
    Old Colony Trust Co., and Cornelius A. Wood, Executors of the Will of William M. Wood, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 6508.
    Promulgated July 13, 1927.
    The amount of State and Federal income tax paid by a corporation upon the income of its president, was income to him in the year in which paid.
    
      James Craig Peacock, Esq., and Arthwr A. Badlcmtine, Esq., for the petitioners.
    
      Arthur H. Murray, Esq., for the respondent.
    
      The Commissioner determined a deficiency in income tax against William M. Wood, in the amount of $854/181.93 for the calendar year 1919, and $350,837.14 for the calendar year 1920. The executors of his estate claim that these deficiencies are erroneous in so far as they relate to the holding of the Commissioner that the amount of State and Federal income tax paid by the American Woolen Co. upon a certain portion of Wood’s income for the years 1918 and 1919 constituted income to him in the year in which paid by the corporation. The facts are found as stipulated.
    FINDINGS OF FACT.
    William M. Wood was, prior to his death, an inhabitant of Massachusetts, and was such inhabitant during 1919 and 1920, the taxable tvars here involved.
    The returns of William M. Wood for the years 1918 to 1920, inclusive, were made to the collector of internal revenue at Boston, Mass. During 1918, 1919, and 1920 and at the time the returns of income for those years ivere made, William M. Wood was president of the American Woolen Co. After his death his will was duty approved and allowed in the probate court in the County of Essex, at Lawrence, in the Commonwealth of Massachusetts, and the Old Colony Trust Co. of Boston, Mass., and Cornelius A. Wood were duly appointed by said court and qualified and are now acting as the executors of said will.
    In 1918 William M. Wood received as salary and commissions from the American Woolen Co. the amount of $978,725, which amount was included in his original return of income for 1918. In 1919 he received as salary and commissions from the American Woolen Co. the amount of $548,132.87, which amount was included in his original Federal return of income for 1919. In his individual returns for 1918 and 1919 there were included other substantial items of income, the Federal income and surtaxes upon which were paid by William M. Wood out of his own personal funds in the manner hereinafter indicated. The 1918 and 1919 individual returns of Wood were made under the direction and supervision of Wheaton Kittredge, Esq. During 1919 and 1920 Kittredge was an officer and a director of the American Woolen Co.
    On August 3,1916, the board of directors of the American Woolen Co. duty adopted the following resolution, which was in effect during the years 1919 and 1920 :
    Voted, That this Company pay any and all income taxes, State and Federal, that may hereafter become due and payable upon the salaries of all the officers of the Company, including the President, William M. Wood; the Comptroller, Parry C. AViggin; the Auditor, George R. Lawton, and the following members of the staff, to witPrank IT. Carpenter, Edwin L. Heath, Samuel R. Haines and William M. Lasbury; — to the end that said persons and officers shall receive their salaries or other compensation in full without deduction on account of income taxes, State or Federal, which taxes are to be paid out of the treasury of this corporation.
    The above resolution was amended by the board of directors of the American Woolen Co. at its meeting held on March 25, 1918, as follows:
    Voted, That, referring to the vote passed by this Board on August 3, 1916, in reference to income taxes, State and Federal, payable upon the salaries or compensation of the officers and certain employees of this Company, the method of computing said taxes shall be as follows, viz:
    The difference between what the total amount of his tax would be, including his income from all sources, and the amount of his tax when computed upon his income excluding such compensation or salaries paid by this Company.
    Pursuant to the provisions of the resolutions quoted above, the American Woolen Co. paid personal Federal income and surtaxes for its president, William M. Wood, now deceased, by reason of salary and commissions paid to him by such company as follows:
    Taxes for 1918 paid in 1919_$681,169.88
    Taxes .for 1919 paid in 1920_ 351,179. 27
    William M. Wood did not include these amounts, or any part thereof, in his returns of income for the years 1919 and 1920. His books were kept and his returns made on the cash receipts and disbursements basis. In the Commissioner’s final determination, the amount of $681,169.88 was included in the petitioner’s 1919 income and the amount of $351,179.27 was included in taxpayer’s 1920 income.
    The Federal income and surtaxes upon the salary and commissions, mentioned above, were paid by the American Woolen Co. in 1919 and 1920 by bank cashier’s checks or drafts, made payable to the order of the collector of internal revenue for the Massachusetts district. The balance of the Federal income and surtaxes shown by the 1918 and 1919 individual returns of William M. Wood to be due were paid by his personal checks or by cashier’s checks or drafts purchased by him, drawn to the order of the collector of internal revenue. The checks and drafts purchased by the American Woolen Co. and made payable to the collector of internal revenue and the checks or drafts drawn by or purchased by William Wood were given to Wheaton Kittredge, Esq., mentioned above, who delivered all of such checks and drafts to the collector of internal revenue for the Massachusetts district.
    The 1918 tax on the salary and commissions of William M. Wood, paid in 1919 by the American Woolen Co., was in four payments and entered on the books of the company, as follows:
    
      Journal F. 46 Mar. 31, 1919 (In accordance with vote of Directors, August 3, 1916) :•
    General Expenses_$130, 000. 00
    Cash___$130,000.00
    Journal F. 77 June 30, 1919 (Taxes ,W. M. W. — with interest.
    See vote of Directors on August. 3, 1916) :
    General Expenses_$175, 584.94
    Cash_$175,584.94
    Journal F. 106 Sept. 30, 1919 (See Vote of Directors, Aug. 3, 1916) :
    General Expenses_$187,792.47
    Gash_$187,792.47
    Journal F. 129 Dec. 31, 1919 (Employees’ Taxes. See vote of Directors on August 3, 1916) :
    General Expenses_$187, 792.47
    Gash-$187,792.47
    Total payments-$681,169. 88
    In its original return of income for the year 1919, which showed, a net taxable income of $16,861,239.67, the American Woolen Co. claimed as a deduction the amount of $681,169.88, mentioned above; the item was included in “ General Expenses,” Item No. 12 of the 1919 return.
    The 1919 tax paid in 1920 by the American Woolen Co. on the salary and commissions of William M. Wood was entered on the books of the company as follows :
    1920
    Apr. 30 J. 179 General Expenses (A/c Vote of Directors)_ $87,794.82
    June 30 191 “ “ Collector of Internal Revenue— vote of Directors August 3, 1916_ 87,794. 82
    Sept. 30 J. 215 “ “ Employees’ Taxes — Vote of Directors August 3, 1916_ 87, 794.82
    Dec. 31 241 “ “ Employees’ Taxes — Vote of Directors, August 3, 1916_ 87, 794. 82
    To Gash_,_$351,179. 37
    The above entries appearing in the journal of the American Woolen Co. were carried into the general expense account in the ledger of the company and closed into profit and loss and the books closed for the year on that basis.
    The amount of $353,179.37 mentioned above, paid on the salary of William M. Wood in 1920, was not claimed as a deduction in the 1920 original income-tax return of the American Woolen Co., which return showed a net loss of $3,852,086.64; the $351,179.37 appeared in Schedule “ L ” of the 1920 corporation return as an unallowable deduction, it being part of the amount of $14,814.81 and set forth in that schedule as “ Employees’ Tax in lieu of Salary.”
   OPINION.

Littleton :

On the authority of the opinion of the Board in Providence & Worcester R. R. Co., 5 B. T. A. 1186, the action of the Commissioner in holding that the amount of tax paid by the American Woolen Co. upon the petitioner’s income was taxable income to him in the year in which paid is approved.

Reviewed by the Board.

Judgment will ~be entered for the respondent.  