
    Appeal of MAXWELL BROTHERS GROCERY CO.
    Docket No. 2953.
    Submitted July 11, 1925.
    Decided October 26, 1925.
    
      B. G. Simfich, Esq., for the Commissioner.
    Before James, Littleton, Smith, and TRUssell.
   This is an appeal from the determination of a deficiency in income and profits tax for the years 1919 and 1920 in the amounts,. respectively, of $2,132.44 and $2,320.50. The taxpayer alleges error in the disallowance of deductions on account of alleged salaries of $5,000 in each of the above years.

FINDINGS OF FACT.

The taxpayer is a Tennessee corporation organized in 1904, and was during the years in question engaged in the business of selling groceries at wholesale, with its principal office at Cookeville.

In the year 1919 one G. A. Maxwell sold his stock in the taxpayer corporation to three employees — L. P. Shanks, J. H. Garlen, and J. T. Stonecipher; said stock having a par value of $16,000 out of ■ $40,000 then issued and outstanding; and thereafter at a stockholders5 meeting duly held on July 17, 1919, the following resolution was adopted:

According to an agreement of the stockholders there was to be a 100% in stock issued to each stockholder, there being sufficient surplus to cover same and pay a special dividend of 12%% on the $80,000.00. On motion of Mr. Shanks, special dividend of 12% per cent referred to in a preceding clause to be paid in following manner.
That G. A. Maxwell and L. B. Pennoek’s estate each be given credit on the hooks in the sum of $3,000.00, and that interest hearing notes he given to the other stockholders, they having requested it, as follows: L. P. Shanks, $1,500.00, J. H. Carien, $1,250.00, and J. T. Stonecipher, $1,250.00. That the same legal rate of interest be paid on the amounts due Mr. Maxwell and L. B. Pennock’s estate as on the notes.

Thereafter, on December 31, 1919, there were credited on the hooks of the taxpayer amounts under the heading “Additional salaries,” as follows:

G. A. Maxwell_$1, 500.00
L. B. Pennock- 1, 500. 00
L. P. Shanks!_ 750.00
J. H. Carien_ 625. 00
J. T. Stonecipher__ 625. 00

A like entry was made under date of July 1, 1920. Said amounts were in each case in proportion to the stockholdings of Maxwell, Shanks, Carien, and Stonecipher, and the Pennock estate, the stock of which was controlled by J. T. Moore, as executor.

The taxpayer in its returns for each of the years in question deducted as salaries the above-mentioned sums totaling $5,000. Payments were made to Maxwell and to Pennock’s estate in stock, and to Shanks, Carien, and Stonecipher in notes, with which additional stock was purchased.

DECISION.

The determination of the Commissioner is approved.  