H. Levine & Bros. v. Commissioner of Internal Revenue
| Decision Date | 09 January 1939 |
| Docket Number | No. 6614.,6614. |
| Citation | 101 F.2d 391 |
| Parties | H. LEVINE & BROS., Inc., v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Maurice Weinstein, of Milwaukee, Wis., for petitioner.
Maurice J. Mahoney, Sp. Asst. Atty. Gen., for respondent.
James W. Morris, Assistant Attorney General, and Sewall Key and Louise Foster, Special Assistants to the Attorney General, Counsel for Respondent.
Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.
This petition seeks to review a decision of the United States Board of Tax Appeals. It involves petitioner's income taxes for the fiscal year ending January 31, 1931, and presents the sole question whether there is any substantial evidence to support the Board's finding as to petitioner's permissible deductions for compensation paid to its officers during that year.
The Board found the following facts: Petitioner is a Wisconsin corporation engaged in the retail sale of ladies' ready-to-wear clothing. It was organized in 1924 as the successor of a partnership founded by Harry Levine and Ben Lewenauer in 1912. In 1931 petitioner's capital stock consisted of 1,286 shares of a par value of one hundred dollars each. Harry Levine and his wife owned 593 shares, Ben Lewenauer and his wife owned 593 shares, and Philip Levine owned 100 shares. They were brothers and were all directors, and held respectively the offices of president, treasurer and secretary of petitioner. It is their compensation which is here in question.
During the taxable year of 1931, petitioner operated two stores in Milwaukee. Ben was manager of one and Philip of the other. Harry exercised a general supervision of petitioner's entire business, managing its financial affairs, arranging all necessary loans, leases and contracts, and conferring regularly with the other two concerning the conduct of the stores.
During the same taxable year one or more of these parties were interested in and served part time in the service of the following business concerns in the vicinity of Milwaukee: Harry was a stockholder, officer, and director of the Boulevard Lane Realty Company, a corporation which owned, and was engaged in developing, Park Ridge subdivision of Milwaukee. Its stockholders were Harry, Ben and one B. T. Saltzstein. It voted salaries for 1930 to Harry and Ben in the respective amounts of $12,500 and $5,000, and claimed deduction thereof in its income tax return for that year. The salaries, however, were not paid and were not reported by the individuals in their returns.
Harry and Ben, with one Bert C. Broude, were the stockholders, directors, and officers of the Bert C. Broude Company, a corporation in charge of the sales business of the Boulevard Lane Realty Company. Harry was secretary of the sales company and spent considerable time in the evenings and on Sundays showing the properties and assisting with sales, all of which required his approval. He also appeared before the county and township boards in obtaining approval of various improvements, such as streets, sidewalks and sewers. For this service he received a salary from the Broude company of $7,500 for the calendar year of 1930, and $5,000 for the calendar year of 1931. Harry was also interested in a number of other more or less inactive corporations, for the most part real estate holding companies, one of which voted him a salary of $1,000 for the calendar year 1931, and deducted that amount in its income tax return.
In addition to having charge of one of petitioner's stores, Ben conferred regularly with Harry and Philip as to the management of the other store, and the conduct of petitioner's business generally. He also had supervision of the building program of the Boulevard Lane Realty Company, spending a portion of each day consulting with its contractors and builders. He also was interested with Harry in several other corporations, one of which voted him a salary of $1,000 for the calendar year 1930.
Philip was made assistant manager of one store in 1922; he became an officer and stockholder in 1926 or 1927; and was made manager of one of the stores in 1929, when he was about twenty-eight years of age.
During the taxable year of 1931 petitioner had about one hundred and fifty employees, some of whom were for part time. Its income tax return for that year reported $65,559.89 as compensation to employees other than officers.
The petitioner has never declared or paid any dividends up to and including the taxable year 1931, but has voted and paid salaries and bonuses to its officers for the fiscal years and in the amounts following:
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Fiscal year Harry Ben Philip
ending LeVine Lewenauer LeVine Total
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Jan. 31, 1927 ...... $21,600 $21,600 ...... $43,200
Jan. 31, 1928 ...... 12,000 12,000 ...... 24,000
Jan. 31, 1929 ...... 13,250 19,500 $11,400 44,150
Jan. 31, 1930 ...... 17,500 25,000 11,635 54,135
Jan. 31, 1931 ...... 15,000 18,500 14,000 47,500
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For the same periods petitioner's sales and profits, after deduction of officers' salaries, were as follows:
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Gross Gross Net
Fiscal year ending sales profits profits
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Jan. 31, 1927 ...... $654,609.14...To continue reading
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