
    Appeal of FEIST & BACHRACH, INC.
    Docket No. 1350.
    Submitted May 4, 1925.
    Decided November 6, 1925.
    Withdrawals by stockholders, held to be distributions of profits.
    
      Franhlin G. Parks and H. R. Young, Esqs., for the taxpayer.
    
      Lee I. Park, Esq., for the Commissioner.
    Before GREen, Lansdon, and Love.
    This appeal is from a determination of a deficiency in income and profits taxes for the years 1918, 1919, and 1920, in the aggregate amount of $13,606.82.
    The taxpayer assigns but one error, viz, that the Commissioner has excluded from invested capital the amount of certain obligations owing to the corporation from its stockholders, which were secured by stock of the corporation as collateral, and which were carried on the books of the corporation as “ Bills receivable — Stockholders.”
    FINDINGS OF FACT.
    The taxpayer is a Washington corporation, having its principal office at Tacoma. It has outstanding 1,000 shares of capital stock (par value $100, each), which are held as follows:
    Shares.
    Theo Feist_500
    Jos. Bachrach-249
    Irma Feist_250
    Herbert Bachrach_ 1
    Irma Feist is a sister of Theo Feist; Joseph Bachrach is a brother-in-law of Theo Feist; and Herbert Bachrach is a son of Joseph Bachrach. The business is that of a department store, was founded by Theo Feist in 1895, and was incorporated in 1906.
    The business, prior to its incorporation, was operated as a partnership, with Theo Feist, Joseph Bachrach, and Irma Feist as the partners.
    While the business was being operated as a partnership very small salaries were paid to the partners, Theo. Feist and Joseph Bachrach, and each of them, as well as Irma Feist, had an account with the store, on which cash advances and the value of merchandise obtained by them were charged.
    These accounts were carried forward into the books of the corporation when the business was incorporated. On January 1, 1909, they showed that these three persons owed the corporation the following amounts: Theo Feist, $1,265.05; Joseph Bachrach, $6,450.15; and Irma Feist, $95.50.
    The amounts of these accounts increased each succeeding year from 1909 until January 1, 1920, at which date they showed that there was owing by Theo Feist, $48,751.68; by Joseph Bachrach, $49,592.38, and by Irma Feist, $28,184.50; a total of $121,528.56, which amount was claimed by the taxpayer as additional invested capital, and, as such, disallowed by the Commissioner.
    The stock certificates belonging to each of the stockholders were kept in the safe of the corporation and in that way were in possession of the corporation; but they were not indorsed by the owners and there was no contract, written or oral, hypothecating them as collateral security for the debit accounts.
    Article Y, section 2, of the corporate by-laws of the taxpayer provides:
    
      Transfers of stock shall be made by an endorsement upon the back thereof by the holder in person or by power of attorney duly executed and filed with the' secretary of the company and by the surrender of the certificate of shares.
    None of the stockholders own property other than the corporate stock, except Joseph Bachrach, who owns his home.
    DECISION.
    The determination of the Commissioner is approved.
   OPINION.

Love:

The evidence as a whole is convincing that the stockholders, who withdrew from the business the amounts charged to them, respectively, never intended to repay them and that the withdrawals were intended to be and were distributions of profits. Appeal of Walle & Co., Ltd., 1 B. T. A. 1064.  