Thurston v. Commissioner

*1269 This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1920, in the amount of $92.39. The petitioner alleges that the Commissioner erred in including in his taxable income for the year 1920 the amount of $1,806.06, as distributive share of the profits of the Bankers Audit & Appraisal Co., a personal service corporation of which he was a stockholder.

FINDINGS OF FACT.

The petitioner is an individual who resides in Chicago, Ill.

During the first three months of the year 1920, petitioner was employed as an accountant by the firm of Kirby, Auer & Kunicker, which had for several years kept in existence a corporation known as the Bankers Audit & Appraisal Co. which, however, did not engage in business.

About April 1, 1920, the Bankers Audit & Appraisal Co., having shortly theretofore engaged*3649 in business, employed petitioner as an accountant. Either in May or June, 1920, Daniels, the principal stockholder of the corporation, gave petitioner 15 shares of stock *1270 of the Bankers Audit & Appraisal Co. This stock was issued to petitioner in order that he might become one of the corporate officers and would act in accordance with the wishes of Daniels, the principal stockholder. Petitioner gave no other consideration for the stock.

During the year 1920 petitioner continued to work for the Bankers Audit & Appraisal Co. as an accountant at a regular monthly salary. He received no dividends from the corporation on the 15 shares of stock during the year 1920 or at any time subsequent thereto.

The Commissioner determined that the Bankers Audit & Appraisal Co. was, during 1920, a personal service corporation and he further determined that petitioner's distributive share of profits was $1,806.06, which amount was added to petitioner's taxable income for 1920.

OPINION.

LOVE: It is the petitioner's contention that the 15 shares of stock of the Bankers Audit & Appraisal Co. were issued to him merely for the convenience of Daniels and that inasmuch as the amount*3650 of $1,806.06, or any amount, was not received by him at any time from the corporation, he is not taxable thereon.

The petitioner does not challenge the Commissioner's determination that the Bankers Audit & Appraisal Co. was a personal service corporation. The evidence shows that he was during 1920 and subsequent thereto a record stockholder of 15 shares of the corporation's stock. Petitioner testified with respect to the acquisition of the stock in question as follows:

A. Yes, sir. They were turned over to me and I held them, but there was no money nor no consideration at all given for the stock, and Daniels stated that he turned this stock over to me and gave it to me, because he wanted me to be one of the officers, so he could run things the way he wanted to.

There is nothing in the record to indicate that he would have been unable to enforce his rights as a stockholder. Consequently, on the record we must hold that, at the close of the year 1920, petitioner was entitled to share in the undistributed net income of the corporation and, under such circumstances, he was, under the provisions of section 218(e) of the*3651 Revenue Act of 1918, required to report his respective share in his gross income.

The fact that petitioner did not receive the amount in question or any other amount, in our opinion, has no bearing on the question of tax liability for the year 1920. As far as the record shows, he was entitled to share in the net income of the corporation at the close of 1920. It is true, of course, that a loss may have been sustained later.

Judgment will be entered for the respondent.