
    Appeal of ILLINOIS TELEGRAPH NEWS CO.
    Docket No. 4443.
    Submitted October 10, 1925.
    Decided April 10, 1920.
    
      James J. O’Byrne and B. L. Jennings, Esqs., for the taxpayer.
    
      J. Arthur Adams, Esq., for the Commissioner.
    Before Marquette, Green, and Love.
    This is an appeal from the determination of a deficiency for the calendar year 1920 in the sum of $3.,261.87. The deficiency arose from the refusal of the Commissioner to classify the taxpayer as a personal service corporation.
   FINDINGS OP PACT.

The taxpayer is an Illinois corporation, organized in 1916, with its pi’incipal place of business at Chicago. It had a capital stock of $200,000, divided into 2,000 shares of the par value of $100 per share.

The business of the taxpayer consisted of gathering and disseminating current financial and grain news to individual subscribers. A ticker was installed in the office of each subscriber and this ticker was connected with a master transmitter from the taxpayer’s office, which sent out the same stock quotations and news items to all of its subscribers. In case the tickers were out of order by reason of storm or mechanical defects the news was sent by messenger. In some instances special news services were sent by messenger. The subscribers could not use the tickers for any other purpose. For the service and use of the tickers the taxpayer charged from $40 to $60 per month. With the exception of a small amount received from bank deposits, the taxpayer’s sole source of income was from 'subscriptions to its service.

The taxpayer made no profit until the year 1919, at which time one G. D. Eose, formerly a minority stockholder, purchased the capital stock and reorganized the business on a successful basis. He sold small blocks of this stock to the most active employees, allowing them to pay for the same out of dividends and bonus payments. Practically all the stockholders were actively engaged in the business of the taxpayer. All the employees, with the. exception of some messengers and short-time reporters, were stockholders. The amount of the stock held, the salaries, bonuses, and dividends paid, and the character of the employment of the employees for the year 1920, were as follows:

The assets and liabilities of the taxpayer as they appear on its books as of December 31, 1919, were as follows:

A statement of the income ’and operating expenses of the tax-paj^er for the year 1920 is as follows:

INCOME.
News Service — as per tax return_$58, 210.49
Less: Amount included which represents rental charge paid by Ill. Tel. News Oo. of Delaware to Ill. Co.
which is a subsidiary_ 2,400. 00
-- $55, 810. 49
Interest on bank deposits_'_ 96.34
OPERATING EXPENSES.
Salaries and bonus to officers and employees who are
stockholders_ 16, 811. 99
Other salaries and bonus_ 4, 377. 00
Duet rentals_ 575. 52
Leased wires_ 265. 83
News collection expense_$2,174. 25
Less: Salaries and bonus included_ 750.97
-:- 1, 423.28
Operating power_ 527. 80
Office rent_ 895. SI
Royalities on patents paid to president, who is large
stockholder-¿_’_ 999. 96
Rentals paid to subsidiary eliminated in consolidation-$2, 400. 00
Office expenses_1_ 261.98
Telephone and telegraph service_ 225. 67
Repair parts_I_ 3, 723. 27
Paper for tickers_ 1, 967.34
Taxes- * 708.58
Depreciation_ 1, 583.04
Franchise fees_ 1, 000. 00
35, 346.08
Net income_ 20, 560.75

Capital was a material income-producing factor.

Order of redetermination will be entered on 15 days’ notice, under Rule 50.  