93 F.2d 201 | 6th Cir. | 1937
This is a petition to review an order of the Board of Tax Appeals assessing a deficiency tax against the petitioner for the year 1928. The assessment was based on the disallowance of deductions from income for the taxable year.
The petitioner kept its books and accounts on an accrual basis. In 1912 its stockholders adopted a resolution providing that for that year and each succeeding year the president and vice presidents of the company should each be paid for his services, in addition to his regular salary, a certain percentage of any net profits earned by the company for the year in excess of those earned by it in 1911. The net profits were to consist of net earnings less, among other things, such depreciation as the board of directors should determine. It was made the duty of the treasurer of the company, at the end of the year, to ascertain the amount of the net profits according to a formula given in the resolution. In computing the net profits for the years 1912 to and including 1927, the treasurer deducted depreciation on the books of the company in greater amounts than were claimed by it or allowed by the Commissioner of Internal Revenue in its income tax returns, with the result that the net profits as shown by the books were less than the taxable net income reported. Petitioner paid extra salaries to the officers for each of those years on the basis of the depreciation charged on its books, and the Commissioner allowed the amounts so paid. In the taxable year 1928 the officers made claim against the petitioner for additional compensation computed on the basis of deductions of the lesser depreciation reported in the tax returns. After suit was threatened, the treasurer submitted the matter to the New York counsel of petitioner, who decided that the compensation should be paid. Payments were made by the treasurer in 1928, and later the board of directors ratified the action.
The order of the Board of Tax Appeals is affirmed.