228 F2d 894 City Chevrolet Company v. Commissioner of Internal Revenue

228 F.2d 894

56-1 USTC P 9229




No. 7023.

United States Court of Appeals Fourth Circuit.

Argued Jan. 6, 1956.

Decided Jan. 11, 1956.

Frederic D. Dassori, Washington, D.C. (Dee R. Bramwell, Washington, D.C., on brief), for petitioner.

C. Guy Tadlock, Atty., Dept. of Justice, Washington, D.C. (H. Brian Holland, Asst. Atty. Gen., Robert N. Anderson and A. F. Prescott, Attys., Dept. of Justice, Washington, D.C., on brief), for respondent.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.


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This is a petition to review a decision of the Tax Court relating to deductions for the year 1946 on account of personal services rendered taxpayer corporation by officers who with their wives were its sole stockholders. The facts are fully stated in the opinion of the Tax Court and need not be repeated here. Taxpayer contends that the bonus of $30,881.69 paid to each of the officers for the year 1946 in addition to salaries of $12,000 each was reasonable because provided for by a contract under which the officers were to have 50% of the net profits of the corporation in excess of 15% and that this was in effect a continuation of a contract made sometime prior thereto when the stock of the corporation was owned by others. The question is one of fact and we are not prepared to hold that the holding of the Tax Court with regard thereto was clearly wrong. A bonus contract which was reasonable as holding out an incentive to those managing the corporation when its stock was owned by others could well be held unreasonable when the managers themselves became owners of the stock and the question was, not what incentive was needed to call forth their best efforts, but what part of the earnings of the corporation could fairly be paid to them for their services as officers. See University Chevrolet Co. v. Commissioner, 16 T.C. 1452, affirmed 5 Cir., 199 F.2d 629.