 per month until about 1912 when his salary was increased to $250 per month and about 1919 it was again increased to $300 per month.

3. In April, 1920, Thomas sold his stock to employees of the taxpayer and withdrew from the business. On April 21, 1920, the taxpayer paid Thomas $6,839.33, which was recorded in the taxpayer’s ledger as a debit to the personal account of Thomas. During 1920 and until the time of his retirement from the business the taxpayer paid Thomas a salary, which, added to the amount paid him on April 21, amounted to $8,229.06. This entire amount was claimed as a deduction in the return filed for 1920 as representing compensation of officers. The amount of $6,839.33 was disallowed by the Commissioner. No satisfactory evidence was offered as to the purpose of such payment.

DECISION.

The determination of the Commissioner is approved.