GEM JEWELRY CO., INC.
v.
COMMISSIONER OF INTERNAL REVENUE
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The Tax Court did not err in sustaining the Commissioner's determinations regarding allowable deductions for officer compensation and the inclusion of paid-in surplus in equity invested capital.
The appeal involves income and excess profits taxes for a specific fiscal year. The Tax Court disallowed portions of salaries paid to officers and den…
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HOLMES, Circuit Judge.
This appeal involves income and excess profits taxes for the fiscal year that ended July 31, 1941. Two questions are presented: (1) Whether the Tax Court erred in sustaining the Commissioner’s determination as to the deductions allowable as compensation for services of certain officers of the petitioner1; and (2) whether said court erred in sustaining the Commissioner’s determination that the petitioner was not entitled to include in its equity invested capital the sum of $30,000, allegedly contributed as paid-in surplus. The evidence before the Tax Court consisted of the stipulation of facts agreed to by the parties, documents presented, and oral testimony.
The Tax Court disallowed portions of the salaries paid to the president and vice-president. The court correctly held that reasonableness of such compensation is a question of fact, and that, since the Commissioner’s determination was presumptively correct, it had to be overcome by credible evidence. The court was not required to accept blindly the testimony of the diamond merchant who, as an expert witness, testified that in his opinion the salaries contended for were reasonable. The determination of whether the evidence is sufficient to rebut the presumption in favor of the Commissioner’s finding is for the Tax Court as trier of the facts.2 The salaries paid were not fixed by an arm’s-length transaction, for the two Jacobs brothers controlled the corporation,3 and we agree with the Tax Court that the evidence was insufficient.
With respect to the second question, as to whether the Tax Court correctly sustained the Commissioner’s determination that the petitioner was not entitled to include for the taxable year in its equity invested capital the sum of $30,000 allegedly contributed to paid-in surplus, we conclude that the Tax Court was correct in its holding that there was insufficient evidence to overcome the presumption of correctness of the Commissioner’s determination. The Tax Court heard the evidence, and in its opinion carefully reviewed it. It was not convinced that there was any error in the Commissioner’s findings.4
The judgment of the Tax Court is affirmed.
26 U.S.C.A. Int.Rev.Code, § 23(a) (1).
Stiles v. Commissioner, 5 Cir., 69 F. 2d 951.
Crescent Bed Co., Inc., v. Commissioner, 5 Cir., 133 F. 2d 424.
Avery v. Commissioner, 5 Cir., 22 F. 2d 6, 55 A.L.R. 1277.
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Citator
Cited By (14 total)
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Heil Beauty Supplies, Inc. v. Commissioner of Internal Revenue, 199 F.2d 193 (8th Cir. 1952)
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J. H. Robinson Truck Lines, Inc. v. Commissioner of Internal Revenue, 183 F.2d 739 (5th Cir. 1950)
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Bringwald, Inc. v. The United States, 334 F.2d 639 (Ct. Cl. 1964)
Previewing 3 of 14 citing cases — full citator treatment, depth of discussion, and citing context are member features.
Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- Avery v. Commissioner of Internal Revenue, 22 F.2d 6 (5th Cir. 1927)
- Stiles v. Commissioner of Internal Revenue, 69 F.2d 951 (5th Cir. 1934)
- Crescent Bed Co., Inc. v. Commissioner of Internal Revenue, 133 F.2d 424 (5th Cir. 1943)