Illinois Tel. News Co. v. Commissioner
Opinion
*1222 Before MARQUETTE, GREEN, and LOVE.
This is an appeal from the determination of a deficiency for the calendar year 1920 in the sum of $3,261.87. The deficiency arose from the refusal of the Commissioner to classify the taxpayer as a personal service corporation.
FINDINGS OF FACT.
The taxpayer is an Illinois corporation, organized in 1916, with its principal place of business at Chicago. It had a capital stock of $200,000, divided into 2,000 shares of the par value of $100 per share.
The business of the taxpayer consisted of gathering and disseminating current financial and grain news to individual subscribers. A ticker was installed in the office of each subscriber and this ticker was connected with a master transmitter from the taxpayer's office, which sent out the same stock quotations and news items to all of its subscribers. In case the tickers were out of order by reason of storm or mechanical defects the news was sent by messenger. In some instances special news services were sent by messenger. The subscribers could not*2442 use the tickers for any other purpose. For the service and use of the tickers the taxpayer charged from $40 to $60 per month. With the exception of a small amount received from *1223 bank deposits, the taxpayer's sole source of income was from subscriptions to its service.
The taxpayer made no profit until the year 1919, at which time one G. D. Rose, formerly a minority stockholder, purchased the capital stock and reorganized the business on a successful basis. He sold small blocks of this stock to the most active employees, allowing them to pay for the same out of dividends and bonus payments. Practically all the stockholders were actively engaged in the business of the taxpayer. All the employees, with the exception of some messengers and short-time reporters, were stockholders. The amount of the stock held, the salaries, bonuses, and dividends paid, and the character of the employment of the employees for the year 1920, were as follows:
| Name. | Shares of stock. | Salary. |
| Bonus. | Dividends. | Character of employment. |
| G. D. Rose | 1,340 | $3,000.00 |
| $400.00 | $9,835.00 | Manager. |
| Stanley Suchwalko | 130 | 1,750.00 |
| 350.00 | 910.00 | Supervisor, grain and financial news. |
| Harry Grotjohann | 120 | 1,897.50 |
| 350.00 | 840.00 | Chief electrician |
| Ella Gavin | 10 | 372.00 |
| 105.00 | Statistician and relief operator. | |
| C. S. Michaels | 50 | 1,820.00 |
| 350.00 | 280.00 | Grain news editor. |
| E. L. Girard | 40 | 1,717.50 |
| 350.00 | 280.00 | Assistant electrician. |
| H. Whilevman | 150 | 600.00 |
| 50.00 | 1,050.00 | Part-time employee. |
| Chas. Brady | 50 | |
| 350.00 | Not in employ. | |
| Marie McMahon | 30 | 1,106.00 |
| 200.00 | 157.50 | Ticker operator. |
| F. W. Derby | 10 | Fees. |
| 70.00 | Local attorney. | |
| L. P. Gersch | 30 | 992.00 |
| 200.00 | 52.50 | Financial reporter. |
| H. Bairstow | 20 | 1,106.00 |
| 200.00 | 35.00 | Ticker operator. |
| S. M. Raymond | 20 | |
| 35.00 | Grain news operator. | |
| F. Schmaus | 1,120.00 | |
| 200.00 | Ticker repairman. | |
| C. Zalkowski | 1,120.00 | |
| 200.00 | Do. | |
| Edna C. Sikes | 457.00 | |
| 100.00 | Ticker operator. | |
| Laddie Hornick | 192.00 | |
| 50.00 | Messenger. | |
| T. Garrison | 420.00 | |
| Part-time reporter. | ||
| F. Summers | 180.00 | |
| Do. | ||
| A. Stewart | 180.00 | |
| Do. | ||
| Hanley Murphy | 78.00 | |
| Messenger, assistant reporter. | ||
| Fred Murphy | 40.00 | |
| G. Ryan | 40.00 | |
| U.S. Department of Agriculture. | ||
| Total | 2,000 | 18,188,00 |
| 3,000.00 | 14,000.00 |
*2443 The assets and liabilities of the taxpayer as they appear on its books as of December 31, 1919, were as follows:
| Dec. 31, 1919. | Dec. 31, 1920. | |
| ASSETS. | ||
| Cash | $1,422.29 | $2,960.91 |
| Accounts receivable | 3,570.00 | 4,275.00 |
| Supplies | 500.00 | 500.00 |
| Investments | 1,000.00 | 5,960.00 |
| Investment bonds, switchboards, tickers, generators, cables and transmitters, less depreciation | 18,375.08 | 16,832.44 |
| Furniture and fixtures | 162.25 | 121.85 |
| Franchises and good will | 180.000.00 | 180,000.00 |
| Total assets | 205.029.62 | 210,650.20 |
| LIABILITIES. | ||
| Capital stock | 200,000.00 | 200,000.00 |
| Surplus | 5,029.62 | 10,650.20 |
| Total liabilities | 205.029.62 | 210,650.20 |
*1224 A statement of the income and operating expenses of the taxpayer for the year 1920 is as follows:
| INCOME. | ||
| News Serivce - as per tax return | $58,210.49 | |
| paid by Ill. Tel. News Co. of Delaware to Ill. Co.which is a subsidiary | 2,400.00 | |
| $55,810.49 | ||
| Interest on bank deposits | 96.34 | |
| Total income | 55,906.83 | |
| OPERATING EXPENSES. | |||
| Salaries and bonus to officers and employees who are | |||
| stockholders | 16,811.99 | ||
| Other salaries and bonus | 4,377.00 | ||
| Duct rentals | 575.52 | ||
| Leased wires | 265.83 | ||
| News collection expense | $2,174.25 | ||
| 750.97 | |||
| 1,423.28 | |||
| Operating power | 527.80 | ||
| Office rent | 895.81 | ||
| Royalities on patents paid to president, who is large stockholder | 999.96 | ||
| Rentals paid to subsidiary eliminated in consolidation | $2,400.00 | ||
| Office expenses | 261.98 | ||
| Telephone and telegraph service | 225.67 | ||
| Repair parts | 3,723.27 | ||
| Paper for tickers | 1,967.34 | ||
| Taxes | 708.58 | ||
| Depreciation | 1,583.04 | ||
| Franchise fees | 1,000.00 | ||
| 35,346.08 | |||
| Net income | 20,560.75 | ||
*2444 Capital was a material income-producing factor.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.