
    BOYD CONSTRUCTION COMPANY, INC. v. THE UNITED STATES
    [No. 454-69.
    Decided December 11, 1964]
    
      
      John E. McClure for plaintiff. John P. McClure on the briefs.
    
      Robert Livingston, with whom was Assistant Attorney General Louis F. Oberdorfer, for defendant. Edward 8. Smith, Lyle M. Turner, Philip R. Miller, Earl L. Hu/nting-ton, and C. Moxley Featherston were on the briefs.
    Before Cowen, Chief Judge, Laramore, Davis, and Colkns, Judges, and Whitaker, Senior Judge.
    
   Per Curiam:

This case was referred pursuant to Ride 57 (a) (which, prior to April 1, 1964, was Rule 45) to C. Murray Bernhardt, a trial commissioner of this court, with directions to make findings of fact and recommendations for conclusion of law. The commissioner has done so in a report filed June 3, 1963. Briefs were filed by both parties, exceptions to the commissioner’s report were taken by both parties, and the case was submitted to the court on oral argument by counsel. Since the court is in substantial agreement with the findings and recommendations of the trial commissioner, as hereinafter set forth, it hereby adopts the same, with minor modifications, as the basis for the judgment in this case.

Plaintiff is entitled to recover, and judgment is entered for plaintiff, with the amount of recovery to be determined pursuant to Rule 47 (c) (2).

Subsequent to the filing — on June 3, 1963 — of the commissioner’s opinion and findings of fact, the court handed down an opinion in the case of Bringwald, Inc. v. United States 167 Ct. Cl. 341, 334 F. 2d 639 (1964). The Bringwald case, like this case, involved the question of the reasonableness of certain salaries. The president of Bringwald received for the year 1953 a salary of $21,000; for 1954, $29,000; and for 1955, $26,000. These salaries were held to be excessive by the Commissioner of Internal Revenue, who allowed a salary of only $12,000 for each of the 3 years. This court concluded that an annual salary of $18,000 would not be unreasonable under that company’s financial condition. Other facts in the Brmgwald case are distinguishable from this case. For instance, the nature of the business of the two corporations was different. Bringwald, Inc., conducted a trucking business whereas Boyd Construction Company, Inc., was engaged in the construction of water and sewer lines. Clearly, plaintiff’s business is a more complex and demanding enterprise than the trucking business, and plaintiff’s officers possessed and exercised more expertise than the officers of Bringwald, Inc.

The established facts show that the officers of Boyd personally spent much more time in the development of business and in operations than did the officers of Bringwald. The gross sales of Boyd for 1954 were $134,508; in 1955, $242,562; and in 1956, $376,524. Bringwald’s gross sales for 1953 were $175,611; in 1954, $203,068; and in 1955, $224,839. In 1954 the net income of the plaintiff, after payment of taxes, was $6,916; this represented a return of 11 percent on its invested capital. The corresponding figures for 1955 were $18,196 or 22 percent; and for 1956, the year, principally involved and with which this court is now concerned, $22,492 or 22 percent. Bringwald’s net income, after payment of taxes, in 1953 was $835; this represented a return of 0.84 percent on its invested capital. The corresponding figures for 1954 were $382 or 0.38 percent; and for 1955, $5,966 or 5.92 percent. Thus, it is apparent by comparison that Bring-wald had left in those years very little profit attributable to equipment and invested capital.

Commissioner Bernhardt’s opinion, as approved by the court, with minor modifications, is as follows:

The issues in this case concern: (a) the reasonableness of the amount claimed for automobile expense by plaintiff corporation, (b) the deductibility as a business expense of union dues paid by plaintiff on 'behalf of one of the officers of the Corporation, Mr. Boyd, Jr., (c) the reasonableness of director fees paid by plaintiff to the wives of Mr. Boyd, Sr., and Mr. Boyd, Jr., (d) the reasonableness of the salary paid to another son, who owned no stock, and, finally, (e) the reasonableness of the salaries and bonuses paid to Mr. Boyd, Sr., and Mr. Boyd, Jr., who are the sole stockholders of plaintiff corporation, except for token holdings of one share to each of their wives.

The applicable code provisions involved are Section 23(a)'(l) (A) of the Internal Revenue Code of 1939 and its counterpart Section 162(a) (1) of the 1954 Code (26 U.S.C. 1952 ed., Sec. 23 and 26 U.S.C. 1958 ed., Sec. 162). Also relevant are Treasury Regulations 118, Section 39.23(a)-6 (1939 Code), and Section 1.162-7 of Treasury Regulations on Income Tax (1954 Code).

Plaintiff taxpayer is a construction company engaged in business in Hobart, Indiana. At all times involved herein plaintiff had outstanding 100 shares of stock. Vincent Boyd, Sr., owned 59 shares, his son, Vincent Boyd, Jr., owned 39 shares, and their wives, Marie and Martha, owned 1 share each.

Upon an audit of plaintiff’s income tax returns for the fiscal years ending March 31, 1954, 1955 and 1956, the Commissioner of Internal Revenue disallowed the following deductions claimed by plaintiff:

Mitomobile expense: 195h 1955 1955

(1) depreciation_$640.63 $640. 63 $640. 63

(2) insurance- 181.44 181.44 385. 11

(3) gas, oil & grease_ 300. 00 300. 00 300. 00

Union dues_ 60. 00 60. 00 60. 00

Directors fees_ 3,400.00 3,400. 00

Salaries & wages_ 9, 000. 00 7, 000. 00

Officers compensation_ 15, 000. 00

The disallowance of these deductions gave rise to an additional assessment against plaintiff of $20,403.77, including interest. These assessments were paid in full and plaintiff is now seeking a refund.

Section 162 of the Internal Revenue Code of 1954 (which does not materially vary from its predecessor Section 28(a) (1) (A) of the Internal Revenue Code of 1989) provides as follows:

(a) In general. There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
(1) A reasonable allowance for salaries or other compensation for personal services actually rendered.
(2) Traveling expenses (including the entire amount expended for meals and lodging while away from home in the pursuit of trade or business; * * *

The Commissioner disallowed 50 percent of the automobile expense claimed by plaintiff. Under Section 162 of the 1954 Code (and Section 23(a) (1) (A) of the 1939 Code), such expense is deductible where the automobile is used in furtherance of the taxpayer’s business, but automobile expense arising from personal use is not deductible. Where the automobile is used for both business and personal purposes, an allocation must be made. Leadbetter v. Commissioner, 39 BTA 629. The determination made by the Commissioner is presumed correct. Welch v. Helvering, 290 U.S. 111; Helvering v. Taylor, 293 U.S. 507. The evidence shows that the automobiles in question were used for both personal and company business, but no record was kept as to the amount of mileage for each purpose. In view thereof, it is considered that the determination by the Commissioner must stand. See Cohan v. Commissioner, 39 F. 2d 540, 543-44.

The second issue involves the deductibility of the union dues paid by plaintiff on behalf of Mr. Boyd, Jr., an officer of plaintiff corporation. The defendant takes the position that these dues paid to the Operating Engineers were a personal obligation of Mr. Boyd, Jr., and therefore not a necessary business expense incurred by plaintiff. However, the fact that the payments made to the union were a personal obligation of Mr. Boyd, Jr. (and presumably would be income to him), does not lessen the benefit which plaintiff obtained. There is evidence that there was a substantial benefit in having an officer in the corporation in the position of being able to operate the machinery and equipment which plaintiff owned. In addition Mr. Boyd, Sr., testified that considerable goodwill was engendered between the company and the union by having the company pay the union dues of all members it employed. It therefore seems clear that the union dues paid by plaintiff may be claimed as a business deduction under both Section 162 of the 1954 Code and Section 23(a) (1) (A) of the 1939 Code.

The remaining issues relate to the reasonableness of compensation paid to Martha and Marie Boyd as directors’ fees and as salary and bonuses to William Boyd, Vincent Boyd, Sr., and Vincent Boyd, Jr.

The applicable provisions of the Internal Bevenue Code (Section 162 of the 1954 Code and Section 23(a) (1) (A) of the 1939 Code) allow as deductions all “ordinary and necessary expenses” which includes “a reasonable allowance for salaries or other compensation for personal services actually rendered”. The Treasury Regulations specify that the compensation must be reasonable and in fact payment purely for services (Treas. Reg. 118 Sec. 39.23 (a)-6 andTreas. Reg. on Income Tax Sec. 1.162-7).

The test set forth by the Regulations is as follows:

(1) Any amount paid in the form of compensation, ■but not in fact as the purchase price of services, is not deductible. An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few shareholders, practically all of whom draw salaries. If in such case the salaries are in excess of those ordinarily paid for similar services, and the excessive payments correspond or bear a close relationship to the stockhold-ings of the officers or employees, it would seem likely that the salaries are not paid wholly for services rendered, but that the excessive payments are a distribution of earnings upon the stock. * * *
* * * * *
(3) In any event the allowance for the compensation paid may not exceed what is reasonable under all the circumstances. It is, in general, just to assume that reasonable and trae compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances. * * *

Whether compensation paid to officers and employees was reasonable is a factual question which must be resolved anew in each case (Irby Constr. Co. v. United States, 154 Ct. Cl. 342, 290 F. 2d 824; Gordy Tire Co. v. United States, 155 Ct. Cl. 759, 296 F. 2d 476).

'Since the members of the Boyd family were the sole stockholders in plaintiff corporation, compensation paid to the family should be subject to close scrutiny in order to insure that salaries and bonuses are not being used as a vehicle for siphoning off otherwise taxable corporate profits. (Heil Beauty Supplies v. Comm., 199 F. 2d 193, 194 (8th Cir.); Irby Constr. Co. v. United States, supra; Gordy Tire Co. v. United States, supra.)

The Government contends that the failure of the plaintiff to declare dividends is a strong indication that the salaries and bonuses paid to the Boyds represented distributions of the corporate profits. As the court said in Marble & Shattuck Chair Co. v. Comm., 39 F. 2d 393, 396 (6th Cir.):

As prosperous corporations do not usually fail to make some distribution of their profits as such to their stockholders, this omission, coupled with the fact that the distributions in question were to holders of common stock on the basis of their holdings, is very strong evidence that the payments were, and were intended to be, of profits, disguised somewhat to simulate additional compensation.

It should be noted that plaintiff company made a substantial showing of profit on invested capital after payment of the disputed director fees, salaries and bonuses. The rates of return during the taxable years 195N1956 were 11 percent, 22 percent and 22 percent. This is considerably in excess of the ratio discussed in Gordy Tire Co., supra.

Martha and Marie Boyd were each paid $1,000 per year for each of the tax years in question. The figure of $300 set by the Commissioner was totally unrealistic. Although the Government attempts to minimize their service to plaintiff, the evidence shows that one or the other would go to the office every day for a period of two to six hours. They were among the four people authorized to open the mail and did various jobs in and out of the office, including making trips to the bank, etc. They also occasionally handled company business while at home. The salary of $1,000 each seems reasonable in terms of the services which they rendered to plaintiff.

The record reveals that Mr. Boyd, Sr., plaintiff’s president, and Mr. Boyd, Jr., its vice president and secretary, were responsible for the success of plaintiff company. The owners of a business are in the best position to judge what is a reasonable salary and unless it is incompatible with the services rendered it should not be disturbed (Gordy Tire Co. v. United States, supra).

In the year in question, fiscal 1956, Mr. Boyd, Sr., and Mr. Boyd, Jr., earned $80,000 each in salaries and bonuses. This compensation is not unreasonable for a company which had gross sales of $376,524. Nor were these annual bonuses used to siphon off unexpected earnings, although it is not surprising that the amount of the bonuses was tied to the increasing success of the company.

The Commissioner unilaterally reduced the salaries of Mr. Boyd, Sr., and Mr. Boyd, Jr., to $22,500. In doing so he was unreasonable, and the presumption of correctness which attaches has been effectively rebutted by taxpayer’s evidence that the compensation paid to Mr. Boyd, Sr., and Mr. Boyd, Jr., was not unreasonable.

The salary and bonus paid to William Boyd in fiscal 1956 were also not unreasonable. During that taxable year he was paid a weekly salary of $125 (with the exception of one week when he earned $145) and a year-end bonus of $10,000. This amounts to a total compensation of $16,520. The Commissioner of Internal Eevenue disallowed $7,000 as being in excess of reasonable compensation. However, this salary seems justified in terms of the services which William Boyd rendered to the company in his capacity as vice president and assistant secretary. It is considered that the Commissioner was correct with respect to his determination that the compensation paid William Boyd in fiscal 1955 was excessive. During that fiscal year William Boyd was in the U.S. Army, and was not discharged until February 23, 1955. He worked the remaining five weeks of the fiscal year (he also worked when he was home on leave) for a weekly salary of $125, a total salary of $625. He was given a bonus of $10,000 for that year, bringing his total compensation to $10,625 for something more than five weeks employment. From the evidence presented it is difficult to conclude that this amount was paid to him solely for his services during that period, and the Commissioner’s determination that $9,000 of the $10,625 represented unreasonable compensation is considered correct. It should be noted that the amount allowed by the Commissioner of Internal Revenue, if prorated over the entire year, would be somewhat in excess of William Boyd’s annual salary for fiscal 1956. This lends support to the determination that the Commissioner was unreasonable with respect to the amount of compensation allowed William Boyd in fiscal 1956.

In summary, the amount of deduction allowed by the Commissioner with regard to automobile expenses in fiscal years 1954,1955 and 1956 was correct. The union dues paid by plaintiff in behalf of Mr. Boyd, Jr., should be allowed as a deduction. The director fees paid to Martha and Marie Boyd during fiscal years 1955 and 1956 were reasonable and the Commissioner of Internal Revenue’s decision that they were excessive was erroneous. The officers’ compensation paid to Mr. Boyd, Sr., and Mr. Boyd, Jr., in fiscal 1956 was reasonable. The Commissioner’s determination that $9,000 of $10,625 paid to William Boyd in fiscal year 1955 was excessive is considered correct, but his conclusion that $7,000 of the $16,520 paid William Boyd in fiscal 1956 was excessive is unreasonable.

Judgment will be entered in plaintiff’s favor, with the amount to be computed under Rule 47 (c) (2).

FINDINOS OF FACT

1. The plaintiff, Boyd Construction Company, Inc., is an Indiana corporation organized in 1946 with its principal place of business in Hobart, Indiana. It is in the business of constructing water and sewer lines. During relevant periods plaintiff liad outstanding 100 shares of stock, owned as follows:

Shares
Vincent Boyd, Sr_ 59
Vincent Boyd, Jr_ 39
Mrs. Vincent Boyd, Sr___ 1
Mrs. Vincent Boyd, Jr_ 1
100
2. (a) The officers of plaintiff corporation were:
Vincent Boyd, Sr. — President & Treasurer.
Vincent Boyd, Jr. — Vice President & Secretary.
William Boyd — Vice President & Assistant Secretary.
Mrs. Vincent Boyd, Jr. — Assistant Secretary.

(b) The members of the board of directors were Vincent Boyd, Sr., and Jr., and their wives.

(c) Plaintiff’s books and records were kept and its tax return was filed on the cash receipts and disbursement basis with its fiscal accounting period ending March 31 of each year.

3. (a) Upon audit of plaintiff’s income tax returns for the fiscal years ending March 31, 1954, 1955 and 1956, the Commissioner of Internal Revenue disallowed the following deductions claimed by plaintiff:

195Í 1955 1956

Depreciation expense___ _$640.63 $640.63 $939.09

Insurance expense_ __ 181.44 181.44 185.11

Gas, oil and grease___ - 300.00 300.00 300.00

union dues___-_ __ i60.00 60.00 60.00

Director fees_ ___,_ 1,400.00 1,400.00

Salaries & wages-__,_ 9, 000. 00 .7, 000. 00

Officers’ compensation___ 15, 000. 0,0

(b) As a result of the disallowance of these deductions, additional assessments were levied against plaintiff.

Tear Tam Interest Total

1954 ___ $354.62 $55.08 $409.70

1955 _ 16,022.68 ¡574.08 6,596.76

1956 _ 12, 940. 26 457. 05 13, 397. 31

20, 403. 77

(c) The additional assessments were paid in full by plaintiff on February 25, 1957 and March 26, 1957. Thereafter, plaintiff filed timely claims for refund for the three years involved. On September 25,1959, the claims for refund were formally disallowed.

4. The disallowance of the foregoing items was based on the following grounds:

(a) Depreciation expense, insurance expense and gas, oil and grease (hereafter collectively referred to as automobile expenses) were partially disallowed because the Commissioner determined that plaintiff’s automobiles were used by Mr. Boyd, Sr., and Mr. Boyd, Jr., partly for nonbusiness purposes and only 50 percent of the claimed deductions were allowable.

(b) The Commissioner determined that the $60 union dues paid by plaintiff on behalf of Mr. Boyd, Jr., was not a necessary and proper business expense.

(c)' The partial disallowance of the director fees was based on the determination that $300 each per year to Marie and Martha Boyd was reasonable compensation and the additional $700 per year paid to each of them was unreasonable.

(d) In fiscal years 1955 (after his discharge from the Army) and 1956, William Boyd was paid a weekly salary at the rate of $125 per week and a year-end bonus of $10,000 (a total salary of $10,625 in fiscal 1955 and $16,520 in fiscal 1956). The Commissioner determined that $9,000 in fiscal 1955 and $7,000 in fiscal 1956 constituted unreasonable compensation and was not allowable as a deduction by plaintiff.

(e) In fiscal 1956 Mr. Boyd, Sr., and Mr. Boyd, Jr., each received salary at the rate of $150 per week, totaling $7,800 and a year-end bonus of $22,200. The Commissioner determined that all amounts in excess of $22,500 each constituted unreasonable compensation and was not allowable as a deduction.

5. During fiscal years 1954 to 1956, plaintiff owned and operated two automobiles. One was a 1951 Chrysler which was operated by Mr. Boyd, Sr., until July 29, 1955, when plaintiff traded it in on a 1955 Lincoln. The other automobile was a 1952 Chrysler Which was operated until March 21, 1955 by Mr. Boyd, Jr., when it was traded in on a 1955 Cadillac. During the years involved, plaintiff also owned a station wagon which was used jointly by Mr. Boyd, Sr., and Mr. Boyd, Jr., for business purposes. The expense attributable to the station wagon was allowed in full by the Commissioner.

6.The following tabulation shows the automobile expense, depreciation, gas and oil (estimated by agent), and amount disallowed by the Commissioner for the tax years 1954,1955,1956:

S/MISJi Depr. Depr. Gas & Oil Boyd Jr. Boyd Sr. Estimated Insurance Total

(52 Chrysler).. $587.52 . $300.00 $187.44 $1,074.96

(51 Chrysler)-- . $693.75 300.00 175.42 1,169.17

Sub-Total.. 587.52 693.75 600.00 362.86 2,244.13

Disallowed (50% Personal). (293.76) (346.88) (300.00) (181.53) (1,122.07)

Allowable by IRS Agent. 293.76 346.87 300.00 181.43 1,122.06

8¡81}55

(52 Chrysler). 587.52 . 300.00 187.44 1,074.96

(51 Chrysler). . 693.75 300.00 175.42 1,169.17

Sub-Total.... 587.52 693.75 600.00 362.86 2,244.13

Disallowed (50% Personal). (293.76) (346.88) (300.00) (181.43) (1,122.07)

Allowable by IRS Agent. 293.76 346.87 300.00 181.43 1,122.06

S}8t}56

(55 Cadillac).. 1,099.79 . 300.00 185.11 1,584.90

(51 Chrysler & 55 Lincoln). . 780.19 300.00 185.11 1,265.30

Sub-Total__ 1,099.79 780.19 600.00 370.22 2,850.20

Disallowed (50% Personal). (549.89) (390.10) (300.00) (185.11) (1,425.10)

Allowable by IRS Agent. 549.90 390.09 300.00 185.11 1,425.10

7. Mr. Boyd, Sr., did not personally own an automobile during the tax years involved. He used the company car assigned to him for the personal transportation needs of himself and his wife, as well as for business purposes. No record was kept of the mileage put on the car for business purposes. Mr. Boyd, Sr., averaged about 3,500 miles per year during the years in question, he had a heart attack in April 1955 and did not drive extensively thereafter.

8. (a) Mr. Boyd, Jr., used the company car assigned to him for both personal transportation and business needs. He used this car to drive to and from work. During the tax years in question, Mr. Boyd, Jr., used the car for at least one pleasure trip to Florida (the round trip distance is about 2,400 miles) and made trips to Chicago for personal business.

(b) Mr. Boyd, Jr., averaged about 10,000 miles per year during the period in question. No record was kept of the mileage used for business purposes.

9. (a) Plaintiff pays the union operating dues of all of its employees, and has done so for some time. During the years 1954,1955 and 1956, plaintiff paid union dues and compensation and welfare in the following amounts: $297, $556.62 and $1,090.80.

(b) In each of the tax years involved, plaintiff paid $60 per year on behalf of Mr. Boyd, Jr., to the union. Plaintiff did 'this so that Mr. Boyd, Jr., could attend union meetings and participate therein, as well as operate certain of the machinery when necessary. Plaintiff also felt that payment of its employees’ union dues, including Mr. Boyd, Jr.’s., contributed toward the goodwill existing between plaintiff and the union.

10. Plaintiff paid Marie and Martha Boyd $1,000 each during the fiscal years 1955 and 1956 which was deducted by plaintiff as “Directors’ fees”. Of this amount, $800 each was allowed as a deduction by plaintiff.

11. Martha Boyd is the wife of Mr. Boyd, Sr. They were married in 1913. Marie Boyd is the wife of Mr. Boyd, Jr. They were directors of plaintiff corporation and attended the meetings.

12. Martha Boyd and Marie Boyd, together with their husbands, were the only people authorized to open the mail. They also answered the phone and occasionally made trips to the bank. If no one else was available, Martha or Marie would go get parts for company machinery. Either Martha or Marie went into the office every day for a period of two to six hours, although no exact record of time was kept. Occasionally, when Martha Boyd was not at the office, calls would come to her at home, which was one block from the office.

13. During the years involved, the office and office personnel of plaintiff were shared by a sister corporation, Lake George Material and Supply Corporation, which had the same shareholders, officers and directors as plaintiff. Marie and Martha Boyd received $300 each from this corporation during each of the fiscal years 1953 through 1956, which was claimed and allowed as a deduction to that corporation. Martha Boyd testified that she did not render any personal service to the sister corporation and did not know where their books were kept or their office was. Marie Boyd did not testify.

14. Plaintiff employed a full-time girl at the office. She prepared and kept the books in conjunction with a part-time accountant employed by plaintiff. This girl was paid $45 per week by plaintiff.

15. There is no evidence that Martha and Marie Boyd actively participated in directors’ meetings or that there were any directors’ meetings during the years involved.

16. William Boyd is the younger son of Vincent Boyd, Sr., and Martha Boyd. He was born September 26,1934.

17. William Boyd graduated from high school in 1951 and began working for plaintiff on a full-time basis for a salary of $50 per week. On February 24, 1953, he was inducted into the Army and released from active duty on February 23, 1955. While on leave William Boyd worked for plaintiff and was paid $1,000 on March 26, 1954.

18. After release from active duty on February 23, 1955, William Boyd returned to his full-time job with plaintiff at a salary of $125 per week, and earned during the remainder of that fiscal year $625. Likewise, during fiscal 1956, William was paid a weekly salary of $125 (with the exception of one week in August when he was paid $145).

19. In addition to his weekly salary William Boyd was paid a bonus of $10,000 in each of the fiscal years of 1955 and 1956. These bonuses were determined near the end of the year and paid by checks dated March 28,1955 and March 10, 1956, respectively.

20. (a) For the period of 19 months between the time William Boyd graduated from high school and the time he entered the service he worked as a mechanic for plaintiff. He obtained a union card as a Class B Operating Engineer. Prior to graduation from school, William worked at various jobs for the plaintiff during school vacations and after school. Mr. Boyd, Sr., testified that, because William was unmarried prior to going into the Army, he was only paid $50 per week so he wouldn’t “have big wages to throw away.” The father further stated in effect that the later salary and bonuses were considered as deferred compensation.

(b)William Boyd worked about 60 hours a week when he was employed on a full-time basis.

21. (a) Plaintiff employed only one foreman during fiscal 1955 and 1956, Harold Beals. He was paid an average of $117 per week for the last 28 weeks of the fiscal year ending March 1955. In fiscal year 1956, his total compensation was $8,278.75, including a $500 bonus.

(b) Wilbur Fritz, a mechanic, welder and equipment operator employed either directly by Mr. Boyd, Sr., or plaintiff since 1930 earned $5,838.82, $5,938.91 and $6,239.10 in fiscal years 1954-1956. He was not paid a bonus.

(c) Gerald Bowley, a truck driver, high-lift operator, and bulldozer operator, earned $6,004.69, $6,380.80 and $7,285.01 in fiscal years 1954-1956. He was paid a $200 bonus in fiscal 1955 and a $500 bonus in fiscal 1956.

(d) These men were all characterized as being good or very good workers.

22. The gross sales of the plaintiff, amounts paid as officers’ compensation to Boyd, Sr., and Boyd, Jr., and the net income before Federal income taxes (without taking into consideration the adjustments attributable to the Commissioner’s determination and rounded to nearest dollar), for the fiscal years 1948 through 1956, are as follows:

Fiscal Year Gross Sales Boyd, Sr. Net Income Before Federal Income Boyd, Jr. Taxes

1948. $98,340 . J $10,600 .. $10,384

1949. 120,774 18,050 _ 18,128

1950. 114,576 118,305 . 14,987

1951. 98,340 17,690 _ 1,154

1952. 103,755 7,800 7,800 1,038

1953. 105,053 7,800 7,800 3,946

1954. 134,508 12,000 12,000 9,880

1955. 242,562 22,500 22,500 26,383

1956 376,524 30,000 30,000 35,400

During the fiscal years 1954 through 1956, Boyd, Sr., and Boyd, Jr., received a weekly salary amounting to $7,800 each per year. The balance of the amounts paid to them by the plaintiff was in the form of year-end bonuses, vis, $4,200, $14,550, and $22,200, to each, for fiscal years 1954-1956, respectively. The determination as to how much would be paid to them as bonuses was made towards the end of the year.

23.The capital stock of the plaintiff, net income after Federal income taxes, accumulated earnings and total invested capital for fiscal years 1948 through 1956 (without taking into consideration the adjustments attributable to the Commissioner’s determination and rounded to the nearest dollar), are as follows:

Net Income After Federal Accumu- Total Capital Income lated Invested Year Stock Taxes Earnings Capital

1948..-____ $18,272 $8,096 $8,096 $26,368

1949__ 18,272 14,059 22,155 40,426

1950.... — ... 18,272 11,610 33,794 52,066

1951....... 18,272 877 34,671 52,943

1952__18,272 763 35,434 53,705

1953___ 18,272 2,762 38,196 56,467

1954_ 18,272 6,916 45,112 63,383

1955..... 18,272 18,196 63,308 81,579

1956. 18,272 22,492 85,800 103,946

24. No formal dividends have ever been declared or paid by plaintiff corporation.

25. Mr. Boyd, Sr., was bom in 1893. He began construction work in 1911 and has been in that business since then. In about 1940 he formed a partnership with his eldest son, who was then 22 years old. This partnership was the forerunner of plaintiff corporation and its business was substantially the same as at present.

26. (a) Mr. Boyd, Sr., is a qualified contracting engineer and has a 50-50 license. It has been in large measure due to his competence and diligence that plaintiff corporation has prospered.

(b) In April 1955 Mr. Boyd, Sr., had a heart attack. He returned to work for plaintiff after a two-months confinement, but restricted his activity. During the years involved, Mr. Boyd, Sr., was not engaged in the physical operation of the construction equipment.

27. Mr. Boyd, Jr., was bom in March 1918 and began to work for his father in the construction business after his graduation from high, school in 1937. He is a member of the Operating Engineers Union and is qualified on all of the equipment (about 20 pieces) owned by plaintiff, e.g., highlifts, cranes and bulldozers. Mr. Boyd, Jr.’s, work for plaintiff consisted primarily of the supervision of about 10 employees. He knows how to do drafting and read blueprints. He and his father did the estimating work on bids.

28. Both Mr. Boyd, Sr., and Mr. Boyd, Jr., received $2,400 per year from a sister corporation, Lake George Material and Supply Corporation, although apparently neither man spent much time involved in the operation of that company. These salaries were allowed as a deduction by the Commissioner of Internal Revenue.

29. The plaintiff’s business-group code number for Federal income tax reporting purposes (reflected on the first page of its returns) is 152, describing general contractors and falling under the major heading “Construction”. The following is an analysis of the receipts, net income, officers’ compensation, and invested capital of corporations in the construction industry for taxable years ending July 1953 through June 1954, July 1954 through June 1955, and July 1955 through June 1956. The sources of this information are reports prepared by the Internal Revenue Service, entitled Statistics of Income for 1953,1954 and 1955, prepared in accordance with the provisions of Section 6108 of the Internal Revenue Code of 1954 and presenting data relative to income, deductions, assets, liabilities, credits, tax liability, and dividends paid as reported on corporation income tax returns for the above-described years:

■ 195$ 195t 1955

Number of returns included in sample-20, 463 (20, 522 24,140

Average total receipts from all sources-$669, 000 $706, 300 $673, 400

Average gross receipts from operations-595, 600 576, 400 574, 700

Average total compensation of officer-20, 500 20, 900 20, 100

Average net Income-30, 200 30, 300 26, 700

Average invested capital-138, 900 146, 500 138, 700

CONCLUSION OK LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover, and judgment is entered to that effect. The amount of recovery will be determined pursuant to Rule 47 (c) (2).

In accordance with the opinion of the court and a memorandum report of the commissioner as to the amount due thereunder, it was ordered on January 29, 1965, that judgment for the plaintiff be entered for $13,529.59, with interest thereon at six percent according to law. 
      
      
         These amounts constitute the total compensation paid to officers during these years. The evidence doesnot reflect how much was paid to Boyd, Sr., and how much was paid to Boyd, Jr.
     